Financial Markets Conduct Act

1. Financial Markets Conduct Act Transition for Managed Investment Schemes October 2013

2. Topics for today Transition timing Key transitional workstreams tasks Wholesale unit trusts/super schemes Selected aspects of new governance regime Categorisation of superannuation master trusts

3. Effective Date timing 1 December 2016 1 December 2014 Twenty working day notice period Notification Date Effective Date • Manager can pick any Effective Date between 1 December 2014 and 1 December 2016 • Effective Date may align with prospectus rollovers or investor mail out • FMA / Registrar require 20 working days’ notice of Effective Date

4. What happens on the Effective Date? 1 December 2016 1 December 2014 Twenty working day notice period Notification Date Effective Date Scheme registered – regulated offer PDS registered Governing documents registered SIPO registered Other documents registered Order in Council applies Scheme subject to FMCA

5. What must be in place before Notification Date? 1 December 2016 Twenty working day notice period 1 December 2014 Notification Date Effective Date • Manager licence • PDS/register entry prepared • Order in Council for superannuation scheme categorisation • Amendments to governing document (incl FMA approval if req) • SIPO review completed • Supervisor licence extended to superannuation scheme • Related party transaction compliance • Manager internal procedures/Supervisor protocols developed • Investor notification • Wholesale scheme registered

6. Governing documents - process FMA approval not mandatory Review of proposed amendments against existing amendment power • implied terms • conforming with FMCA FMA approval process different from KS restructure? FMA to provide guidance?

7. Governing documents – scope of amendments

8. Governing documents - timing Supervisor involvement required for all deed amendments Allow 2 months no FMA Allow 3+ months with FMA

9. PDS and register entries New offer document - highly prescribed content Could be issues at the margins for schemes that do not fit template Go through internal due diligence processes Update of due diligence planning processes Requirement to register all other “material information” Allow 3-4 months

10. SIPO Public document Ensure informal text/guidance removed Some minimum content requirements Must comply with frameworks/methodologies issued by FMA Be aware of limit break requirements Allow 4 weeks

11. Manager licensing Light handed approach – means what? Key content in FMC Regulations If insurer/QFE, may have useful licensing materials Can apply from 1 April 2014 Financial adequacy Allow 4-5 months

12. Order in Council Needed for superannuation scheme categorisation – flows into transition planning Presumably OIC obtained late in process, but FMA certainty required earlier? Need to understand timing/process from FMA Allow [?] months

13. MIS categorisation CURRENT Superannuation scheme Unit trust KiwiSaver N EW KiwiSaver Superannuation scheme Workplace savings Other MIS Restricted Restricted Legacy Restricted Legacy Restricted SUB-CATEGORIES

14. Strawman timeline 6-7 months minimum NotificationDate Effective Date Allow 2 months no FMA Allow 3+ months with FMA Governing Document PDS/register entries Allow 3-4 months Allow 4 weeks SIPO Allow 4-5 months Manager licensing Internal procedures/ supervisor protocols [3 months] FMA certainty OIC Scheme categorisation 2 weeks Investor notification

15. Wholesale schemes Reasons to register? Consequences of doing so Transition – align with related retail schemes

16. Selected new governance functions/duties – Overview Act in best interests of scheme participants Prudent, professional practice S 152(1)(a) supervisory functions Financial adequacy of manager

17. Best interests of scheme participants “In exercising any powers or performing any duties a manager/supervisor must act in the best interests of the scheme participants” (ss143/153) Core obligations, principally addressing conflicts of interest Manager examples: • Related party transactions • Other decisions, such as scheme closure • IOSCO Case Studies (2000) Supervisor example - manager as “client”

18. Best interests of scheme participants ctd Conflicts of interest policy – APRA Prudential Standards Culture Training Leadership

19. Prudent, professional standard of care Manager/supervisor must “in exercising any powers, or performing any duties, exercise the care, diligence, and skill that a prudent person engaged in [that profession] would exercise in the same circumstances” About policies, processes and controls; not just actions, decisions? For example: • Investment governance • Conflicts of interest controls • Valuation/unit pricing

20. Prudent, professional standard of care ctd Body of knowledge to be developed • Existing practices • FMA guidance • Industry bodies • Overseas examples – e.g. APRA prudential standards Mutual understanding by Managers/Supervisors

21. New supervisory functions/duties – Selected aspects Supervisor is responsible for : “acting on behalf of scheme participants in relation to: the manager; and any matter connected to the governing document or the terms of any regulated offer; and any contravention or alleged contravention of the issuer obligations; and any contravention or alleged contravention of this Act by any other person in connection with the scheme” (s 152(1)(A))

22. New supervisory functions/duties – Selected aspects ctd Supervisor is responsible for: “supervising the financial position of the manager and the scheme …to ascertain that it is adequate” (s 152(1)(b)(ii))

23. MIS categorisation CURRENT Superannuation scheme Unit trust KiwiSaver N EW KiwiSaver Superannuation scheme Workplace savings Other MIS Restricted Restricted Legacy Restricted Legacy Restricted SUB-CATEGORIES

24. Master Trusts – FMCA Categorisation Focus on master trusts – assumed objective to obtain “retirement scheme” status. Employer section should qualify as a workplace savings scheme Check criteria incl: • Purpose(not principal purpose) – retirement/leaving service benefits • Other benefits incidental or secondary • Requirements prescribed in regs OK to have a “holding section” for leaving service benefits

25. Master Trusts – FMCA Categorisation ctd Two main options for personal section (if open to non-employees) Close – legacy scheme (remains super scheme and retirement scheme) Leave open – general MIS (not super scheme or retirement scheme) May be other iterations

26. Master Trusts – FMCA Categorisation ctd Engagement with FMA Order in Counsel may be required

27. Supervisor commentary Significant changes to the supervisory regime.  In particular: • New and potentially wide-ranging requirements • High FMA expectations • Very member-centric approach Uncertainties as to how the new regime will operate in practice to be worked through.

28. Supervisor commentary (cont) Key drivers of our approach include: • Embrace the changes - not in denial as to their implications • Adopt a leadership approach • Work collaboratively with stakeholders • Be pragmatic and sensible Underlying objectives - promote financial markets confidence and facilitate efficient markets.

29. Supervisor commentary (cont) For the Managers we supervise, a Supervisor that: • Is pro-active and does its share of the heavy lifting in terms of understanding these reforms • Is tough but commercially sensible • Provides real and commercially valuable assurance around your business practices • Enhances your standing with the FMA and trusted and respected partner for your brand