Derivatives issuers
Under the Financial Markets Conduct Act 2013 (FMC Act) a ‘derivatives issuer’ is a person that is in the business of entering into derivatives. A person is ‘in the business’ of entering into derivatives if they carry on the business of entering into derivatives (whether or not the business is the person’s only business or the person’s principle business).
In the FMC Act, a derivative is defined as an agreement in relation to which the following conditions are satisfied:
It also includes any transaction, regardless of duration, that is recurrently entered into* in the financial markets in New Zealand or overseas and is commonly referred to* as:
* The FMA's view
The FMA has the power to declare any arrangement used for investment or risk management as a particular kind of financial product. For example, we may use this power if an arrangement has been structured to avoid falling within the definition of a derivative, but in our view still functions like a derivative.
We can also declare that a derivative is not a financial product. We have used this power to designate certain short-duration forward foreign exchange contracts as not derivatives for the purposes of the FMC Act – see our designation notice for more information.
Under the FMC Act, you must be licensed to make a regulated offer of derivatives. See section 388 of the FMC Act. A derivatives issuer that makes a regulated offer of derivatives must be licensed by the FMA. See section 41 of the FMC Act.A regulated offer means an offer of financial products, including derivatives to one or more investors where at least one of those investors requires disclosure, for example because the investor is a retail investor.
Please view your obligations below.
There are some things you can do to ensure your application runs as smoothly as possible:
Licensing guide PART A
This guide contains information about the licensing process and includes many FAQs you might have and explains how to use our online application form (currently unavailable); create a RealMe® identity, if you don't already have one and pay your licensing fee.
Download the licensing guide Part A: How do I apply for a licence? PDF, 510KB
Licensing guide PART B
This guide contains all the specific questions you’ll be asked and the minimum standards you’ll need to show you meet. It also details the information and supporting documents you’ll need to provide when you submit your application.
Download the licensing guide Part B: Guide to applying for a derivative issuer licence PDF, 1.2MB
Standard conditions for derivatives issuer licences
In your application, you'll need to demonstrate how you can meet the minimum standards and conditions for your licence - or ask us for a limit or variation using the forms below. This is very important because when a licence is granted, they contain conditions that support your licensee obligations. They include conditions imposed by the FMC Act, the regulations, and any conditions imposed by the FMA.
Download the Standard Conditions for derivatives PDF, 240KB
For applicants:
SD1.0 Certificate of compliance and authority to apply (applicant or their authorised person)
SD1.1 Declaration by current/proposed director of licence applicant
SD1.2 Declaration by current/proposed senior manager of licence applicant
SD1.3 Curriculum vitae of management team member of licence applicant
SD1.4 Declaration by Independent trustee (individual) - a combined certificate and declaration
For related bodies of the applicant:
SD2.1 Declaration by executive director of related body to licence applicant
SD2.2 Declaration by senior manager of related body to licence applicant
For relevant parties to the applicant:
SD3.1 Declaration by director of relevant party to licence applicant
SD3.2 Declaration by senior manager of relevant party to licence applicant
SD3.3 Declaration by individual relevant party to licence applicant (such as owner)
To notify us of a change to your key people and managers as required by the licensing standard conditions, please send an email to compliance@fma.govt.nz outlining what the changes are and the qualifications and experience of the new or replacing personnel, e.g. attach their c.v.
Download Notification of change of director or senior manager by licensee and/or key personnel of authorised body DOC.
(Refer Financial Markets Conduct Regulations 2014 r 191).
The FMA has wide powers to exempt persons or transactions from some financial markets law requirements. These powers enable us to remove rigidities in the law and ensure requirements for businesses are reasonable and cost-effective. Find out more about exemptions you can apply for under the FMC Act and current exemption notices.
A derivatives issuer that makes a regulated offer of derivatives must be licensed by the FMA. A regulated offer means an offer of financial products to one or more investors where at least one of those investors requires disclosure, for example because the investor is a retail investor. SeeA derivatives issuer is required to be licensed when making a regulated offer. A regulated offer includes any offer of derivatives when disclosure must be made to one or more investors. For example, a retail investor. See section 41 of the FMC Act.
Licensees’ obligations include notifying the FMA of certain events and providing us with information. For example, section 412 of the FMC Act require a derivatives issuer to report various matters to the FMA as soon as practicable, including any breach (or likely breach) of its market services licensee obligations and any other material change of circumstance.
A derivatives issuer licence is subject to:
- a condition that the licensee or authorised body may, under the licence, provide only the market services (for example, acting as a derivatives issuer) or class of market services to which the licence relates and for which each person is authorised under the licence
- the conditions imposed by the FMA under section 403 – these will generally include the standard conditions and/or any specific conditions
- the conditions imposed by regulations (if any).
When issuing derivatives under a regulated offer, a derivatives issuer must ensure that there is a client agreement governing that service. The client agreement must be:
Regulation 225 of the Financial Markets Conduct Regulations 2014 (FMC Regs) contains certain provisions that are treated as being implied into all client agreements.
Licensed derivative issuers are FMC reporting entities and must comply with all of the following:
Information about regulated offers of derivatives must be disclosed in a product disclosure statement (PDS) and on the Disclose Register. Together, this information must include all material information about the offer of the derivative and be up to date, accurate and understandable. The purpose of the information is to assist investors with their investment decisions.
Schedule 1 of the FMC Act sets out a series of statutory exclusions where lighter compliance paths are appropriate. Depending on the exclusion, limited or no disclosure may be required.
The FMA offers a pre-registration review service to help issuers and their directors feel more confident that their offer documents are likely to satisfy our expectations.
The Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (the Act) imposes several obligations:
The FMA supervises designated business groups (DBGs) and reporting entities listed in Section 130 of the Act.
The FMC Act sets out minimum compliance standards of behaviour for people operating in the financial markets. It prohibits:
Please contact us to report misconduct, make a complaint or give us a ‘tip-off’.
Licensed derivatives issuers are required to comply with the requirements contained in the FMC Regs for the handling of derivatives investor money and derivatives investor property. These include:
See Financial Markets Conduct Regulations 2014 for more info.
Licensees are subject to supervision by us. We take a risk-based approach to monitoring, meaning the extent of supervision varies depending on our priorities and the nature of your business. From time to time we also conduct sector risk assessments to obtain information that assists us in our risk-based monitoring approach. Monitoring can range from a full onsite inspection through to information requests and desk-based reviews. As a minimum, we will seek assurance you are complying with the basics, ie:
We will also assess your conduct generally as a licence holder and check you are complying with key legislation such as the Financial Advisers Act 2008, the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 and the fair dealing provisions within the FMC Act.
A feature of the FMC Act is the use of preventative regulation, which aims to identify and anticipate potential causes of harm to New Zealand’s financial markets and investors. Find out more in our Strategic Risk Outlook.
A key part of our supervision is self-reporting by licensees. If we can see that you can identify and resolve problems it gives us confidence. If you have any significant issues, we encourage you to tell us about them and what you are doing to remedy them.
In addition, we review your two assurance reports, which you are required to submit as part of your reporting requirements (via compliance@fma.govt.nz). These two reports are:
If you need to contact us at any time during the term of your licence you should email compliance@fma.govt.nz.