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New ways of raising capital

28 April 2014

2014 marks the start of a new era for New Zealand’s financial markets – an ambitious and exciting period of change for market participants and for investors. This is the fifth article in a series outlining the key changes, the impact they will have on the future of our financial markets, and the role lawyers can play in helping achieve that change. In this article we discuss new ways of raising capital in the future regime.

New regulatory framework

A key objective of the Financial Markets Conduct Act 2013 (FMC Act) is to create a more flexible regulatory framework for financial product markets in New Zealand.

Until now, some New Zealand companies have been dissuaded from public listing by the perceived cost and regulatory burden of listing on a regulated market. To address this, the FMC Act caters for a diverse range of financial product markets, taking into account the differing needs and objectives of issuers and investors.

The new financial product market regime comes into force on 1 December 2014. The changes being introduced by the new regime have the potential to:

  • facilitate the creation of growth markets that form a bridge for small and medium sized business to move from being privately held companies through to being listed on the NZSX;
  • assist in creating a fuller range of products for investors to invest in; and
  • assist in raising levels of investor confidence in capital markets, through the approval and oversight of markets with an effective and proportionate regulatory framework.

Exemptions and alternative markets

As part of its flexible and facilitative approach, the FMC Act introduces a number of exemptions from the requirement for a financial product market to be licensed. This includes exemptions:

  • for small markets, where:
    - the number of relevant transactions on the market does not exceed 100 transactions; or
    - the aggregate value of the financial products acquired under the relevant transactions on the market is less than $2 million;
  • for prescribed wholesale markets, where the investor pool is limited to wholesale investors (there are currently no prescribed wholesale markets);
  • for other prescribed markets, where, on application to the Commerce Minister, it can be shown that the cost of regulation outweighs the benefits and the principles of the FMC Act continue to be met; and
  • for providers of crowd funding and peer-to-peer lending services whose services are provided under a market services licence.

The FMC Act also allows the requirements for a particular licensed market or class of licensed market to be modified. Under this “alterative market” regime, disclosure requirements and conduct rules can be adapted to the particular market, issuers and investors involved.

The ability to tailor market requirements may also be beneficial for markets where only certain types of products are traded, such as derivatives. This approach illustrates the flexible nature of the new regime by trying to ensure that compliance costs for operators, issuers and participants are proportionate to the characteristics of the particular market.

FMA’s approach to new markets

Given the flexibility in the regulatory regime, the Financial Markets Authority (FMA) and the Ministry of Business Innovation and Employment (MBIE) will be discussing potential new markets directly with potential operators and users of those markets.

FMA must ensure that those seeking to use the new regime, be it as a market operator, a company wanting to list on a growth market, or as an investor in a company on a new market understand the scope and limits of the regime. While FMA will be flexible, there are certain regulatory benchmarks that any licensed market must meet and which FMA cannot exempt. In other words, flexibility and growth must take place within an appropriate regulatory environment.

Peer-to-peer lending and crowd funding

In addition to the financial products markets outlined above, peer-to-peer lending and crowd funding facilities will open up new investment channels for businesses who want to raise capital in New Zealand.

Since 1 April 2014 FMA has been able to issue licences to providers of crowd funding and peer-to-peer lending services. These providers will act as intermediaries between companies making offers of shares to investors (crowd funding) and between borrowers making offers of debt securities to lenders (peer-to-peer lending).

Companies offering shares, and borrowers offering debt securities through these facilities are not required to supply investors or borrowers with an investment statement/prospectus (prior to 1 December 2014) or a product disclosure statement (from 1 December), although the facility will require that some minimum disclosure is made. Subject to any limitations introduced by facilities, a company could potentially raise up to $2 million of equity and debt capital through such offers in any 12-month period.

To obtain a market services licence an applicant must meet the requirements set out in the FMC Act and the Phase 1 Regulations 2014, including minimum standards published by FMA. Information about how to apply for a licence and the details of the minimum standards can be found at www.fma.govt.nz/help-me-comply/new-licences-for-financial-market-services/.

Issuers and borrowers making offers through such facilities are not exempted from other obligations at law, for example the obligation to not engage in misleading or deceptive conduct (Part 2 of the FMC Act) and the obligation to maintain a register of financial products (Part 4 of the FMC Act).

More information

Keep an eye on our website for more details www.fma.govt.nz or sign up to our engagement site www.talktous.fma.govt.nz to receive regular updates.


Garth Stanish is the FMA’s manager, market infrastructure and oversights providers.

Last updated on the 17th March 2016