FMA aims to facilitate GSS market in New Zealand – with suitable disclosure
The New Zealand Financial Markets Authority (FMA) says the purpose of its consultation on socially responsible investment (SRI) product is to foster a supportive regulatory environment while ensuring such product is appropriately labelled for retail investors in particular. Simultaneously, the regulator is also attempting to take a flexible approach to same-class exemption for green, social and sustainability (GSS) bonds.
The FMA released a consultation paper on proposed guidance for how SRI product – including GSS bonds – should be described, labelled and promoted to investors on 26 September. The deadline for submissions is 24 October.
GSS issuance in New Zealand has been relatively slow to develop compared with other global markets. But it has reached new heights in 2019 particularly due to the incorporation of all Housing New Zealand bonds under a new wellbeing bond framework (see chart).
As the range of product in- and outside the bond market grows – as does focus on SRI issues from investors – the FMA is seeking market feedback to develop guidance on defining SRI product. It also aims separately to publish material to assist investors in their decisions regarding SRI product.
The draft guidance says while the FMA supports the development of the market, there are risks and issues to consider – largely to do with lack of clarity around what makes an investment ‘responsible’. The draft guidance explicitly states that the FMA is “not proposing to set out prescriptive definitions of ‘green’, ‘ethical’ or ‘responsible’”.
Source: KangaNews 2 October 2019
The consultation paper says: “We are keen to benchmark what good conduct and good disclosure look like in the context of responsible investment, to ensure issuers focus on meeting investor needs.”
Rob Sloan, Auckland-based head of disclosure, capital markets at the FMA, tells KangaNews: “We have to be careful because SRI products are quite new. We are keen to benchmark what good conduct and good disclosure look like from the start because the last thing we want is for the whole thing to be built on a foundation of sand.”
He adds that there will be no further regulatory burden upon issuers as requirements are already in place in the Financial Markets Conduct Act 2013. “All regulated offers, including those for responsible investment products, have to explain features and benefits in accordance with the regulations including that they are not to be misleading or deceptive. We are not trying to impose further regulation but to ensure things are disclosed within the current regulations,” he says.
In a press release accompanying the consultation paper, Nick Kynoch, FMA general counsel and acting co-head of capital markets, said: “We are satisfied the current law is flexible enough to accommodate responsible investment products. But in an area like this, with a lack of consistent, agreed-upon definitions, we are keen to benchmark what good conduct and good disclosure look like, to ensure issuers focus on meeting investor needs.”
“All regulated offers, including those for responsible investment products, have to explain features and benefits in accordance with the regulations including that they are not to be misleading or deceptive. We are not trying to impose further regulation but to ensure things are disclosed within the current regulations.”
A key sticking point for the issuance of corporate GSS bonds in New Zealand has been that such transactions are not eligible under same-class exemption laws if the entity does not already have listed green bonds. This means the administrative work for issuers to bring a transaction to market is often burdensome and offputting.
Sloan clarifies that reviewing same-class exemption for GSS product does not form a part of the current consultation. But he adds that the FMA is open to looking at individual exemptions for “same-class plus”, where a GSS bond has the same credit characteristics as existing listed debt. The FMA entered discussions with selected banks and law firms approximately 18 months ago.
“We have always said we would work with market participants around issuing green bonds,” Sloan tells KangaNews. “We are open to looking at individual exemptions where a green bond has the same credit characteristics as existing listed debt – allowing an issue on a similar basis as a same-class offer but with conditions requiring certain disclosure about greenness, or lack of greenness, as part of the process of assisting the market where we can.”
Sloan also says, however, that while the FMA has been conducting these discussions it has not been approached by any borrower applying for an exemption to facilitate an offer of GSS bonds.
The FMA will also soon release an information sheet explaining the application of the same-class exclusion, with the intention of making it more broadly known that in certain circumstances individual exemptions may be available to facilitate the issue of GSS bonds off the back off existing listed vanilla issues. Sloan confirms that every exemption application will be considered on a case-by-case basis.
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