by Niko Kloeten
In a submission on the Financial Markets Conduct Regulations exposure draft, Chapman Tripp has called for changes to regulation 16(a), which prevents lodging a supplement to a PDS for “managed funds”.
This would mean that changes to the PDS which are adverse to the issue, would require fund managers to produce a replacement PDS.
Chapman Tripp says there are some problems with the current version of the regulation.
“First, the term ‘managed fund’ is not defined, and we submit that it should be (to ensure that the circumstances in which a managed investment scheme is considered a managed fund are clear).
“Second, while PDS content is intended to be as static as possible, risk/reward indicators may change with relative frequency. Amending and reprinting PDSs for such minor changes can be unduly onerous in terms of cost, time and internal procedural requirements.”
Chapman Tripp says supplementary PDSs should be allowed for managed funds.
“This ensures that greater focus is placed on the actual change. As an alternative, the use of supplementary PDSs could be limited. For example, issuers could be limited to a supplementary PDS every six months with a maximum of three pages each.
“If the preference is to retain a prohibition on supplementing a PDS for managed funds then we consider that it will be important for the PDS content to be as “static” as possible, to minimise the prospect that multiple replacement PDSs have to be lodged at regular intervals.”
Pathfinder Asset Management executive director John Berry says it’s hard to put a number on how much it would cost to produce a PDS, but it wouldn’t be an easy task.
“A lot of the cost when you’re doing a new offer document is not what the investor sees. What goes on behind the scenes to verify the content of the document is quite a laborious process. You’ve got to go through every line and verify the accuracy of it.
“Because of my law background, at Pathfinder we run that process ourselves. However, a lot of firms would need to get the lawyers heavily involved in that.”
Berry says the regulation is unlikely to cause significant problems as the sorts of changes that would require a new PDS would probably be quite rare.
Niko Kloeten can be contacted at niko@goodreturns.co.nz
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