NOVEMBER 2026

Guidance for registered schemes on related party transactions

Provides managed investment scheme (MIS) managers and their supervisors with clarity on the position of the Financial Markets Authority – Te Mana Tātai Hokohoko (FMA) on aspects of related party transactions involving registered schemes.

FMA
FINANCIAL MARKETS AUTHORITY
TE MANA TĀTAI HOKOHOKO

About FMA guidance

Our guidance:

explains how we interpret the law
describes the principles underlying our approach
gives practical examples about how to meet obligations.

Guidance notes: provide guidance on a topic or topic theme. Typically we will seek industry feedback via a public consultation paper, or more targeted consultation before we release a guidance note.

Information sheets: provide concise guidance on a specific process or compliance issue or an overview of detailed guidance.

Introduction 4

Background 4

Legislative requirements 5

Purpose behind related party transaction provisions 5

Key requirements and application 7

What is a ‘benefit’? 7

What is a ‘related party benefit’? 8

(a) Given out of scheme property or creating an exposure to loss 8

(b) Benefit given to, or received by, a related party of the scheme 8

When is another investment manager or an administration manager a ‘related party’? 10

Investment manager considerations 10

Contracting out administration services 11

Risk considerations 12

Indirect related party benefits 12

Notification and certification of related party transactions 16

When can one notification and RPC be used for a series of transactions? 17

How much detail should be included in the notification and RPC? 19

What is meant by ‘key terms’? 20

What are ‘arm’s-length terms’? 21

What is ‘reasonable evidence’? 24

RPCs to be kept under review 26

Risk management considerations and strategies 27

Appendix 29

Introduction

The purpose of this paper is to provide MIS managers and their supervisors with clarity on the FMA’s position on aspects of related party transactions involving registered schemes.

This is not a comprehensive guide to related party transactions. It does not separately consider the related party transaction rules that apply to discretionary investment management service (DIMS) licensees or FMC reporting entities in respect of their financial reporting obligations. While there are parallels between the related party requirements for MIS and DIMS licensees, the requirements and the risks are not identical, so we have adopted a narrower focus for the purposes of this paper. However, there will likely be aspects that are relevant to DIMS providers.

We do not purport to amend or add to the legal obligations in this area; rather we explain how we consider the existing law should be applied.

From our engagement with supervisors and market participants, we are aware of inconsistent approaches in how related party provisions are applied and challenges in operationalising the regime. This guidance will help create broader awareness of some key issues and the FMA’s expectations.

We understand from our engagements that providing clarity on these issues will support the sector and help ensure a more consistent and purposeful approach to related party transactions involving registered schemes.

This guidance includes examples and high-level illustrations of how the related party transaction requirements may be applied in practice. These examples and illustrations are intended to assist market participants in exercising judgement and are not designed to operate as a checklist or to provide definitive answers in every situation. As we discuss throughout this guidance, the application of the related party requirements is highly dependent on the particular facts and circumstances. The examples and illustrations are meant to provide an accessible overview of key considerations and examples of how different factual situations may give rise to different risk profiles and approaches.

Background

In the MIS sector, it is common for registered schemes (also known as retail schemes) to have some exposure to related parties. This exposure can take many different forms. For example, it might be a direct investment into an unregistered scheme (also known as a wholesale scheme) managed by a related party, or an indirect investment into a related party company. These related party transactions give rise to a conflict of interest and a risk of investor harm. It is important this conflict of interest is recognised and carefully managed.

The FMA is aware that market participants have raised questions about how to apply certain requirements of the Financial Markets Conduct Act 2013 (FMC Act) to related party transactions, as market participants consider and review their own practices.

We welcome these reviews of practices by market participants and have produced this guidance to address certain questions and clarify the FMA’s position. This will help ensure due consideration of investor interests while also supporting efficient operation of the market. In particular, we set out:

the policy intent behind the related party transaction provisions in the FMC Act;
a brief overview of the legislative requirements; and
how we think certain key aspects of the requirements should be applied in practice.

This information is supported with reference to examples.

Legislative requirements

Sections 172 to 177 of the FMC Act are the key related party transaction provisions for registered MIS (related party transaction provisions).

Section 173 of the FMC Act prohibits transactions that provide for a related party benefit to be given by a manager and any investment manager, administration manager, or other person to whom the manager has contracted out some or all of its functions as a manager, except in certain circumstances. The prohibition does not apply to a “transaction or series of transactions” if the manager notifies the supervisor of the transaction(s) and either the supervisor’s consent is obtained or the transaction(s) or related party benefits to be given are permitted under section 174 and the manager certifies to that effect in accordance with the FMC Act.

A key defined term is related party benefit, which in relation to a registered scheme, is a benefit:

(a) that either is given out of scheme property or creates an exposure to loss for scheme property; and

(b) that is given to, or received by, a related party of the scheme; but

(c) does not include fees or expenses that are paid or reimbursed to the manager in accordance with the FMC Act or the governing document of the scheme.1

Purpose behind related party transaction provisions

The default position under the FMC Act is that transactions that provide for a related party benefit are prohibited unless an exception applies. The prohibition exists because these transactions may be improperly influenced by the interests of the related party and so not in the best interests of scheme participants, as is clear from the policy development history of the relevant FMC Act provisions. 2 However, the FMC Act permits transactions giving related party benefits in some circumstances, and they can benefit investors, such as through increased economic efficiency.

