Appendix 7

Review of Financial Products and Providers: Collective Investment Schemes

[ Last Updated 30 November 2006 ]

Do you consider the proposed definition of CIS meets the objectives for regulating CIS (refer paragraph 20)?
Do you consider the proposed definition captures the range of securities, schemes and policies that should be regulated similarly? That is, can you identify any securities, schemes or policies that would fall outside this definition that should be regulated the same as other CISs and therefore included in the definition?
Is there any part of the definition that you consider inappropriate? If yes, what part and why is it inappropriate?
Is the definition missing any elements? If so, what elements is it missing, and how would the missing element assist in defining CISs?
What securities, entities or schemes do you think currently come within the proposed definition of CIS, but should specifically be excluded from the definition of CIS, and why?
Do you consider the legal form or forms for CISs should be prescribed? Why/why not?
Do you consider superannuation schemes should fall within the general definition of CIS or should they be regulated differently? What are the reasons for your view?
Do you consider employer-sponsored superannuation schemes should generally be regulated in the same way as other CISs? In particular, do you consider that employer master trusts should be treated the same way as other CISs? Why?
What are the implications (including both benefits and costs) of regulating superannuation schemes in the same way as other CISs?
In relation to existing policies:
- In your experience, how many life insurance policies where the investment component is a separate contract are offered by (a) one company and (b) separate entities?
- Do you consider the proposed regulatory treatment for existing policies/contracts is appropriate? Why/why not? If not, how should existing policies/contracts be regulated?
Considering the objectives for regulating CISs (see paragraph 20) and the objectives for regulating life insurance (see the Insurance discussion document), do you consider the proposed framework for regulating new policies is appropriate? Why/why not?
Do you consider the CIS trustee should be required to perform any other functions in addition to those set out above, or are there any that are inappropriate? Why?
Do you consider the CIS trustee should be liable for its acts and omissions in the performance of its functions as a trustee? Why/why not?
Will any of the proposed functions raise issues for the CIS trustee of a participatory scheme? If so, what are those issues and how do you consider those issues should be addressed?
Do you consider the CIS trustee should be required to perform any other duties in addition to those set out above, or are there any that you consider are inappropriate?
Do you consider the CIS trustee should be liable for its acts and omissions in the performance of its duties as a trustee? Why/why not?
- Will any of the proposed duties raise issues for the CIS trustee of a participatory scheme? If so, what are those issues and how do you consider those issues should be addressed? For example, will the duty to hold scheme property on trust cause any issues or will all participatory schemes be able to hold scheme property on trust? If not, how should this be regulated to ensure the objectives for regulating CISs are met?
The CIS trustee's duty to not act on any direction of the issuer to acquire any property for the scheme or dispose of any property of the scheme is dependent on the CIS trustee's assessment of whether the proposed acquisition or disposal is "manifestly not in the interests of investors". A duty to not act only where the proposed acquisition or disposal is not "manifestly not in the interests of investors" is considerably less of a duty than its duty to act in the best interests of investors. However, on the other hand, issuers also need flexibility to manage the scheme and the investments, and should be allowed to operate without the CIS trustee challenging every acquisition or disposal of scheme property.
- Is "manifestly" the appropriate threshold to trigger this duty? If not, what should be the appropriate threshold?
- Is it clear what "manifestly not in the interests of investors" means? If not (and you consider "manifestly" is the appropriate threshold), how would you provide guidance on how to interpret the provision?
Do you consider investors should be able to call a meeting and require the CIS trustee to act on their directions? Why/why not?
Do you consider the CIS trustee should have any other powers in addition to those set out above, or are there any that you consider inappropriate?
Do you consider the CIS trustee should be liable for its acts and omissions in the exercise of its powers as a trustee? Why/why not?
- Will any of the proposed powers raise issues for the CIS trustee of a participatory scheme? If so, what are those issues and how do you consider those issues should be addressed?
Do you consider CIS trustees should have a statutory power to require periodic reporting from the issuer? If no, why?
What directions or orders do you consider the court should be able to make for breach by the issuer of its duties, the terms of the trust deed or the terms of the offer?
Do you consider the proposed remedies for breach by the CIS trustee of its duties are appropriate? Why/why not?
