Derivatives issuers

What is a derivatives issuer?

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).

What is a derivative?

In the FMC Act, a derivative is defined as an agreement in relation to which the following conditions are satisfied:

under the agreement, a party to the agreement must, or may be required to, provide at some future time consideration of a particular kind or kinds to another person
that future time is not less than three working days, for a foreign exchange agreement, or one working day in any other case, after the time at which the agreement is entered into
the amount of the consideration, or the value of the agreement, is ultimately determined, is derived from, or varies by reference to (wholly or in part) the value or amount of something else (of any nature whatsoever and whether or not deliverable), including, for example, one or more of the following:
- an asset
- a rate (including an interest rate or exchange rate)
- an index
- a commodity.

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:

a futures contract or forward
an option (except an option to acquire by way of issue an equity security, debt security, or a managed investment product)
a swap agreement
a contract for difference, margin contract or rolling spot contract
a cap, collar, floor or spread.

* The FMA's view

“Recurrently entered into” means the product must be regularly traded in the market.
“Commonly referred to” means issuers cannot rename an existing transaction type to avoid it being defined as a derivative. We believe that if most of the market refers to a transaction as, for example, an option or contract for difference, then it will be a derivative.

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.

Who needs to comply

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.

Licensing and registration

There are some things you can do to ensure your application runs as smoothly as possible:

review the licensing guides and documents below as they contain all the information you need to know so you can complete and submit your application
set up your RealMe® login details early
focus on the minimum standards – we will assess your business against them when processing your application
Contact the FMA if you have any questions

Licensing guides

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?

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

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

Licensing declarations and certificates

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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)

Costs

A licensing fee of $10,695 (incl. GST) which includes 70 assessment hours is payable to the FMA.

We may charge an additional fee at the FMA hourly rate where our assessment of an application exceeds the included number of hours stated above. If an additional fee is charged for your application we will let you know in advance and provide you with the reasons for this. We may also invoice you for any costs of external advice or assistance.

Fees for variations to an existing licence

The fee payable to the FMA when you apply to vary an existing licence is $115 (incl. GST). This does not apply to adding a new licence type. Additionally, the FMA will invoice you for time spent assessing the variation application based on the FMA hourly rate $230 per hour for an FMA board member and $178.25 per hour for FMA staff.

Note: We will not issue a new or varied licence until the fee is paid in full. Licence fees are not refundable if an application is rejected.

Levies and waivers

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Levies

The Financial Markets Authority (Levies) Regulations 2012 (the Regulations), as amended in 2020, set out the levies payable by industry. The levies are set by the Ministry of Business, Innovation, and Employment (MBIE).

The FMA receives funding from the Crown and a proportion of our costs is recouped from industry through levies.

Levy Classes

A financial markets participant falls within one or more levy ’class’, depending on what financial services they provide.

A levy must be paid for every levy class the financial markets participant falls within. Levies are payable on the relevant leviable event as described in column 3 of Schedule 2 in the Regulations.
Some levy classes have been split in order to recognise the variations in size and nature of different financial market participants.
Most levies are paid when making an annual confirmation to the Registrar of Financial Service Providers (the Registrar).
Most levies are payable to the Registrar, via the (FSPR). However, some levies are payable directly to the FMA. This is set out in column 4 of Schedule 2 in the Regulations.
The following levy classes are invoiced directly by the FMA:
Levy Class 8, Levy Class 8A, Levy Class 10, Levy Class 10A and Levy Class 13.

The table below (see levy class description) provides a high-level description of each levy class. For the full description of levy classes, see Schedule 2 in the Regulations.

Levy Class description

The table below provides a high-level description of each levy class. For the full description of levy classes, see Schedule 2 in the Regulations.

Class	Description
1	Persons making an application for registration on the Financial Service Providers Register
2	Registered banks and licensed non-bank deposit takers
3	Licensed insurers
4	Licensed supervisors of debt securities and managed investment products in registered schemes
5	Managers (of registered schemes)
6	Persons who undertook trading activities on licensed markets, contributory mortgage brokers, trading financial products or foreign exchange on behalf of other persons (other than persons included in class 6A, 6B, 6C or 6D, authorised bodies that only provide the service under a market services licence held by a person in class 6A or 6D and DIMS wholesale providers) or licensed derivatives issuers
6A	Licensed discretionary investment management service (DIMS) retail providers
6B	Providers of a regulated client money or property service (as defined in section 6(1) of the FMC Act) other than persons included in class 6(a) or 6C
6C	Custodians and persons providing custodial services
6D	Crowdfunding service providers and peer-to-peer lending service providers
6E	Licensed financial benchmark administrators
6F	Authorised bodies
6G	Financial advisers
6H	Licensed financial advice providers
7	All other financial service providers that are not included in any of classes 2 – 6H
8	Listed issuers (other than persons included in class 8A)
8A	Small listed issuers
9	Lodgement of a product disclosure statement (PDS)
10	Licensed market operators
10A	Licensed market operators that operate growth markets (other than persons included in class 10)
11	FMC reporting entities that lodge financial statements (or group financial statements) and auditor’s reports
12	Accredited bodies
13	Licensed overseas auditors
14	Persons that apply for registration or incorporation under the Building Societies Act 1965; the Companies Act 1993; the Friendly Societies and Credit Unions Act 1982; or the Limited Partnerships Act 2008
15	Persons that are registered or incorporated and required to make annual returns under the Building Societies Act 1965; the Companies Act 1993; the Friendly Societies and Credit Unions Act 1982; or the Limited Partnerships Act 2008

