The Trans-Tasman Mutual Recognition Scheme: What is it about and who can participate?

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The Trans-Tasman Mutual Recognition Scheme: What is it about and who can participate?

The Trans-Tasman Mutual Recognition Scheme: What is it about and who can participate?

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May 29, 2024

Introduction

The Trans-Tasman Mutual Recognition of Securities Offerings Scheme (MRSO) (also known as the Trans-Tasman Mutual Recognition Scheme) was first implemented on 13 June 2008.

The MRSO reduces the regulatory and economic burdens associated with cross-border financial product offerings and capital raising by offering reduced compliance and disclosure requirements to eligible corporates and retail fund managers seeking to attract retail investors across both the Australian and New Zealand financial markets.

Based on the principle of ‘substituted compliance’, the MRSO allows a retail fund manager offering a retail fund in their home jurisdiction to offer it simultaneously in the host jurisdiction without meeting most of the substantive securities and fundraising laws of that jurisdiction. This is because the regulator in the host jurisdiction may rely on the retail fund manager’s compliance with the regulatory requirements of their home jurisdiction.

The benefits of the MRSO are supported by the close economic ties between Australia and New Zealand, with cross-border investment by Australian and New Zealand corporates increasing exponentially in recent years. Based on the most recently available data, in 2022, Australian companies increased their investments in New Zealand by 47.5%, totalling approximately AU$151.9 billion.¹ Similarly, New Zealand's investment in Australia experienced growth, rising by 4.4% to approximately AU$72.2 billion during the same period.² The Australia-New Zealand Closer Economic Relations Trade Agreement (ANZCERTA) 2013 Protocol on Investment³ has provided regulatory assistance under which investors from both jurisdictions benefit from lower compliance costs and modified regulatory burdens to facilitate investments.

In this article, we provide guidance as to how the MRSO operates for retail fund managers wishing to make cross border offers in Australia and New Zealand including the entry requirements, documentary requirements, and the ongoing compliance obligations under the MRSO. As a fund manager, in understanding the benefits of the MRSO, it is important to note that a similar recognition scheme for wholesale investment fund products has not been developed.

In our next article, we will cover the licensing options, relief and exemptions available for wholesale fund product issuers and provide insights as to how to navigate the licensing and disclosure requirements for offering wholesale fund products in both Australia and New Zealand.

Our Dentons Trans-Tasman Corporate and Investment Funds team work closely together and can assist in guiding you through the MRSO and Trans-Tasman regulatory landscape.

What is the MRSO?

The MRSO introduces simplified licensing and disclosure obligations for certain financial product issuers in Australia and New Zealand seeking to extend their provision of financial services across the Tasman. Under the MRSO, an eligible investment fund may be offered in both countries' financial markets using one disclosure document which the issuer (being appropriately licensed/authorised to provide the relevant financial services in their home country) has prepared in accordance with the fundraising laws in their home country.

For a participating issuer, the MRSO not only represents a less regulated and cost-effective mechanism for simultaneously reaching investors in Australia and New Zealand, but also promotes greater consistency in the information and disclosures provided to those investors.

While in Australia, the MRSO is regulated by the Australian Securities and Investments Commission (ASIC), in New Zealand, it is subject to the joint administration of the New Zealand Companies Office (NZCO) and New Zealand Financial Markets Authority (FMA).

An offer of specified financial products under the MRSO is classified as a ‘recognised offer’.

Between Australia and New Zealand, there are slight nuances and variations in the local entry requirements for an issuer to make a recognised offer.

Such entry requirements are summarised broadly in the following table.