The related party transaction provisions require the manager to identify any related party benefit, notify the supervisor and establish the applicable statutory basis on which the transaction is permitted. This obligation is in addition to the manager’s conflict of interest obligations and the overarching duties of a manager in

[1] Section 172 of the FMC Act

[2] Cabinet Paper "Securities Law Reform" (February 2011) at [153]-[159]; Ministry of Economic Development Financial Markets Conduct Bill: Initial Briefing to Commerce Select Committee (1 May 2012) at [56]; and Ministry of Economic Development Regulatory Impact Statement: Securities Law Review (February 2011) at 13.

Part 4 of the FMC Act, including the obligation to act in the best interests of scheme participants and exercise the care, diligence, and skill of a prudent professional. In turn, the legislative design obliges the supervisor to oversee related party transactions and request further information as needed to satisfy themselves the transactions are permitted.

A fundamental aspect of this design is the need for managers to provide and supervisors to receive sufficient information to understand the context of a proposed related party transaction and whether the conflict of interest has been adequately managed, such that the transaction is permitted.

It is important to document the decisions made under the statutory requirements and to ensure all relevant facts and circumstances are considered, together with the best interests of investors. These decisions require an exercise of judgement. It is essential that in using that judgement there is a good level of understanding of the transactions and relevant context, overlaid by careful consideration of the law and the purpose behind it. This in turn enables well-informed risk-based decision-making to ensure the purpose of the legislation is met.

The related party transaction requirements do not exist, nor should they be considered, in isolation from the broader obligations of the manager. In practice, they should be considered alongside robustness of governance arrangements, management of conflicts of interest, investment decision making, and nature and types of products.

Key requirements and application

We have identified aspects of market participants’ processes and decisions around related party transactions that may not align with the FMA’s expectations about how the law is applied. Our objective is to ensure the intent of the related party transaction provisions is achieved in a way that effectively reduces the risk of investor harm linked to related party benefits, while avoiding unnecessary regulatory burden. Where there is uncertainty about whether the related party transaction provisions apply, the FMA encourages managers to discuss the potential related party benefit with their supervisor.

What is a ‘benefit’?

Before there can be a related party benefit under the FMC Act, there must first be a benefit. We understand there is some uncertainty in the market about what amounts to a benefit.

The FMC Act does not define the term benefit. The ordinary meaning of benefit is “a helpful or good effect”, or “an advantage”.3 In the context of the FMC Act, the qualifying limbs in section 172(1) of the FMC Act focus on scheme property and exposure to loss of that scheme property, which are inherently financial in nature. For managed investment schemes, we consider the concept of a benefit will have a financial or economic character.

We consider this is broader than direct monetary payments. The assessment should focus on the substance and practical effect of the arrangement, including whether it places the related party in a more advantageous position or otherwise confers an economic or financial advantage.

Where it is not obvious, “benefit” might be identified by asking why the related party is interested in entering the transaction and what advantage, value, opportunity, protection, or commercial outcome they obtain from it.

Example 1 In a MIS context, a benefit may arise where value or opportunity is being diverted from, or risk is diverted towards, the scheme or its investors. Examples of benefits may include:

Monetary benefits: payment of fees, expenses, interest, distributions, or other amounts out of scheme property.
Benefits with economic or financial value: guarantees of contractual obligations, liquidity or funding support, cash-flow flexibility, reduced funding costs, increased funds under management (FUM), enhanced scale, operating leverage, or improved ability to attract capital.

[3] Cambridge online dictionary at www.dictionary.cambridge.org

What is a ‘related party benefit’?

A related party benefit is defined in the FMC Act.4 It requires the benefit:

(a) either to be given out of scheme property or to create an exposure to loss for scheme property; and

(b) either to be given to, or received by, a related party of the scheme.

Fees or expenses paid or reimbursed to the MIS manager in accordance with the FMC Act or the governing document of the scheme (manager’s fee) 5 are not captured by the definition of ‘related party benefit’ and are therefore not caught by the related party transaction rules.

(a) Given out of scheme property or creating an exposure to loss

Under this limb, the benefit must either be given out of scheme property or create an exposure to loss for scheme property. It is not necessary for both elements to be satisfied. However, where scheme property is transferred to a scheme managed by a related party there will likely be a benefit arising that is given out of scheme property or creates an exposure to loss for scheme property.

Examples include money paid, or a contingent obligation to pay money out of scheme property to a related party (for example, under a capital commitment or guarantee). An exposure to loss may also arise where the scheme’s assets, liquidity, risk capacity or strategic position are used in a way that exposes investors to downside risk (including investment risk), opportunity cost or adverse outcomes, whether or not loss is actually suffered.

