A new investment designation comes into effect today (19 May) which should provide greater protection for those investing through certain companies offering shares.
The Financial Markets Authority
will now treat newly issued shares in investment companies as managed investment products (MIP) under a class designation as allowed by the Financial Markets Conduct Act 2013.
The new designation is for shares issued by investment companies if there are reduced powers for shareholders and/or entrenched key service provider arrangements.
The FMA requirements will mean investors will benefit from stronger protection than those governing shares.
Companies offering MIPs – who will be designated as managed investment schemes - will need to have both a licensed manager and a licensed supervisor who are required to act honest and in the best interests of the investor.
They will also be prevented from offering shares which are MIPs in economic substance, through crowd funded platforms.
“This class designation is necessary to achieve the consumer protection objectives of the MIS regime. Without this designation, it would be possible to offer shares that are - in economic substance – like MIPs but don’t provide investors with the disclosure and protection required of MIPs,” explained Nick Kynoch, FMA General Counsel.
Those shares quoted on the main board of NSX will not be subject to the designation.
“We want to prevent investors being exposed to unnecessary risks of poor governance that could lead to poor investment outcomes. This designation also removes an unfair competitive advantage for some issuers over providers who are compliant with the regulatory regime,” added Kynoch.