Information sharing between securities regulators
July 2015 | SPECIAL REPORT: WHITE-COLLAR CRIME
Financier Worldwide Magazine
Information sharing between securities regulators located in different jurisdictions is increasingly important in the context of continuing globalisation and international trade. The New Zealand Financial Markets Authority (FMA) has a suite of 14 memoranda of understanding (MOUs) with overseas regulators (including the Australian Securities and Investment Commission, the China Securities Regulatory Commission and the Hong Kong Securities and Futures Commission). Additionally, the FMA has 25 MOUs with European Union securities regulators specifically regarding alternative investment fund supervision (including the United Kingdom Financial Conduct Authority). It also has MOUs with a number of other New Zealand regulators (such as the Commerce Commission, which focuses on competition and fair trading matters, and the Serious Fraud Office which focuses on white-collar crime).
Given the scope for information to be passed from one regulator to another, it is important for businesses to be aware of these international information exchange arrangements so as to conduct their affairs accordingly.
Information sharing powers under statute
Providing and receiving information. Under sections 30 to 33 of the Financial Markets Authority Act 2011 (the Act), the FMA has wide powers to share information and documents with overseas regulators. That class is not restricted to those agencies with which the FMA has entered into an MOU. Under section 30(1), the FMA may provide an overseas regulator with information or documents that it holds in relation to the performance or exercise of its functions, powers or duties, where the FMA considers that it may assist the overseas regulator in the performance of its functions. If the FMA does not already hold the information sought by the overseas regulator, section 31 allows it to first exercise its investigatory powers under the Act (e.g., requiring the production of documents).
Section 30(3) also allows the FMA the power to use information provided by overseas regulators, in the performance or exercise of its functions, powers or duties under the Act or any other enactment.
Limits on information sharing powers. Importantly, the FMA may only provide information or documents to an overseas regulator if it is satisfied that appropriate protections exist to maintain confidentiality and privacy (section 30(2)).
Section 32 imposes further restrictions in respect of requests that the FMA use its investigatory powers. It provides that the FMA may only comply with such a request where it is satisfied that compliance with the request will not substantially affect the performance of its other functions, appropriate protections are in place to protect and maintain confidentiality and privacy, and it is appropriate to do so after taking into account any other matters the FMA thinks relevant.
The FMA may also have regard to other considerations. These include whether the FMA is likely to obtain the information sought, compliance costs, whether the information could be obtained by other means, whether reciprocity is likely, and the extent to which the functions of the overseas regulator correspond with the functions of the FMA.
The FMA also has the power, under section 33, to impose conditions in relation to providing information to an overseas regulator. When considering whether to impose conditions, the FMA must have regard to whether conditions are necessary or desirable in order to protect the privacy of any individual. Conditions imposed by the FMA may include conditions relating to maintaining confidentiality of anything provided (particularly personal information), the storing, use of, or access to any information provided, the copying, returning or disposing of copies of information provided, and the payment of costs incurred by the FMA in complying with a request.
Information sharing powers under MOUs
Providing and receiving information. The broad powers set out in the Act are reflected by the specific arrangements agreed to in the various MOUs which the FMA has entered into with overseas regulators. Each MOU follows a broadly similar structure.
The MOUs generally provide for requests for information to be made by either party to the agreement by making a request formally in writing setting out the purpose of the request, the law or regulation relating to the request, the link between the law or regulation and the functions of the requesting authority, and specific requirements as per each particular MOU.
Parties to an MOU may also provide information voluntarily where the information will assist the other party in the performance of its regulatory functions, even though no request has been made.
Limits on information sharing powers. Generally, the MOUs do not impose legally binding obligations on the parties, and do not affect the powers of the authorities under their respective domestic laws. Information provided under an MOU, either voluntarily or in response to a request, is subject to the domestic laws of each authority (i.e., in responding to a request or voluntarily providing information, an authority must use reasonable efforts to comply with the request but cannot exceed the scope of its powers under domestic laws).
Some MOUs also provide that in deciding how to respond to a request under an MOU, the party will have regard to the requested authority’s domestic law, whether the request involves an assertion of jurisdiction not recognised by the requested authority, and whether it would be contrary to national or public interest to give the assistance sought.
The MOUs commonly contain clauses requiring parties to maintain confidentiality of information received under the exchange provisions. Further, most MOUs provide that information supplied pursuant to a request may only be used for the purposes specified in the request, and use beyond the stated purposes (including disclosure to third party regulators) must be consented to by the authority that provided the information.
Implications. Although there may be limited scope to control information sharing between regulators, businesses could consider taking the following steps to limit the use to which regulators put their information or documents. First, consider carefully whether to provide information or documents to a regulator on a voluntary basis, as that may not be subject to the same protections. Second, ensure that a thorough review of information and documents is undertaken before provision to a regulator, to ensure that any privileged material are withheld and any confidential or private material is identified. Third, accompany any material provided to a regulator with a submission explaining why it should not be provided to overseas regulators (e.g., because it would not assist the overseas regulator to perform its functions or exercise its powers in relation to securities and fraud), or should only be provided subject to conditions. Fourth, where information or documents are requested for the explicit purpose of provision to an overseas regulator, it may be possible to withhold some documents on the basis of a different approach to privilege in the requesting regulator’s jurisdiction. Finally, it may be possible to bring judicial review proceedings where a regulator issues a notice requiring production of documents, or passes information to an overseas regulator in breach of its statute or a relevant MOU.
Ian Gault is a partner, Andy Glenie is a senior associate and Delia Cormack is a solicitor at Bell Gully. Mr Gault can be contacted on +64 9 916 8967 or by email: firstname.lastname@example.org. Mr Glenie can be contacted on +64 9 916 8811 or by email: email@example.com. Ms Cormack can be contacted on +64 9 916 8650 or by email: firstname.lastname@example.org.
© Financier Worldwide
Ian Gault, Andy Glenie and Delia Cormack