(b) Benefit given to, or received by, a related party of the scheme

This limb requires a connection between the benefit and a related party of the scheme. The question is whether, in substance, the related party obtains a benefit arising from the transaction, whether directly or indirectly. A benefit may be received by a related party even where it is not paid to them in the form of a fee or other direct financial transfer.

Examples include:

an increase in assets or FUM;
the ability to deploy scheme capital to support the related party’s investment strategy or commercial objectives;
improved liquidity or balance sheet strength;
reduced funding costs;
enhanced credibility or scale;

or other benefits that arise because scheme property is made available to, or put at the disposal of, the related party.

[4] Section 172(1)

[5] Section 172(1)(c)

In assessing this limb, the focus is on the effect of the transaction on the related party, rather than any benefit that may also accrue to the scheme or its investors. The fact that a transaction may be entered into for operational, efficiency or investor-focused reasons does not preclude it from also resulting in a benefit being given to, or received by, a related party, and therefore being caught by the related party transaction rules.

Example 2

Where a director or senior manager of a MIS manager invests into a registered scheme managed by that MIS manager on the same terms (including fees) as other investors, a benefit to the director or senior manager is the service provided by the MIS manager. Provision of that service is not given out of scheme property, nor does it create an exposure to loss for scheme property. Accordingly, the benefit will not be a related party benefit.

Example 3

Where a MIS manager contracts out administration or registry services and the fee is paid out of scheme property (and not the manager’s fee) the fee paid will be a related party benefit.

Example 4

Where a MIS manager (A) of a registered scheme contracts the investment of some or all of the scheme property to an investment manager (B), both A and B will be related parties of the scheme. If fees are paid to B out of scheme property (and not out of A’s manager fee) the fees will be a related party benefit.

Example 5

It is common for the manager of a registered scheme (Scheme A) to invest scheme property into an unregistered scheme (Scheme B). This is often done for operational efficiency reasons for Scheme A, such as achieving efficient exposure to asset classes, or to streamline portfolio rebalancing. The related party benefits that may arise in these circumstances will depend in part on whether the schemes are managed by the same manager or a related party.

Scenario 1

If Scheme A and Scheme B are managed by the same manager, the transfer of scheme property will not result in an increase in FUM for the manager (as there will be no change in the total pool of assets under management). The manager may, however, receive other types of related party benefits as a result of Scheme A property being invested into Scheme B. These could include the ability of the manager to achieve market scale or acquire other benefits as a result of the increased funds managed in Scheme B.

Scenario 2

If Scheme A and Scheme B have different managers, then the transfer of scheme property from Scheme A to Scheme B will result in an increase in FUM for the manager of Scheme B. If the manager of Scheme B is a related party of Scheme A, this increase in FUM will be a related party benefit because the Scheme B manager will be able to use the increase in FUM for marketing purposes, operating leverage, or to attract additional funding from other sources. There may also be other types of related party benefits as noted in Scenario 1 above.

In both scenarios above, where Scheme B is used solely as an operational pooling vehicle, invests in transparent and readily valued assets, and does not direct scheme property towards other related parties, consideration of related party benefits and associated certification and supporting processes may be reasonably straightforward. That may not be the case, however, where for example Scheme B makes bespoke investments in related parties, invests in unlisted assets or provides financial support to entities requiring further capital.

When is another investment manager or an administration manager a ‘related party’?

Section 172(2) of the FMC Act defines the term ‘related party’ of a scheme as:

(a) any of the following persons (a scheme-connected person):

(i) the manager of the scheme or any trustee of a restricted scheme; and

(ii) any investment manager, administration manager, or other person to whom the manager has contracted out some or all of its functions as a manager; and

(iii) for a restricted scheme that is identified on the register of managed investment schemes as an employer-related scheme, any contributor to the scheme who is not a scheme participant (other than the Crown); or

(b) an associated person of a scheme-connected person.

Investment manager considerations

An investment manager to whom the manager has contracted out some or all of its functions as a manager will be a related party of the relevant scheme6 and subject to the general prohibition on related party transactions7 .

An investment manager (referred to in section 172(2)(a)(ii)) in relation to a MIS is defined in the FMC Act as a person to whom a manager of the scheme has contracted the investment of some or all of the scheme

[6] Section 172(2)(a)(ii)

[7] Section 173(1)

property. We understand there is a view in the market that investment by a registered scheme into an (otherwise unrelated) unregistered scheme makes the manager of the unregistered scheme an investment manager, and therefore a related party of the registered scheme.

We consider there is a distinction between a MIS manager:

investing in other financial products (including other managed investment products); and
contracting the investment of some or all of the scheme property.

Investing in other financial products (including other funds) alone will not mean the issuer of those financial products is an investment manager. Appointing a third party to provide investment management services will be contracting out the function of investment management and the third party will be an investment manager.

Example 6

Where the manager of Scheme A (a registered scheme) makes a decision to invest and invests in Scheme B (an unregistered scheme managed by another manager), the manager of Scheme B will not be an investment manager (provided it does not otherwise contract any aspect of the investment by Scheme A to the manager of Scheme B).