Table 1: Entry requirements for making a recognised offer


No.	Entry requirements	For Australian issuers	For New Zealand issuers
All of the below entry requirements must be satisfied before making a recognised offer
1.	Incorporation and governance requirements	(a) The issuers must be incorporated or established under the law of Australia. (b) A registered foreign company under Australian law may be eligible to participate in the MSRO. (c) A person involved in the management of the issuer must not be banned or disqualified from managing corporations or providing financial services.	(a) The issuer must be incorporated or established under the law of New Zealand. (b) A registered foreign company under New Zealand law will not be eligible to participate in the MRSO. (c) A person involved in the management of the issuer must not be banned or disqualified from managing corporations or providing financial services.
2.	Offer must be a recognised offer	(a) The offer of financial products must be an offer for which a disclosure document or a Product Disclosure Statement (PDS) is required under the Corporations Act 2001 (Cth) (AU Corporations Act). (b) The issuer must be entitled under Australian law to offer the financial products. This means that for an offer of interest in a retail fund, the issuer must be appropriately licensed as a responsible entity under the AU Corporations Act. (c) Accordingly, the MSRO only applies to certain retail financial products under Australian law.	(a) The offer must be an offer for which: (i) a PDS must be prepared under Financial Markets Conduct Act 2013 of New Zealand (NZ FMC Act); or (ii) a limited disclosure document is required by the Financial Markets Conduct Regulations 2014 of New Zealand (NZ FMC Regs). (b) The issuer must be entitled under New Zealand law to offer the financial products. (c) Accordingly, the MRSO only applies to certain retail financial products under New Zealand law.
3.		The financial products must be equity or debt securities issued by a company, or interests in an Australian registered scheme (being a retail fund), or any interest in, or option to acquire, these financial products.	The financial product must be shares, debentures or interests in an MIS (being a retail fund), or certain rights, interests or options in these financial products.
4.	Disclosure Document	As noted above, the offer must be disclosed in a disclosure document or a PDS in accordance with the AU Corporations Act.	The offer must be accompanied by a disclosure document which has been prepared in accordance with the NZ FMC Act or NZ FMC Regs (as required under item 2 above).
5.	Notice to the regulators	Before making the offer in New Zealand, the issuer must: (a) lodge with NZCO a written notice of intention to make the offer in New Zealand (together with certain other documents/ information as set out in Table 2 below); (b) submit the notice of intention, offer details and related documents to NZCO online on the Disclose Register; and (c) at the same time, lodge with ASIC a written notice of intention to make the offer under the MRSO.	At least 14 days before making the offer in Australia, the issuer must: (a) lodge with ASIC a written notice of intention to make the offer in Australia (together with certain other documents/ information as set out in Table 2 below); (b) at the same time, lodge with NZCO a written notice of intention to make the offer under the MRSO; and (c) upload the notice of intention lodged with NZCO against the registered product offer on the Disclose Register.

As noted in item 5 of the table above, an Australian or New Zealand issuer seeking to rely on the MRSO must comply with certain documentary requirements in notifying the other jurisdiction’s regulator of their intention to make a recognised offer. The relevant documents/information which must be submitted by the issuer are listed in the below table, depending on whether the regulator is ASIC (for New Zealand issuers) or NZCO (for Australian issuers).

Table 2: Documentary requirements relating to notice of intention to make recognised offer


NZCO documentary requirements (for Australian issuers)	ASIC documentary requirements (for New Zealand issuers)
The prescribed documents which must be lodged with NZCO in addition to the notice of intention to make a recognised offer include: (a) the Australian PDS or other disclosure document which is required under the AU Corporations Act; (b) any documents that supplement the PDS or other disclosure document (whether or not those documents are lodged with ASIC), for example: (ii) an application form; (iii) a reference guide; and/or (iv) a price list; (c) a copy of any Australian exemption or declaration that specifically relates to the offer (as applicable); (d) a list of Australian exemptions or declarations that are generally applicable to the offer (as applicable); (e) a copy of the prescribed warning statements that must accompany or be incorporated within the Australian offer document (stating that the offer is principally regulated under Australian rather than New Zealand law, along with disclosure of any dispute resolution process or other tax differences and currency risks); and (f) if the offer relates to interests in a retail fund, the constitution for the Australian retail fund or if the offer relates to an equity or debt interest (including an option in respect of) a company, the company’s constitution.	The prescribed documents which must be lodged with ASIC in addition to the notice of intention to make a recognised offer include: (a) the New Zealand PDS or other disclosure document; (b) a copy of the prescribed warning statements that must accompany or be incorporated within the New Zealand offer document (stating that the offer is principally governed by New Zealand rather than Australian law, along with certain prescribed warnings about rights, remedies and compensation arrangements, tax differences and any currency risk); (c) the trust deed for the New Zealand retail fund; (d) a copy of any New Zealand exemption or declaration that specifically relates to the offer (as applicable); (e) a list of New Zealand exemptions or declarations that are generally applicable to the offer (as applicable); and (f) an address for service in Australia.

Ongoing compliance obligations under the MRSO

Once a recognised offer has been registered in the other country, it is subject to certain ongoing conditions under the MRSO. These conditions are set out for each country in the table below.

