NEW ZEALAND Law and Practice Contributed by: James Cochrane, Andrew Comer, Carlo Wan and Graeme Crombie, Lane Neave
Financial Markets Conduct (Market Index) Exemption Notice 2024 Recognising the challenges in applying traditional market indices to funds with crypto-assets, the FMA issued this exemption notice in July 2024. It allows fund managers to use appropriate cryptocurrency or commodity indices or benchmarks, provided they are independently administered or widely recognised, to assess fund performance. This move aims to promote innovation and flexibility in financial markets while ensuring that investors receive relevant information. Discretionary Investment Management Services Monitoring In October 2024, the FMA also released monitoring insights into the discretionary investment manage- ment services (DIMS) sector, highlighting the need for improvements in governance and risk management, which are especially relevant for digital asset-related offerings. Crypto copy trading platforms typically allow users to mirror the trades of experienced inves- tors rather than giving full discretionary control to a provider. This distinction may mean that such plat- forms do not meet the strict definition of DIMS. The FMA has not explicitly classified crypto copy trading platforms as DIMS, but they may still be subject to other financial regulations, especially if they involve MISs, financial advice, or derivative trading. If a plat- form exercises significant control over investment decisions, it could require a DIMS market services licence. 2.4 Token Issuance ICO/TGE Industry in New Zealand There is no bespoke initial coin offering (ICO) or token generation event (TGE) framework in New Zealand. How ICOs are regulated in New Zealand largely depends on whether: • the underlying crypto-asset is a financial product under the FMC Act; • the issuer of the crypto-asset is providing a finan- cial service; • the person purchasing the crypto-asset is a retail or wholesale investor; and • the investor is based in New Zealand or elsewhere.
Fair dealing requirements of the FMC Act or under the FTA will apply. 2.5 Market Abuse New Zealand does not have a dedicated crypto-asset market abuse or insider trading framework. Under Part 5 of the FMC Act, the following conduct is prohibited in relation to financial products: • insider trading – using material non-public informa- tion to trade in, or advise on, financial products; • market manipulation – creating the false or mis- leading appearance of trading activity in, or the price of, a financial product; and • misleading or deceptive conduct – in relation to financial products or financial services. If a crypto-asset does not meet the definition of a financial product under the FMC Act and has not been designated as such by the FMA, these prohibitions do not automatically apply. Conduct that would consti- tute market abuse in relation to a traditional security may therefore not be prohibited when carried out in relation to an unregulated crypto-asset. 2.6 Non-Compliance The New Zealand government and regulatory enforce- ment agencies have been relatively slow to respond to the growth of blockchain and associated technolo- gies. Unlike in Australia, legal decisions regarding the regulation of blockchain technologies are not com- mon. Enforcement in the digital asset space is best illus- trated by the FMA’s use of stop orders under the FMC Act. In Validus , the FMA issued (and maintained) a permanent stop order restraining offers/communica- tions and acceptance of funds connected with the promoted “pool products”, and the High Court dis- missed the appeal, leaving the order in force. Cross‑border conduct is addressed where an offshore operator is promoting/targeting New Zealand – the Validus order applied to overseas entities and “associ- ated persons” promoting the product in New Zealand. Looking ahead, the FMA has publicly stated that its priorities include deterring harmful unregulated activi-
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