Offences

It is the responsibility of each financial service provider to ensure they are registered for the service(s) they provide and have paid the appropriate levies. As part of their online annual confirmation to the Registrar, they must select all of the applicable classes to determine the levies payable and confirm the information they have provided is true, correct and complete.

Under the Financial Service Providers (Registration and Dispute Resolution) Act 2008 (the FSP Act) it is an offence to:

provide services you are not registered for or state you are registered for a particular financial service when you are not
make a representation relating to any document or information required by the FSP Act or its regulations knowing that it is false or misleading, or omit any matter knowing such omission is false or misleading.

These offences could result in a fine of up to $100,000 and/or imprisonment for individuals, and a fine of up to $300,000 for businesses.

It is also an offence under the FSP Act to fail to notify the Registrar if any of the details contained on the FSPR are no longer correct. Failure to notify could result in a fine of up to $10,000.

Levy waivers

We have discretionary power to waive a levy (in whole or part).

We will only do so if we are satisfied that the circumstances or characteristics of the financial markets participant are exceptional when compared with the circumstances or characteristics of others in the same class, so that it would make it inequitable for the person to pay the levy. The threshold is deliberately high.

The waiver power is not intended to be used to revisit settled policy positions.

Once we receive a waiver application and the fee, we will assess it. If we decide to grant the waiver, we must notify our decision in the Gazette, and publish the decision and reasons for it on our website.

How to apply for a levy to be waived

You will need to email the following information to compliance@fma.govt.nz with the subject line ‘Levy waiver application’.

Name of person or entity applying for the waiver.
Contact person for correspondence concerning the application including address, phone number and email.
Indicate the persons/entity who will receive the benefit of any waiver granted.
Specify which class(es) you seek a waiver from and whether a waiver is sought from the full levy or part and the amount thereof.
Let us know your preferred date for any waiver to take effect.
Explain why the waiver should be granted and why your circumstances are exceptional when compared with others in the same class.
Provide all relevant facts in support of your application.
Explain any regulatory benefit of FMA granting the waiver.
Give details of any previous contact with officials (including their names) at FMA or MBIE (including the Companies Office) on the matter.

How to pay your waiver application fee

You can pay by electronic deposit or internet banking. Payment can be made by applicants or law firms making applications on behalf of their clients.

The person paying the application fee must be the person who pays the subsequent fees and costs. For example, if a law firm pays the application fee, that law firm must also pay any additional fees and costs.

We recommend if law firms apply for waivers on behalf of their clients, the parties discuss and agree who will be responsible for paying the FMA’s fees before submitting a waiver application.

Payment option	How to pay	Additional information
Electronic deposit or internet banking	Where bill pay is available please select ‘Financial Markets Authority - Other' Otherwise, our bank details are: Bank: Westpac Account name: Financial Markets Authority Account number: 03-0584-0198005-000	To ensure we process your payment correctly please provide the following information: Particulars: Payer’s name* Code: Waiver Reference: Applicant’s name You do not need to forward a hard copy of your application if paying electronically

* This is the name of the person paying the application fee. This person will be invoiced for any subsequent fees and costs. Payment by credit card is not available for this application process.

What are the fees

A payment of $1,265 should accompany each application.
This covers the application fee of $115 set out in the Financial Markets Authority (Fees) Regulations 2011 and an advance of $1,150 (including GST) for fees and costs to be incurred.
These regulations set out charging rates of $230 (including GST) per hour for time spent by FMA Board members and $178.25 (including GST) per hour for time spent by FMA staff.
These regulations are set by MBIE.

How long does it take

Once we have been provided with all relevant information, it generally takes around six weeks to process an application.
This may be longer if any policy questions arise.
If your application is urgent, please provide the date you need the decision by.
You must also provide reasons for requesting urgent consideration.

Granted waivers

Obligations

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.

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Conditions for derivatives issuer licences

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).

Client agreements

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:

entered into before the derivative is issued to the investor
in writing and contained in 1 or more documents that are legally enforceable as between the retail investor and the derivatives issuer.

Regulation 225 of the Financial Markets Conduct Regulations 2014 (FMC Regs) contains certain provisions that are treated as being implied into all client agreements.

