1. Compliance
  2. Designations

Designations

What are designations?

Designations can change how a product, client, advice or service is categorised, and remove an existing statutory exemption or exclusion. A designation can be applied to:

Under the FMC Act, we have powers to make designations that change the way products and other matters are regulated.

To find out more information on the class designations and other notices we have granted, see the Class legislative notices summary on the Regulation Updates page.

The FMA's designation powers

  • the power to change how a product is categorised under the FMC Act 
  • the power to remove a statutory exemption or exclusion
  • the power to declare that a wholesale investor or client is a retail investor or client
  • the power to declare that advice is or is not financial advice or regulated financial advice
  • the power to declare that a service is or is not a financial advice service.

Businesses can apply for a designation, providing reasons why they believe a designation is justified.

What happens when a designation is applied to a financial product

  • A designation can change how a financial product is categorised under the FMC Act, affecting the compliance obligations for that product under the Act.
  • There are four kinds of financial products under the FMC Act: equity, debt, managed investment products and derivatives.
  • How a financial product is regulated depends on the product’s category.
  • There are also some products that are classed as ‘securities’ under the FMC Act but are not financial products.
  • Generally, disclosure and governance rules do not apply to products that are ‘securities’ but not ‘financial products’.

What we consider before we make a designation

Before we exercise our designation power, we must consider:

  • whether the designation is necessary or desirable to promote either or both of the FMC Act’s main purposes in section 3 or any of the additional purposes in section 4.
  • if the designation relates to financial advice or financial advice services, whether the designation is necessary or desirable to promote the additional purpose in s 431B
  • the economic substance of the relevant security and (where the designation will call in an offer for sale to the Part 3 disclosure regime) whether the offer was made for circumvention purposes. 

    We must also consult with substantially affected parties.

    How will a designation apply

    • Designations can be made on terms and conditions that relate to the circumstances in which the designation applies.
    • We must publish our reasons at the time the declaration is made.
    • Designations remain in force indefinitely, until they are revoked or varied.

    When a designation will not be given

    Designations cannot be made for financial products that have already been issued or transferred.

    What is an interim order

    • We can give an interim order that stops securities being acquired or disposed of, or services being supplied while considering whether to make a designation. We must, however, be satisfied the public’s interest is served.
    • The interim order gives us time to consider whether a designation is required. The order prevents activities that would counteract the effect of the proposed designation (as designations cannot have retrospective effect).
    • An interim order will apply for 15 working days after the order date. However, we can specify a longer period, of up to 30 working days, if we consider it is not reasonably practicable to reach a decision on the designation within the 15-working day period.

    How a designation can change the statutory obligations for a product

    How designations can remove a statutory exemption

    Designations can remove an existing statutory exemption available to an offer or person. This can be used to prevent abuse of the statutory exemptions, or to avoid the use of the exemptions in unintended circumstances.

    The table below shows how a designation can remove an existing exemption for a product or a service.

    Designation that removes the application of a statutory exemption 

    Designations may declare that: Comments
    an offer of issued financial products that is exempt from  disclosure under Part 3 due to an exclusion under Part 1 of Schedule 1, be required to provide disclosure  We can stop a Schedule 1 exclusion applying to an offer and bring the offer back within the Part 3 disclosure regime.  
    an offer of financial products for sale that would not otherwise require disclosure under Part 3, does require disclosure  We can call-in offers of products for sale to be regulated under the Part 3 disclosure regime.  
    a person, service, or conduct not be subject to certain exemptions from financial advice provider licensing in s 389(2) We can call-in certain financial advice providers (who would otherwise not be required to be licensed) to be licensed under the FMC Act.
    a person, service, or conduct not be subject to certain exemptions from DIMS licensing in s 389(3)    We can call-in certain DIMS providers (who would otherwise not be required to be licensed) to be licensed under the FMC Act.  
    a person, service, or conduct to not have exemptions or exclusions that would otherwise apply under section 238 (1)(a) to (h) section 285, section 287, or section 309

    We can:

    • dis-apply an exemption from having to make market disclosure of interests, as a substantial security holder or director or senior manager
    • declare that a facility (that is excluded from the definition of financial product market) is a financial product market.

    How designations can change the status of a wholesale investor or client

    Designations can declare that a person or class of persons that would otherwise be a wholesale investor or wholesale client is a retail investor or retail client for the purposes of the FMC Act.

    We can call in wholesale clients and wholesale investors to the protections of the FMC Act that apply in relation to regulated offers of financial products or provision of regulated financial advice to retail clients if we think they need these protections and the statutory test for a designation is met.