Currently, members of a superannuation scheme do not have the ability to call meetings and/or direct trustees. Do you consider members should have the ability to call meetings and/or direct CIS trustees? Why/why not?
What directions or orders do you consider the court should be able to make for breach by the CIS trustee of its duties or the terms of the trust deed?
Do you consider any of the fit and proper entry and ongoing requirements are inappropriate? Why?
Do you consider issuers should be required to comply with any other fit and proper entry and ongoing requirements? Why?
Do you agree the CIS trustee should recommend approval of a particular issuer to the Commission, with the final determination resting with the Commission? Why/why not?
What process do you consider should be followed in the event an issuer is declined approval by the Commission? Should it be able to present further information to the CIS trustee or to the Commission, or should the issuer only be allowed to appeal the decision to the High Court? If the latter, on what grounds should an appeal be provided? What other process do you consider would be appropriate?
Do you agree the CIS trustee should monitor the ongoing fit and proper requirements of the issuer, and report to the Commission where the CIS trustee determines that the issuer no longer meets the fit and proper requirements? Why/why not?
Do you agree the final determination as to whether the issuer continues to meet the fit and proper requirements should lie with the Commission? Why/why not?
Do consider the proposed reporting requirements are appropriate? Why/why not?
Do you consider the proposed options for remedying a breach by the issuer of the fit and proper entry requirement are appropriate, or are there any that are inappropriate?
What appeal rights do you consider the issuer should have if the Commission determines that it no longer meets the fit and proper requirements? If you consider an issuer should be allowed to appeal a determination that it no longer satisfies the fit and proper requirements to the High Court, on what grounds should the issuer be entitled to appeal? What are your reasons?
Will there ever be a situation where another issuer will step in and take over as issuer where the issuer's approval has been revoked and it has been removed?
- If so, what should happen?
- If not, should the scheme be wound up?
Do you consider there should be any other functions for issuers in addition to those set out above, or are there any that you consider inappropriate? Why?
Do you consider there should be any other issuer duties in addition to those set out above, or are there any that you consider inappropriate? Why?
Do you consider the issuer should have the same liability for exercising its functions and powers as if it were a trustee? That is, do you consider a higher duty should be imposed on issuers? Why/why not?
In relation to the requirement to report statistical data to the Commission what information should be included in any statistical data return?
- What data do you think should be kept confidential, and what should be made publicly available?
Do you consider the issuer requires any other powers in addition to that set out above, or do you consider the proposed power is inappropriate?
Do you consider the proposed options for remedying a breach by the issuer of its obligations owed to investors are appropriate, or are there any that are inappropriate?
Do you consider the proposed whistle-blowing provision meets the regulatory objectives for CISs? Why/why not?
Do you support the proposed provisions relating to amendments to CIS trust deeds or would you prefer changes were made in legislation on a case-by-case basis? Are there any additional issues raised with applying this framework to all CISs?
Do you consider that the Regulator should approve changes to trust deeds where the issuer and the trustee agree to the change? Why?
Should the Regulator have a similar power where, in the opinion of one party, consent to a trust deed change has been unreasonably withheld? What are your reasons?
Should the Superannuation Schemes Act procedure for obtaining full member consent to adverse trust deed changes be maintained?
Do you support a provision equivalent to the current Superannuation Schemes Act provision enabling transfers of members to another scheme for all CISs? Why? If so, should the trustee or regulator determine which members would not be materially affected by the transfer?
Do you agree that the Superannuation Schemes Act transfer provision should be extended to all CISs to enable transfers where the new scheme is equivalent or better than the previous scheme? If so, do you consider that the trustee or the regulator (or both) should make that assessment?
Do you agree that transfer provisions should be flexible for CISs generally? Why?
Do you support restrictions on assignment of interests in superannuation schemes? What are your reasons?
Do you agree that the provision on benefits in schemes linked to employment status should be retained for all existing superannuation schemes?
Do you agree that a CIS's objectives should be included in the trust deed? Should all CISs be required to specify an objective? `What are your reasons?
Do you support the proposal that CISs that hold themselves out to be superannuation schemes should have an implied provision that is linked to its purpose of providing retirement benefits? Should this test be more specific, e.g. should it require funds to be locked in, or the statement of an investment strategy in the trust deed that is consistent with a long-term savings vehicle, or would it be better to achieve clarity for investors through disclosure?
