Under a series of exemption notices foreign domiciled funds, such as Australian unit trusts and United Kingdom based Open Ended Investment Companies (OEICs), can be promoted in New Zealand with their foreign documentation as long as they meet requirements laid out in exemption notices issued by the commission.
One of the requirements is that changes to documentation, such as prospectuses, is made in New Zealand and the country of domicile at the same time.
However, BT and Edinburgh, have told the commission that they are in breach of these conditions.
Under the law any securities issued during the breach period are invalid. The penalty for this breach is that managers have to return the original capital to investors and pay 10% interest on that money.
BT earlier admitted to the commission that it had breached the filing obligations. It has recently filed papers in the High Court at Auckland seeking to validate the affected securities.
ING, which distributes the funds in New Zealand, withdrew the Edinburgh OEICs from the market in April, “pending resolution of some issues just identified in relation to the UK disclosure documents.”
“This action has not been taken lightly and the decision was reached with the agreement of Edinburgh Fund Managers.” ING said the move was a precautionary measure.
Securities Commission general counsel Liam Mason told Good Returns that Edinburgh has informed the commission that it has breached the exemption notice requirements.
Good Returns has been unable to get this confirmed.
One of the issues amongst the funds management community are that the penalties for non-compliance are “draconian” and out of line with Australian law.
However, Mason disagrees. “No it’s not draconian,” he says.
Coincidentally, the commission is reviewing a number of the exemption notices which are coming up for renewal at the same time these breaches have been reported.
Mason says these notices will be renewed but with some minor changes.
He also says that the commission is unable to change the penalty regime as it is set by statute.
While the funds management industry considers the issue to be particularly big, the commission doesn’t know.
When asked about the size of the problem, Mason said he has “no idea”.
“At this stage I don’t know.”
BT’s former owner, the Principal Financial Group, has indemnified its new owner to the tune of A$250 million – which some people believe may not be sufficient if the company has to return capital to investors with 10% interest.
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