    How designations can change how financial advice services are regulated

    Designations can change how financial advice and financial advice services are regulated under the FMC Act.  This will change the statutory obligations that apply.  The table below provides an idea of what can change with a designation.

    Designation that changes how financial advice and financial advice services are regulated

    Designations may declare that: Comments
    Advice that would not otherwise be financial advice is financial advice We can call-in advice, that is not financial advice, into the FMC regime. 
    Advice that would otherwise be financial advice is not financial advice We can exclude certain advice, that would otherwise be financial advice, from being financial advice under the FMC regime
    Financial advice that would not otherwise be regulated financial advice is regulated financial advice We can call-in financial advice that would not otherwise be regulated financial advice, so that it is subject to regulation under the FMC regime. 
    Financial advice that would otherwise be regulated financial advice is not regulated financial advice We can exclude certain financial advice, that would otherwise be regulated financial advice, from being regulated under the FMC regime. 
    A service that would not otherwise be a financial advice service is a financial advice service We can call-in a service that is not a financial advice service into the FMC Act regime.
    A service that would otherwise be financial advice service is not a financial advice service We can exclude a service, that would otherwise be a financial advice service,  from  being regulated under the FMC regime.

    Apply for a designation

    Before you apply

    Clarify if you should apply for a designation or an exemption. Only apply for a designation if you have products or services that have extraordinary characteristics that you think should fit a different category or should not be regulated at all.

    Apply for an exemption if you think some aspects of the regulatory regime need to be adjusted for the circumstances. 

    Please note that designations cannot be retrospective. That means that we are unable to make designations for financial products that have already been issued or transferred. If you want to alter disclosure obligations for financial products that have already been issued or transferred, then you should consider applying for an exemption.

    How to apply for a designation

    Your application should provide the following details:

    1. The full name, address, and corporate status of the person(s) seeking the designation.
    2. The relevant designation power in section 562 of the FMC Act.
    3. The financial products or class of financial products or services you want the designation to cover.
    4. Specify what you want the designation to do.
    5. Any terms or condition you think should apply.
    6. The jurisdiction where the applicant is incorporated or constituted, and any securities exchanges where the financial products are going to be listed.
    7. Details of any related exemption you are seeking.
    8. Explain why you need the designation and justify the reasons. You should include an explanation of how the designation sought is consistent with the policy of the FMC Act, and how it meets the statutory tests in section 563.
    9. If relevant, explain the economic substance of the relevant financial product and why this supports the designation you are seeking.
    10. Explain how the designation will promote one or more of the purposes of the FMC Act regime set out in sections 3 and 4 of the FMC Act.
    11. Where the designation relates to financial advice or financial advice services, it should also explain how the designation will promote the following purpose in s431B:
    • Ensuring the availability of financial advice for persons seeking that advice and the quality of financial advice and financial advice services.
    1. You must include a draft declaration to give effect to the designation you seek. The declaration should include:
    • the matter the designation will apply to
    • if relevant, the new category you want the financial products to belong to, or if you think the financial products or other matter should no longer be regulated at all
    • the company’s, or other entity’s, proper legal names
    • any terms that need to be defined
    • the particular provisions of the relevant legislation
    • the terms and conditions for the designation sought
    • a summary of the key reasons for the designation (consistent with the policy of the FMC Act, and that meet the relevant statutory test for us to grant a designation)
    1. Send your application to exemptions@fma.govt.nz. It generally takes 8-12 weeks to process individual designation applications (i.e., applications that relate to a particular person or transaction). It may take longer if significant policy issues arise.

    Costs

    Designation fees are set by regulations. Before we can begin processing your application, you need to make a payment of $1,265 to cover the application fee of $115 and an advance fee for fees and costs to be incurred. We will charge any additional time spent on an hourly basis (the hourly rate for FMA Board members is $230 and the hourly rate for FMA staff is $178.25).  

     

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      1 January 2019

      Financial Markets Conduct (Shares in Investment Companies) Designation Amendment Notice (No 2) 2018

      Financial Markets Conduct (Shares in Investment Companies) Designation Amendment Notice (No 2) 2018 comes into force on 1 January 2019, amends the Financial Markets Conduct (Shares in Investment Companies) Designation Notice 2017 (the principal notice). Read more.

      https://fma.cwp.govt.nz/compliance/designations/financial-markets-conduct-shares-in-investment-companies-designation-amendment-notice-no-2-2018/