Offer information in a PDS

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.

Derivatives investor money and property handling obligations

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:

Holding derivatives investor money and derivatives investor property on trust for the investor (or ensuring that derivatives investor money and derivatives investor property is held on trust for the investor).
Ensuring that derivatives investor money is paid promptly into a specified bank to a trust account and held separate from money held by or for the derivatives issuer or offeror on its own account.
Daily reconciliations of derivatives investor money and derivatives investor property either by an equity-based reconciliation in accordance with regulation 244A of the FMC Regs or a cash-based reconciliation in accordance with regulation 244B of the FMC Regs (an equity-based reconciliation must be carried out if the derivatives issuer carries out authorised hedging activities).
Derivatives investor money and derivatives investor property must not be used to satisfy any liability of a derivatives issuer.
Keeping and maintaining up-to-date records of derivatives investor money and derivatives investor property held for each investor.
Obtaining an assurance report, within 4 months after the issuer’s balance date, that states whether, in the auditor’s opinion, the derivatives issuer’s processes, procedures, and controls relating to derivatives investor money and derivatives investor property were suitably designed and operated effectively during the accounting period (see the Supervision by us section for information about additional assurance reporting obligations).

See Financial Markets Conduct Regulations 2014 for more info.

Notifying the FMA

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.

Amendments and changes

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).

Financial reporting obligations

Licensed derivative issuers are FMC reporting entities and must comply with all of the following:

Keep proper accounting records to assist with the preparation of compliant financial statements -records must be kept in English and a copy must be kept in New Zealand.
Prepare financial statements for the group's operation. Those financial statements must comply with generally accepted accounting principles in New Zealand.
Ensure that the financial statements are audited by a licensed auditor or registered audit firm.
Lodge the financial statements and the auditor’s report on the statements with the Companies Office within 4 months of the balance date.

Annual derivatives issuer regulatory return

All licensed derivatives issuers are required to complete and submit an annual regulatory return. The return is a series of questions about your business and how your licensed service is used.

The initial reportable period will be 1 July 2021 to 30 June 2022. Completed returns will be due by 30 September 2022. We will notify all licensees when it is time to complete and submit the first regulatory return.

In subsequent years, licensees will be required to complete an annual regulatory return for the 12-month period ending 30 June and submit it to the FMA by 30 September of that year.

The information you provide us through the annual return helps us to:

better understand your business and the services you offer
ensure the information we have on your business is current
focus our monitoring activities more effectively.

Download the derivatives issuer regulatory return submission form.

AML/CFT obligations

The Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (the Act) imposes several obligations:

You must provide a written risk assessment of the money laundering and financing of terrorism activity you could expect in the course of running your business.
You are required to implement an anti-money laundering and countering financing of terrorism programme that includes procedures to detect, deter, manage and mitigate money laundering and the financing of terrorism.
You are required to appoint a compliance officer to administer and maintain your programme.
You are required to perform due diligence processes on your customers. This includes customer identification and verification of identity.
You are required to report suspicious transactions.

The FMA supervises designated business groups (DBGs) and reporting entities listed in Section 130 of the Act.

Fair dealing obligations

The FMC Act sets out minimum compliance standards of behaviour for people operating in the financial markets. It prohibits:

misleading or deceptive conduct
false or misleading representations
unsubstantiated representations
offers of financial products in the course of unsolicited meetings.

Please contact us to report misconduct, make a complaint or give us a ‘tip-off’.

Supervision

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:

the minimum standards for licensing
the conditions attached to your licence.

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:

Standard Condition 11 ‘Financial Resources – Audit Requirements’ of the Standard Conditions for Derivatives Issuers Licences
Regulations 248 and 249 of the Financial Markets Conduct Regulations (FMC Regs)

If you need to contact us at any time during the term of your licence you should email compliance@fma.govt.nz.

Exemptions

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.

Useful resources

It is helpful to read the Licensing Overview Report alongside the guide to the FMA’s view of conduct. Together, these documents give a good indication of our areas of future focus, our overall approach to monitoring; and what we expect of licensed providers of financial products and services. Download the Licensing overview report (2017) PDF.
The Derivatives Issuer Sector Risk Assessment identifies key risks in the Derivatives Issuer (DI) sector. The information is useful to help licensed DIs (or those thinking of applying for a licence) understand our focus areas and ensure they comply with our expectations and best practice. Download the Derivatives Issuer Sector Risk Assessment PDF.
Check your application against our Licensing Checklist prior to submission.
Good corporate governance supports investor confidence. To enable companies to grow and thrive, directors need to be both risk managers and responsible risk takers. Being a director is more than just a title. The office of a director carries with it a wide range of ethical, legal and commercial duties and obligations. The FMA publishes a range of guidance and resources to assist directors in their duties.

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