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Financial Markets Conduct Act 2013

Governance of financial products - Governance of managed investment products - Related party transactions

176: Additional restrictions on acquisitions by restricted schemes of in-house assets

You could also call this:

"Rules for schemes buying assets from people they are connected to"

Illustration for Financial Markets Conduct Act 2013

If you are managing a restricted scheme, you must not buy any new in-house assets if it would increase the scheme's in-house assets ratio to 5% or more with any related party or scheme participant. You calculate the in-house assets ratio by comparing the total value of in-house assets to the total value of the scheme's property. The total value of in-house assets includes assets like loans or investments in related parties or their associates.

When you calculate the in-house assets ratio, you need to consider what an in-house asset is. An in-house asset is something like a loan to, or an investment in, a related party or their associate, or an asset that is leased to them. However, some investments are excluded, like those referred to in section 174(b) or (c).

You also need to understand what words like "acquire", "investment", "lease arrangement", and "loan" mean in this context. To acquire something means to buy or get it, which can include making a loan or investment, or entering into a lease. An investment means using assets to gain interest, income, or profit. A lease arrangement is an agreement to use someone else's asset. A loan includes providing credit or financial help.

You must calculate the in-house assets ratio according to the rules set by the FMA, which are outlined in notices issued under subpart 4 of Part 9. There are some circumstances where this rule does not apply, which are called the prescribed circumstances.

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Part 4Governance of financial products
Governance of managed investment products: Related party transactions

176Additional restrictions on acquisitions by restricted schemes of in-house assets

  1. A manager of a restricted scheme (or any person to whom the manager has contracted some or all of its functions as a manager) must not acquire any new in-house asset if, as a result of the acquisition, the restricted scheme would have, or increase, an in-house assets ratio of 5% or more in relation to any related party or scheme participant (A).

  2. The in-house assets ratio of a scheme, in relation to A, must be calculated as the ratio, expressed as a percentage, of paragraph (a) to paragraph (b):

  3. the sum of the net asset values of—
    1. the in-house assets of A; and
      1. the in-house assets of any other related parties of the scheme, or scheme participants, that are associated with A; and
      2. the net asset value of the scheme property.

        1. In this section,—

          acquire includes to make a loan or an investment, or enter into a lease or lease arrangement, if the resulting loan, investment, or asset subject to the lease or lease arrangement would be an in-house asset

            in-house asset—

            1. means, in relation to a related party or scheme participant (A), an asset of the scheme that is a loan to, or an investment in, A (or an associate of A) or an asset of the scheme that is subject to a lease or lease arrangement with A (or an associate of A); but
              1. excludes investments referred to in section 174(b) or (c)

                investment means the application of assets in any way, or a contract entered into, for the purpose of gaining interest, income, profit, or gain

                  lease arrangement means, in relation to an asset, an agreement in the nature of a lease under which a person is to use, or control the use of, the asset (whether or not the agreement is enforceable)

                    loan includes the provision of credit or any other form of financial accommodation (whether or not enforceable).

                    1. The in-house assets ratio of a scheme must be calculated under this section in accordance with the frameworks and methodologies specified in notices issued by the FMA under subpart 4 of Part 9 (if any).

                    2. This section does not apply in the prescribed circumstances.