Capital raising shakeup looms for small firms

Sue Brown says the point is to rebuild confidence after the disaster that was the global financial crisis.

Investment market players are gearing up for the biggest shake-up in more than decade as new rules governing securities and the industry surrounding them come into force.

Details of the regulations for the new Financial Market Conduct Act are being finalised ahead of the first stage of the law, which takes effect on April 1.

"It's a big piece of law," said Sue Brown, the woman in charge of overseeing how the changes will be implemented at investment watchdog the Financial Markets Authority.

Brown says the point is to rebuild confidence after the disaster that was the global financial crisis, the collapse of the finance companies and previously the 1987 sharemarket crash.

"If members of the public don't have confidence in the financial market they won't invest and companies won't have access to capital to grow.

"The changes are fundamentally important to the health of the economy."

Some of the first changes to be made involve making it much easier for small, fast-growing businesses to raise money through crowd funding, peer-to-peer lending and stepping-stone markets.

"It's all aiming to get the atoms at the low end buzzing," says Brown.

In the past under the old Securities Act businesses had to put together a prospectus if they wanted to raise money from the public - a process that was too expensive for most.

The new markets should open up their options. But it won't be without controls.

From April 1 those wanting to use any of the new ways to raise money will be able to apply for licensing from the FMA and will have to meet certain provisions to do so.

Licensing will also spread across most parts of the financial industry.

From April the FMA will also be the main regulator of fair conduct and dealing to ensure all parts of the industry do not mislead or deceive members of the public.

That oversight will stretch from financial advisers to KiwiSaver fund managers, trustees, auditors and those involved in providing credit and insurance. There are also changes to the liability provisions for directors and issuers with a shift to civil remedies and compensating investors.

Only serious wrongdoing, such as cases of knowing, intentional or reckless conduct, will result in criminal liability.

The FMA will have new enforcement powers including orders directing compliance, prohibiting the issue, offer or acquisition of certain financial products and orders that certain exclusions do not apply to a particular offer.

The licensing and fair conduct changes come ahead of the second round of legislation, which comes into force from December 1.

That includes tougher rules that spell out how investment documents must contain clear and concise information for investors.

Instead of hundreds of pages in a prospectus there will be a key information statement that will be only two pages and is designed to crystallise the information investors need to know.

A secondary product disclosure statement will also be available with further information although Brown says it will still have limits on its length. The main aim is to enable people to make sound investment choices.