Where the managers of Scheme A and Scheme B enter into an Investment Management Agreement (or similar) where the manager of Scheme B will execute some or all of the investment management functions for Scheme A, the manager of Scheme B will be an investment manager for Scheme A.

Determining whether a third party is an investment manager under the FMC Act requires consideration of all relevant facts and circumstances including:

the nature and purpose of contractual arrangements
the extent of investment discretion retained by the manager of the registered scheme
the extent to which the manager retains the resource and capability to fulfil the investment management function itself
type of consideration (fee for a service or payment of a purchase price).

Contracting out administration services

Section 6 of the FMC Act defines an administration manager, in relation to a MIS, as a person to whom the manager has contracted some or all of the administration of the scheme. We have received requests to confirm treatment of registry services for this purpose. Our view is that the registry services are part of the administration of a MIS. Where a manager contracts those services to another person, that person is an administration manager for the purposes of section 172(2)(a)(ii). We consider that maintaining the register, processing applications, redemptions, switches and transfers, recording holdings and transactions, and supporting investor communications and reporting, are core operational functions through which the scheme is administered.

While registry providers may be separately named in an annual report where required by clause 62 of Schedule 5 to the Financial Markets Conduct Regulations 2014 (FMC Regulations), that disclosure requirement does not change the character of the services or their inclusion in scheme administration.

Risk considerations

The definition of a related party can mean that entities that are otherwise independent of the manager of the scheme can be brought into the regime. Where that is the case, the consideration turns to the level of risk to calibrate the approach. Risk considerations in these circumstances may include:

what is the arrangement, and how well-understood and common the arrangement is
nature of relatedness between the parties
extent of control and whether there is independent governance and decision-making
whether the benefit is a fee at market rates
the extent to which an entity undertook its own due diligence and assessment of the merits of the arrangement.

Example 7

Where another investment manager or the registry provider is a related party by operation of statutory provisions, but is otherwise independent and engaged on ordinary commercial terms, we consider the risk of mischief the provisions are aimed at to be low, and the arm’s-length terms analysis, given the processes undertaken prior to appointment, should be straightforward. We also consider that in this instance reliance on a related party certificate covering a series of transactions would, in the absence of other factors, be appropriate.

Indirect related party benefits

For the purposes of sections 172–177 of the FMC Act, the FMA considers that a transaction may extend beyond the immediate legal counterparty to include downstream entities where that reflects the transaction in substance and purpose of the manager’s decision.

Indirect related party benefits may arise where scheme property is invested through one or more intermediary entities before ultimately benefiting a related party of the registered scheme. In such cases, the FMA considers that the related party transaction provisions should be applied having regard to the substance, purpose and effect of the arrangement, rather than being assessed narrowly by reference to a single contractual step.

The purpose of the related party transaction regime is to prevent improper influence in decision-making that may result in value or opportunity being diverted from, or the transfer of risk to, registered scheme investors for the benefit of related parties. That purpose would be undermined if transactions were assessed in constituent parts (for example, only between the managers of Scheme A and Scheme B), where the Scheme A manager’s decision in substance contemplates, enables or is directed towards an outcome further down the transaction chain.

Accordingly, where the manager of a registered scheme invests scheme property with an intermediary entity (for example, an unregistered scheme or investment vehicle), and the manager knows8 that the investment will result in scheme property being applied for the benefit of a related party, the FMA considers the related party transaction provisions extend to that downstream application of scheme property. In such circumstances, the related party transaction provisions should be considered by reference to the transaction as a whole, including any indirect related party benefits.

Whether an indirect related party benefit is received by a related party as part of a transaction will require an assessment of the substance of the transaction, which will depend on the relevant facts and circumstances. Relevant considerations include the following:

the purpose of the transaction;
whether the benefit received by the related party is sufficiently connected to the transaction entered into by the manager on behalf of the registered scheme that it can properly be regarded as arising from that transaction, rather than from independent or intervening activity;
the degree of the manager’s knowledge or expectation at the time of the decision as to how scheme property would be applied: downstream activity that was not contemplated, directed, controlled by or integral to the manager’s decision will not typically be caught;
the extent to which the downstream arrangements and the associated related party benefit were known prior to entering into the transaction and how integral they are to the transaction;
the extent to which the related party initiated, requested or materially influenced the transaction;
whether the transaction forms part of a coordinated course of conduct or involved parties acting in concert;
whether any intervening activity breaks the chain of influence or control;
whether the overall structure of the transaction results in a downstream related party receiving a related party benefit.

It would be inconsistent with the purpose of the related party transaction provisions in the FMC Act if a manager could circumvent the related party transaction provisions solely by using an intermediary, where in substance, scheme property is applied for the benefit of a related party. This is supported by the wording of section 172(1)(b), which is not confined by contractual form and expressly includes a benefit being given to, or received by, a related party of the scheme. The interpretation is also supported by the definition of ‘related party’ which extends beyond scheme-connected persons to their ‘associated persons’ which includes a person acting jointly or in concert with the scheme connected person (see sections 172(2) and 12 of the FMC Act). An approach that limits the analysis to the immediate counterparty would risk elevating form over substance and frustrating the intent of the related party transaction provisions.