Table 3: Ongoing conditions for a participating issuer in the MRSO


No.	Ongoing condition	For Australian issuers	For New Zealand issuers
1.	Offering conditions	(a) At all times the offer is open for acceptance by investors in New Zealand, it must remain open to Australian investors. (b) The Australian issuer must: (i) ensure that the appropriate warning statements accompany any Australian disclosure documents whenever they are provided to a New Zealand investor; (ii) if the issuer is a retail fund, provide a copy of the constitution for the fund to a New Zealand investor or if the issuer is a company, provide a copy of the company’s constitution to a New Zealand investor, on request; (iii) ensure the offeror has a New Zealand service agent for the offer; and (iv) ensure that its directors, senior managers, and controlling owner are not disqualified.	(a) At all times the offer is open for acceptance by investors in Australia, it must remain open to New Zealand investors. (b) The New Zealand issuer must: (i) ensure that it remains compliant with its incorporation and governance requirements (refer to Table 1) (ii) ensure that the appropriate warning statements accompany any New Zealand disclosure documents whenever they are provided to an Australian investor; (iii) provide a copy of the trust deed for the fund to an Australian investor, on request; (iv) ensure the offeror has an Australian service agent for the offer; and (v) ensure that its directors, senior managers, and controlling owner are not disqualified.
2.	Dispute resolution condition	(a) If the offer does not entitle a New Zealand investor to access the Australian Financial Complaints Authority (AFCA) for any disputes, then it must be accompanied by the following additional warning statement: 'The dispute resolution process described in this offer document is only available in Australia and is not available in New Zealand.'	(a) The New Zealand issuer must: (i) have a dispute resolution process that is compliant with the AU Corporations Act; and (ii) be a member of AFCA.
3.	Notification conditions	(a) The Australia issuer must notify NZCO of certain events (by amending the Disclose Register), which include, for example: (i) if any documents previously lodged with NZCO have changed, together with a copy of the updated documents (which must be notified within 5 days of the change); (ii) if the address for service of the issuer changes (which must be notified at least 5 working days before the change); (iii) if ASIC has changed or revoked an exemption that previously applied to the recognised offer (which must be notified within 5 working days of the event if it is a specific exemption, and 10 working days of the event if it is a general exemption); and (iv) if ASIC has commenced enforcement action, or exercised a power, in respect of the issuer or offer (which must be notified within 5 working days of this occurring).	(a) The New Zealand issuer must notify ASIC of certain events as specified in the AU Corporations Act, which include, for example: (i) an updated version of any documents previously lodged with ASIC, to the extent they have changed (which must be notified within 7 days of when the issuer should have notified NZCO of the change); (ii) if the FMA has changed or revoked an exemption that previously applied to the recognised offer (which must be notified within 7 days of the event if it is a specific exemption, and 14 days of the event if it is a general exemption); and (iii) if the FMA has commenced enforcement action, or exercised a power, in respect of the issuer or offer (which must be notified within 7 days of this occurring).

Therefore, despite the less onerous disclosure obligations under the MRSO, a participating issuer should be aware that complying with the regulatory requirements in the other country still requires ongoing vigilance.

The notification timeframes for any changes relating to the offer or the status of the issuer are strict, and for Australian issuers seeking to offer interests in their retail fund (or other financial products, as described above) in New Zealand, may require NZCO to be notified before the change has occurred. Failure to promptly notify the relevant regulator when required or comply with the other ongoing conditions in Table 3 can result in a stop order or the offer being banned in the other jurisdiction for a specified period. To minimise the risk of non-compliance, it is strongly advised that each issuer maintains a compliance matrix/ register which documents their applicable obligations under the MRSO and establishes clear communication channels for making timely notifications.

Conclusion

While the MRSO presents opportunities for retail funds to expand their market access, it is apparent from recent statistics this has been used more effectively by Australian retail fund managers compared to New Zealand fund managers. We consider one of the reasons New Zealand fund managers may not be taking advantage of this regime at the same level is due to the challenges of distribution in Australia, including with the new design and distribution obligations.

In our next article, we will cover the licensing position in Australia and New Zealand for wholesale fund managers (including the licensing options, reliefs and exemptions available for wholesale fund managers to open their fund to wholesale investors across the Tasman). Particularly in respect of Australia, the licensing regulatory regime for wholesale foreign fund managers has been in a state of flux the past few years, however in 2024, there appears now to be a clearer path ahead for relevant exemptions and relief to apply (which we will identify and discuss in this next article).

Our Dentons Trans-Tasman Corporate and Funds team is experienced in providing tailored and comprehensive advice to assist our clients understand and navigate these regulatory requirements.

Australian Government Department of Foreign Affairs and Trade, Statistics on where Australia invests, accessed on 14 May 2024.
Australian Government Department of Foreign Affairs and Trade, Statistics on who invests in Australia, accessed on 14 May 2024.
About ANZCERTA.