Is greater specification of objectives required in CIS trust deeds generally? What sorts of matters could or should be required to be stated in relation to the scheme objective? Could this reduce some of the flexibility that the new regulatory regime is intended to introduce?
Do you agree that any conditions of entry and exit into a CIS should be specified in the trust deed? Do you have any comments on the practical effect of such a provision? What are your reasons?
Do you consider that trust deeds that contain lock-in provisions that are not related to a term of employment should be required to have provision for portability of funds? If so, how can this be practically achieved?
What would be an effective mechanism for balancing the concern around allowing effective portability between schemes but preventing unnecessary churn which is costly for schemes that may have priced the lock-in into their offer? How long would a period of lock-in need to be for a portability requirement to apply?
Would clear disclosure of lock-in be an effective way of dealing with the concerns raised?
Do you agree with the proposal that any minimum contribution levels, or a process through which these are established and/or amended, should be included in the trust deed? Why?
Do you agree that a methodology for determining and amending a scheme's investment strategy should be included in the trust deed, or is this information better placed in disclosure documents? What are your reasons?
Should this only be a requirement where the scheme has a material investment strategy? What are your reasons?
Do you agree that trust deeds for CISs should be required to specify the conditions of the scheme in relation to pricing, withdrawals, redemptions (including when they can be withheld) and distributions? What are your reasons?
Do you support the proposal for a general requirement to specify a process for valuation of assets in the trust deed? If so, should there be any qualitative requirements around the provision, e.g. the Australian requirement for "adequate" provision to be made for these matters?
Do you agree that it would be beneficial to require consistent timing of valuations? Should this be consistent across all schemes? Would standardisation of the timing of currency conversion be a better approach? How could this best be achieved – by government or by the industry? Please state your reasons.
Do you have any comments on the issues identified relating to the process for valuing assets? If a process is required, how prescriptive should this requirement be?
Do you agree that any discretions around payment of benefits should be contained in the trust deed and should only be exercisable by the trustee? Why?
Do you agree that trust deeds should specify the types of fees that are or could be deducted and how they would be calculated, or is this information better contained in offer documents? What are your reasons?
Do you support the proposal that trust deeds should contain any provisions around appointment and removal of trustees and issuers, subject to the powers of the regulator, trustee and issuer that will be contained in the legislation?
Do you agree that the circumstances which will trigger a wind-up and the procedure for winding up and the distribution of assets should be included in trust deeds? What are your reasons?
Do you consider that there should be standard triggers for wind-up for all schemes? If so, what would those triggers be and how would they interact with the issuer's and trustee's duty to act in the interests of members?
Do you support the proposals for initiation of meetings? Please give reasons for your answer.
Do you agree that the proposed quorum and voting procedures will be effective for CIS schemes? What are your reasons?
How much would a meeting constituted under these provisions be likely to cost?
Given this link between provisions in the trust deed and the trustee's power to act, do you consider there are any other matters that should be included in the trust deed so the trustee has the power to act in relation to those matters? Why?
Are there any other requirements (for example, duties, rights, powers, etc) contained in any of the Unit Trusts Act, the Superannuation Schemes Act or the 7^th Schedule to the Securities Regulations that you consider may be appropriate to apply to the framework for CISs? What are your reasons?
Do you think there is a need to further specify the sorts of matters that should not be left to the discretion of an employer or third party? If so, which matters should this prohibition apply to?
Do you agree that the trustee should be required to give consent to the reversion of assets to a third party? Should this decision rest with the regulator where there is an employer representative on the board of trustees? Are there any problems with the current reversion provisions in the Superannuation Schemes Act?
Do you agree that the proposed transitional framework should be applied to existing stand-alone employer schemes? How could stand-alone employer schemes be defined for the purposes of the exception?
More specifically, do you agree with the proposals for amended powers and duties of the trustee and manager and regulatory controls?
What do you consider are likely to be the costs imposed by the additional trust deed requirements to existing stand-alone schemes, and do you consider that these costs would outweigh the benefits of including the requirements?
More generally, what would be the additional costs of applying this transitional framework to existing stand-alone employer schemes? How would this compare to the costs of applying the proposed general CIS structure to existing schemes (i.e. if no exception was made for existing stand-alone schemes)?