As noted above, the FMC Act does not define the term ‘benefit’ and the related party transaction provisions do not expressly limit the concept to direct benefits. In particular, sections 172 and 173 do not expressly state whether a related party benefit must be direct or whether it may also arise indirectly through an

[8] Knowledge includes wilful blindness.

arrangement involving intermediary entities. The FMA’s view is that a benefit may be direct or indirect. This interpretation is consistent with the broad language used in section 172(1)(b), the absence of any express limitation to direct benefits, the purpose of the related party transaction provisions and the overarching manager duties in sections 143 and 144 of the FMC Act where reasonable inquiry obligations are anchored.

The FMA recognises that not every downstream investment or activity of an intermediary will give rise to an indirect related party benefit. If identifying a potential benefit to a related party requires a highly attenuated or speculative chain of reasoning, this would suggest that the transaction presents a low risk of the manager's judgement being improperly influenced. Where a manager has acted in good faith, followed appropriate processes, and had no knowledge or control over the application of scheme property by an intermediary entity and whether it would be applied for the benefit of a related party, the manager’s decision would not, of itself, have been improperly influenced. If an indirect related party benefit cannot be identified where proper processes have been followed, then the related party transaction provisions will not be engaged.

Example 8

The following example illustrates the FMA’s view of what constitutes a transaction:

The manager of Scheme A (a registered scheme) invests scheme property into Scheme B, an unregistered wholesale fund. The manager of Scheme A is aware, at the time the investment decision is made, that Scheme B’s investment strategy is to invest a significant proportion of its scheme property into a specific operating company (Company C), and invests into Scheme B on that basis. Company C is a related party of Scheme A.

Although Scheme A’s direct contractual transaction is an investment into Scheme B, the manager’s decision is made on the basis that scheme property will be deployed, in substance, into Company C. There will be a benefit given to or received by Company C, and the investment into Scheme B is a necessary step to achieve that outcome.

In these circumstances, the FMA considers that the relevant “transaction or series of transactions” for the purposes of sections 172–177 of the FMC Act includes the downstream application of scheme property to Company C. The related party transaction provisions should therefore be considered by reference to the full arrangement, rather than being limited to the initial investment by Scheme A into Scheme B.

Example 9

We also consider the level of scrutiny to be applied to a related party transaction should reflect the level of risk of improper influence and harm to investors around the particular transaction.

The examples below illustrate a risk calibration approach to inform the level of scrutiny needed in indirect benefit scenarios.

Scenario	Risk indicators	Indicative level of scrutiny
The manager of Scheme A (a registered scheme) invests scheme property in Scheme B (a scheme managed by the same manager as A) at the request of C (a company and related party of A) with approved funding from A. C invests in private assets that can be difficult to value, and can be associated with C. There is a direct benefit from A to B, and an indirect benefit that is knowingly given to C.	Higher risk indicators The transaction was initiated or requested by the related party; the downstream benefit was known and integral to the arrangement; the entities have close relationships or common control; the arrangement is layered; and the assets present valuation risk.	Heightened scrutiny is likely to be appropriate. The purpose of the arrangement, the influence of the related party, the basis for the investment decision, valuation and the management of conflicts should be examined closely.
The manager of Scheme A (a registered scheme) invests scheme property in a capital raising by a company in which a private equity fund managed by a related party of A already holds a significant interest and has board representation. A invests alongside several unrelated institutional investors on the same principal terms.	Medium risk indicators The related party may benefit from the success of the capital raising. The related party has an existing involvement in the company. Independent investors are investing on equivalent terms.	Medium scrutiny is likely to be appropriate. A reasonable assessment may include consideration of the related party's existing interest, the extent of any direct or indirect benefit, the related party's level of influence, and the significance of independent third-party participation.
The manager of Scheme A (a registered scheme) invests scheme property in Fund B (a private equity investment fund), which invests in C (a private company and related party of A) – where the manager of A knows B has invested in C before, and	Medium risk indicators A downstream benefit is foreseeable, but it is not certain or necessarily integral to Scheme A’s investment. The appropriate level of scrutiny will depend on the purpose for investing in Fund B, the	Further scrutiny may be required. Consideration should be given to whether the potential benefit to Company C is sufficiently connected to Scheme A’s investment or instead
knows that a further investment into C is likely.	likelihood and significance of a further investment in Company C, any influence or coordination between the parties, and the independence of Fund B’s decision-making.	results from Fund B’s independent investment decision.
The manager of Scheme A (a registered scheme) invests in independently managed Scheme B. Under its existing diversified mandate, Scheme B participates in a widely offered capital raising by Company C, a related party of A. Scheme B makes that decision independently and invests on the same terms as other investors. A does not request, direct or influence the investment, which represents only a small proportion of Scheme B’s portfolio.	Low risk indicators Independent downstream decision-making; no direction, influence or coordination; transparent and common investment terms; limited significance of the benefit; and no indication that Scheme A invested in Scheme B to benefit Company C.	Limited or no scrutiny is likely to be appropriate depending on the knowledge. Managers would not generally be expected to undertake inquiries into the downstream investment decisions of an independent intermediary in addition to the usual due diligence processes. Where there is no knowledge by the manager of A of benefits to related parties, then the related party transaction provisions are not engaged. Where there is knowledge, it will be low risk.

