FMA Seeks Clarity From High Court On Use Of Eligible Investor Certificates In Wholesale Investment Sector

The Financial Markets Authority (FMA) – Te Mana Tatai Hokohoko – has filed a case stated proceeding to seek the Court’s determination on legal issues about the use, confirmation, and acceptance, of eligible investor certificates in the wholesale investment sector.

The proceeding follows investigations into the use of eligible investor certificates by various wholesale property developers. These investigations followed the FMA’s thematic review of wholesale offers of financial products.

A case stated proceeding is a process by which the FMA can ask the Court for its opinion on a question of law. It is not an action taken against any specific party. The FMA has previously used a case stated proceeding to seek clarity from the Court in relation to CBL. This is the second time the FMA has brought a case stated proceeding.

The purpose of the proceeding is to provide clarity to the market on clause 41 of Schedule 1 of the Financial Markets Conduct Act 2013 and to ensure confident participation in wholesale markets by offerors and eligible investors.

The answers from the Court will help to ensure those investors who require the protections provided by the Financial Markets Conduct Act receive those.

Annex

The FMA is asking the court’s opinion on clause 41 of Schedule 1 of the Financial Markets Conduct Act and the following questions of law:

1. To be valid, does an eligible investor certificate in relation to an offer of financial products need to expressly describe:
   1. the previous experience that A has in acquiring or disposing of financial products; and
   2. the aspects of A’s experience in acquiring or disposing of financial products which they consider would enable them to assess the matters required by cl 41(2)(a)–(c) for the transaction to which it relates?
2. For an offeror to rely on an eligible investor certificate, or otherwise treat an investor as an eligible investor, in respect of the transaction to which it relates, does the offeror need to be satisfied that:
   1. the eligible investor certificate is valid; and/or
   2. in the context of an offer of financial products, based on the grounds stated in the certificate, A could make the assessments requirement by cl 41(2)(a)–(c) in respect of:

i. a financial product of any kind; and

ii. the financial products involved in the transaction to which the certificate relates.

1. If the answer is yes to either (2)(a) or (b), is an offeror permitted to rely on information which is not contained in the eligible investor certificate to undertake either assessment?
2. If an offeror makes an offer of financial products to A in circumstances where it is not permitted to rely on A’s eligible investor certificate, is disclosure required to be given to A under Part 3 of the Financial Markets Conduct Act 2013?

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