Do you agree that the proposed powers of the regulator would effectively address concerns arising from the lack of independent monitoring by the trustee in these transitional schemes?
Do you agree that fit and proper entry requirements around independence should apply to the board of trustees as a whole in a stand-alone scheme, and that this should enable the board to have representatives from the employer and the employee?
If the independence requirements do apply to the board as a whole, should there be a requirement for broad representation on the board, i.e. representation from the employer, employee and or an independent trustee? What would be the costs of imposing this requirement on current schemes?
Should the proposals relating to independence of the board for a stand-alone scheme apply only to existing schemes, or should they apply more broadly to any new stand-alone employer scheme?
How could or should the regulator's approval of the trustee fit with procedures that may be contained in the trust deed for appointment of trustees to the board?
How should defined benefit schemes be defined in legislation?
Do you agree that the proposed transitional structure for defined benefit schemes will be effective? Are there sufficient checks and balances within this structure to address the risks that are inherent in defined benefit schemes?
Do you agree that there is currently a problem with under-funding of defined benefit schemes? If so, what is the extent of this problem?
If there is a problem, can it be effectively addressed by specifying target funding levels for schemes? How could these levels be designed to take retain some flexibility to take account of the circumstances of different schemes?
Do you agree with the contention that actuarial assumptions that are used in valuations should be more consistent and transparent? Do you see any risks with greater prescription of assumptions?
What is your view on whether the governance arrangements for actuarial standard setting are sufficiently robust? Do you support the proposal for using the same governance structures for superannuation actuarial standard setting as for insurance actuarial standard setting?
Do you support more frequent actuarial examinations than are currently required under the Superannuation Schemes Act? How frequent do you consider that these examinations should be and why? Are you able to provide an estimate of the cost of an actuarial examination?
Do you agree that there is a need for more prescription in trust deeds around how withdrawals should be valued? What provisions do you think should be required?
Do you consider that current trust deed provisions can be inequitable in their treatment of different members upon wind-up?
Do you think that these issues can be effectively addressed for new any schemes by restricting the type of wind-up provisions that can be included in trust deeds for defined benefit schemes? What sort of restrictions should apply?
Do you agree that trustees and the regulator should be given a discretion to amend priorities on wind-up provisions in current trust deeds? What would be the implications of such a provision, and could it be administered fairly in practice?
Could the limited annuities market in New Zealand be contributing to the perceived inequity of distributions on wind-up of schemes? If so, how could the annuities market be bolstered to address these issues?
Do you agree that there is a need for greater regulator powers to deal with issues that arise in relation to defined benefit schemes?
Do you support mechanisms that would empower the regulator to work with schemes to require them to address concerns about funding levels, which may include the ability to direct an employer in relation to the scheme?
If the regulator is given the sorts of powers that are proposed, do you consider that principles should be developed to guide that discretion? Should these principles be developed by the regulator or an independent body? What could these principles cover?
Do you consider that it is appropriate for the regulator to have an ability to direct an employer in relation to funding levels? What would be the implications of such a provision for employers?
Do you consider the CIS trustee should be a trustee in legal terms and, in particular, do you consider that trustee obligations and liabilities should be imposed on statutory supervisors? Why/why not?
Are there any products that currently come within the definition of "participatory security" that you consider should not be regulated as securities under securities legislation?
Are there any products that currently do not come within the definition of "participatory security" that you consider should be regulated as securities under securities legislation?
Are there any products that currently come within the definition of "participatory security" that you consider may not appropriately fit all of the proposed regulatory requirements applicable to CISs?
- If so, what requirements would not work for that particular offer of securities?
Do you consider that the definition of "contributory scheme" should be used in conjunction with the current definition of "security" to ensure that present and future products that might not ordinarily be considered to be financial products or investments, but which have the characteristics of securities, are given like regulatory treatment?
We consider there will be only a small number of securities that are not derivatives, equity securities, debt securities or CISs. Can you provide any examples of the types of products and features of those products that will fall in the back-stop class of securities?
If the back-stop class of securities does not have similar features or investors with similar characteristics justifying similar regulatory treatment, do you agree or disagree with that the Commission should be given the flexibility to determine the most appropriate way to regulate these securities? What are your reasons for your opinion?
Do you have any comments or ideas about transitional provisions in general or how particular transitional provisions should work?

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Printed: 30/07/2010