Notification and certification of related party transactions

The general prohibition on a transaction giving related party benefits does not apply if the manager notifies the supervisor of the transaction, including the related party benefits and key terms, and either:

the manager obtains the supervisor’s consent to the transaction; or
the manager certifies to the effect that certain circumstances apply to the transaction.

The FMC Act specifies the requirements for the notification of a related party transaction (or transactions) and the content of a manager certification, known as a related party certificate (RPC). The requirements9 include stating:

the specific grounds on which the RPC is given under section 173 and (if relevant) section 174 and the basis for relying on those grounds;

[9] Section 175(1) of the FMC Act and Regulation 105 of the FMC Regulations

if the monetary value of the related party benefit or benefits to which the certificate relates can be quantified, the nature and monetary value of that benefit or those benefits, with reasonable supporting evidence; and
if the monetary value of the related party benefit or benefits to which the certificate relates cannot be quantified, the nature and extent of that benefit or those benefits, with reasonable supporting evidence.

We understand it is common for managers to engage with their supervisors in relation to a proposed related party transaction, provide a draft RPC for supervisor comments, and address those comments prior to or at the time the formal notification and RPC are provided to the supervisor under section 173(2). We consider this to be good practice. With this approach, notification of key terms and benefits for the purposes of section 173(2) is taken to occur at the same time the RPC is provided.

Where notification and the RPC are given at the same time, it is important for managers and supervisors to turn their minds to the different requirements for both. In considering the permissibility of a transaction, the key terms and benefits must be considered together with the matters to which the manager is certifying (e.g. a benefit being on arm’s-length terms).

Importantly, for an RPC to be effective in relation to a transaction, the notification and RPC must be completed before the transaction is entered into. If it is not, the transaction will breach section 173(1), given that the general prohibition will apply at the point in time when the manager has “enter[ed] into the transaction”. The point of time a transaction will be entered into will generally be when legally binding obligations are created that provide for a related party benefit.

We note that related party benefits given under a transaction and the key terms of the transaction must be known and included in the notification, and the RPC requirements in regulation 105 of the FMC Regulations must be met before the RPC can be relied upon.

We consider that strong internal governance controls, good processes, record keeping, and documentation are important aspects of this process. For instance, where the nature of the related party transaction raises questions, managers should have an internal escalation process to senior committees or independent directors. We also consider that managers should ensure supervisors are given sufficient time to properly analyse the RPC and associated information.

When can one notification and RPC be used for a series of transactions?

The FMC Act specifically allows a manager to notify the supervisor of a series of related party transactions and certify that series. The requirements of the RPC are the same whether it is for one transaction or a series.

One notification and RPC could cover a series of transactions if the requirements can be addressed for all transactions in the series. This is likely to be more appropriate for transactions that repeat with the same, or very similar, key terms. Where the key terms of any transaction are not known, it is not possible to treat that transaction as part of a series and a separate notification and RPC will be required.

Put another way, for a single notification and RPC to apply to a series of transactions, there needs to be sufficient certainty about the key terms of all transactions contemplated, together with the related party benefits and the reasons why the transactions are permitted. A lack of certainty around these aspects will mean the detail is insufficient, so the manager will be unable to certify that the grounds are met. In this circumstance we would expect the supervisor (acting on behalf of scheme participants) to work with the manager to ensure it complies with its obligations, and ultimately use its powers to stop a transaction if the RPC is non-compliant.

Where a manager is seeking to conduct a transaction as part of a series of transactions under an existing notification and RPC, the notification and RPC must clearly contemplate the transactions.

An existing notification and RPC do not apply to a subsequent transaction merely because it is similar to a prior transaction. There can be many reasons why a benefit that is given on arm’s-length terms at one time cannot be said to be given on arm’s-length terms at a later date, even if the terms of the transaction conferring the benefit are the same. Any change to the relevant facts and circumstances surrounding the transaction in the intervening period will need to be considered.

We expect managers seeking to enter into a series of transactions that give related party benefits to consider and determine whether an existing notification and RPC continue to accurately reflect future transactions in that series before continuing to rely on them. Managers should evidence they are doing this.

Example 10

The manager of a KiwiSaver scheme regularly invests scheme property into a related party wholesale property fund, which in turn invests in New Zealand listed property companies and funds, in line with the SIPO, on an ongoing basis. The fees charged by the wholesale property fund are included in the manager’s management fee disclosed in the KiwiSaver scheme’s product disclosure statement and are permissible under governing documents. Given the investment transactions are being undertaken as part of secondary market trading with transparent and public market pricing, the key terms and benefits of the transactions will likely remain the same. Therefore an RPC for a series of transactions between the manager of the KiwiSaver scheme and the wholesale property fund, contemplating future transactions at the public market prices, is likely to be appropriate.

