MAY 2016

FINANCIAL SERVICES UPDATE

Forestry schemes - compliance exemptions and guidance on licensing.

The Financial Markets Authority (FMA) LICENSING An exemption from licensing and the updating of governing has announced a new class exemption documents is being given to managers of closed forestry for managers of forestry schemes. The schemes whose total forestry assets under management are less than $40 million, and where there is a low level of exemption announced on 19 March 2016 manager activity either because there are very few relieves the managers and their custodians schemes under management or there is a relatively short period before all the schemes are wound up. Such from some of the licensing and governance schemes will continue to have a licensed supervisor. requirements that would usually apply Managers who think they might qualify for this exemption should contact FMA as soon as possible. under the Financial Markets Conduct Act FMA has also issued guidance on the licensing process for (FMCA), and that may cause unnecessary those forestry scheme managers who will not be able to benefit from this exemption. The guidance clarifies some costs for forestry schemes because of the of the considerations unique to a manager of a forestry special nature of their assets and operations. scheme, and provides context for responding to the questions in the licensing application guide. It also provides some helpful guidance for those schemes who may fall outside the definition of a managed investment scheme (MIS).

CUSTODY OF FORESTRY ASSETS The second exemption removes the need for real assets of existing closed forestry schemes to be held by the scheme’s supervisor or an independent custodian. This will be conditional on the supervisor holding a first ranking security that is registered against the real property.

Financial Services Update | 1 If a manager holds real property under this exemption then KEY CONTACTS it will also be exempt from the need to obtain an annual Sue Brown assurance engagement - this would otherwise require the Partner manager to engage an auditor to provide an annual assurance +64 4 918 3040 report on the custodial processes, procedures and controls. [email protected] All other assets will need to be held by the supervisor or Website Profile custodian and will be subject to an annual assurance engagement. Tracey Cross QUARTERLY SIPO LIMIT BREAK REPORTS Partner +64 9 916 3773 An exemption is being granted from quarterly reporting on [email protected] statement of investment policy and objectives limit breaks Website Profile during ‘low activity’ periods for both existing and new schemes when no limit breaks have occurred. The basis for this exemption is that, because there is Alasdair McBeth generally minimal activity for some years of a forest’s life, Partner many of these quarterly reports are likely to be nil reports. +64 4 474 3257 This exemption will apply to managers of both existing and [email protected] new forestry schemes on the condition that, if a limit break Website Profile occurs in a quarter, the manager will submit a quarterly report. Nicole MacFarlane CASH RECONCILIATIONS Special Counsel Custodians of all new and existing schemes will be exempt +64 9 300 3891 from the requirement to undertake daily cash reconciliations. [email protected] This will be conditional on reconciliations taking place at a Website Profile frequency that is appropriate for the volume and frequency of transactions.

OBLIGATIONS OF CORPORATE GENERAL PARTNERS The final exemption is for existing and new schemes structured as limited partnerships where investors hold shares in a corporate general partner and the general partner’s only role is to provide voting rights for investors. Any disclosure by the general partner in this structure would not give investors any useful information. The limited partnership MIS will provide all information relevant to investors. An exemption notice to give effect to the exemptions from the custody and cash reconciliation obligations is expected to be finalised by the end of August 2016. For advice on any of these exemptions, or the transition of your forestry scheme to the FMCA, please contact one of our experts.

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