Example 11

The manager of a KiwiSaver scheme invests scheme property into a wholesale property fund that is managed by a related party, which in turn invests in unlisted private companies, including associated persons of the manager of the KiwiSaver scheme (which are therefore related parties of the KiwiSaver scheme). It is unlikely that reliance on a notification and RPC that generically covers investments from the scheme into the related party wholesale property fund will meet the requirements. The key terms, benefits and reasons for benefits being on arm’s-length terms are unlikely to be the same or materially similar for each transaction, so separate RPCs will be required.

Example 12

The manager of a KiwiSaver scheme invests scheme property (directly or indirectly) alongside other investors into a related party company. The investment agreement contemplates future investments using an agreed pricing formula but does not commit the investors to invest. As the terms of any future investment are agreed, the manager of the scheme may complete an RPC for any transactions made under this agreement, in reliance on the arm’s-length terms provision where the key terms, benefits and reasons for supporting the arm’s-length terms assessment are the same.

Example 13

The manager of a registered scheme enters into a binding commitment, the scope of which is clearly defined by agreement, to invest a fixed dollar amount of scheme property into a related party private company over a period of time, either:

in defined instalments ($y every six months for two years, being a total investment of 4x$y); or
on call, where the private company makes a call for further investment under a committed capital agreement (where that agreement defines the circumstances where the scheme is bound to provide the capital sought).

Where the manager enters into a commitment of that kind then the transfers from the registered scheme to the private company may be considered a series of transactions and certified on that basis. A separate or updated RPC may still be required if the private company intends to invest the funds in a related party of the registered scheme, as discussed in the ‘Indirect related party benefits’ section above.

In this example, the binding nature of the commitment is what allows for the conclusion that each investment made pursuant to the commitment is part of a ‘series of transactions’.

Example 14

The manager of a registered scheme agrees to make investments from scheme property into a wholesale fund managed by a related party. The terms of the future investments by the wholesale fund to related parties of the registered scheme are not known or are changeable, and are to be specified in the future Information Memorandums or other offer documents. Assessment is therefore required of whether the key terms, parties, associated benefits, and grounds for whether the transaction is on an arm’s-length basis may differ for subsequent investments made by the manager of the wholesale fund with the money received from the scheme property.

How much detail should be included in the notification and RPC?

The level of detail required in the notification and RPC will be fact and circumstance dependent and should reflect the level of risk. The information must be sufficient to allow the supervisor, acting on behalf of scheme participants and in performing its functions, to be satisfied that the transaction is permissible.

For simple and well-understood transactions, the level of detail can be less than for more complex and unusual transactions, where more detail will be needed to ensure the notification and RPC accurately describe the key terms and the related party benefits. The level of detail needs to enable the supervisor to assess the permissibility of the transaction(s).

Similarly, the more complex and unusual the arrangements, the greater the level of enquiry will be needed by supervisors to satisfy themselves:

that the notification and RPC are compliant
as to the accuracy and completeness of the information provided; and
that the manager is complying with its general obligations under Part 4 of the FMC Act.

What is meant by ‘key terms’?

The key terms that need to be provided in the notification to the supervisor will need to be determined on a case-by-case basis. The number and nature of key terms described should be proportionate to the risk of investor harm. For low-risk and well-understood transactions, less detail will be required than for high-risk and more bespoke arrangements. These terms will be considered by the manager as part of any investment decision-making process.

The key terms of a transaction may include the following:

(a) Consideration:

this could include money, a service, goods, refraining from an act, or the release from an obligation;
the monetary value or formula for calculation as applicable:

o one-off or the total value if ongoing consideration;

o fixed fee or performance based;
if the monetary value of the consideration cannot be quantified, the nature and extent of the consideration

(b) Payment terms:

whether one-off or ongoing commitments in the future;
who payment is to be made to;

(d) Default or penalty provisions;

(e) Warranties, guarantees or indemnities;

(f) Any terms that appear excessively generous, onerous or otherwise unusual for similar transactions between unrelated parties.

The key terms of the transaction should be outlined with sufficient detail to clearly describe the transaction that is being notified and allow this transaction to be differentiated from other transactions.

What are ‘arm’s-length terms’?

As noted above, the FMC Act prohibits transactions that give rise to related party benefits unless a specified exception applies. One such exception is where a related party benefit is given on arm’s-length terms. Other exceptions include investments in other registered schemes and certain registered bank investments.

Based on our engagement with industry, reliance on the arm’s-length terms exception appears to be one of the most common grounds for certifying the permissibility of a related party benefit. It is also the area where the greatest uncertainty and variability in market practice arises. Accordingly, our focus in this section is on the arm’s-length terms exception. We set out below matters that we consider relevant to assessing, evidencing and documenting reliance on that exception.

A benefit is given on arm’s-length terms where the terms:

would be reasonable in the circumstances if the parties were connected or related only by the transaction in question, each acting independently, and each acting in its own best interests; or
are less favourable to the related party than the terms referred to in the bullet point above.10

The purpose of this wording is to allow related party transactions where the terms of the benefit are no more favourable to the related party than they otherwise would be with a non-related party.

Whether an investment with a related party is on arm’s-length terms is a matter of judgement, which requires an understanding of what would be reasonable, in the circumstances, between non-related parties.

The FMA recognises that there may not always be a directly observable market price or readily available benchmark against which to assess a transaction. This does not necessarily preclude a conclusion that terms are arm's-length. The relevant question is whether, having regard to the nature of the transaction and the information reasonably available, the terms are consistent with those that independent parties acting in their own interests could reasonably agree.

To understand whether the terms of a benefit given are reasonable in the circumstances, some or all of the following considerations will likely be relevant:

standard market terms for transactions of a similar nature, if any;
assessment of value, taking into account available market data for comparable transactions between unrelated parties (such as independent valuations and public benchmarks);
comparability with similar related party transactions, using available industry data;
whether there are alternative transactions available with unrelated parties;
whether each party to a transaction is sufficiently knowledgeable and well advised in its own right as to whether a transaction is in its best interest (and including the best interest of investors);
the process undertaken to decide whether to enter into a transaction, and the extent to which the proposed transaction is the outcome of a commercial negotiation between the parties;
the independence of the decision makers;
the robustness of conflict management processes;

[10] Section 174(a) of the FMC Act

the liquidity of the scheme;
independent valuations of scheme property;
implications for the scheme giving the benefit for its financial position or performance;
whether the terms are fair in the context of expected return and investment risks (including relative liquidity);
use of expert opinions; and
whether the terms appear to be overly generous to a party receiving the benefit.

The above is not an exhaustive list, nor a checklist, and generally reflects factors relevant to any investment decision by a prudent manager, not just related party transactions. The relevant considerations will be facts and circumstances dependent.

When certifying a transaction or series of transactions as having benefits being given on arm’s-length terms, it needs to be clear from the evidence provided as part of the certification why the manager is certifying that the benefit is reasonable in the circumstances. A statement that an agreement is in the standard form, without considering the specific terms (including an assessment of the monetary value of the benefit, or the nature and extent of any benefit if monetary value cannot be quantified) or articulating why the terms are reasonable in the circumstances, is unlikely to be sufficient.

Where the level of risk of harm to investors is high, we expect a greater level of scrutiny will be applied to an assessment of arm’s-length terms relative to circumstances where the level of risk of harm is low.

Example 15

Scenario	Risk indicators	Indicative level of scrutiny
The manager of Scheme A (a registered scheme) subscribes for debt securities issued by a related party, on behalf of Scheme A. The securities are issued as part of a capital raising that is offered to multiple institutional investors. The manager of Scheme A invests on the same commercial terms as other investors, including the same pricing, maturity, covenants and investor rights. The terms are set as part of the broader offering and are not negotiated individually with the manager of Scheme A.	Low risk indicators Terms are consistent across all investors; no preferential pricing, rights or protections; transparent and broadly available offering; and limited scope for the relationship to have influenced the commercial outcome.	More limited scrutiny is likely to be appropriate. The assessment may focus on whether the overall commercial terms are consistent with those offered to unrelated investors participating in the same transaction.
The manager of Scheme A (a registered scheme) subscribes for debt securities issued by a related party through a bespoke capital raising, on behalf of Scheme A. The securities are offered only to Scheme A and a small number of unrelated investors. The terms are negotiated directly between the parties and include features that differ from the related party's other financing arrangements, including amendments to repayment terms and investor protections.	Higher risk indicators Bespoke terms; limited participation by unrelated investors; significant discretion in the negotiation of commercial terms; and greater scope for the relationship to have influenced the allocation of risks, rights or benefits.	Enhanced scrutiny is likely to be appropriate. The assessment should consider whether the overall package of commercial terms, viewed as a whole, is consistent with what would reasonably be expected between unrelated parties.

What is ‘reasonable evidence’?

Regulation 105 of the FMC Regulations requires that a certificate under section 173 of the FMC Act must provide, or have attached to it, reasonable evidence supporting the statements regarding the value of the related party benefit and the stated basis for relying on a ground in section 173 and section 174 of the FMC Act to establish transactions as permissible.

What is ‘reasonable’ will be fact and circumstance dependent and will also depend on the exception that is being relied upon. The higher the risk of harm to investors and more finely balanced the consideration is of whether something is a permissible transaction, the more conclusive the supporting evidence will need to be. This does not necessarily mean obtaining a greater quantity of evidence. Rather, the evidence should be sufficient in quality and relevance to support the statements and the stated basis.

Indicators of higher risk may for example include nature of the transaction, complexity of the arrangements (e.g. multi-layered arrangements), weakness in governance and conflicts management arrangements, nature of the benefit, uncertainty relating to the valuation of assets, or lack of alternative transactions with unrelated parties.

A risk-based approach aims to be proportionate in respect of the evidence that is required. For lower-risk or routine transactions, limited evidence will suffice, such as comparable market pricing, standard fees schedules and relying on existing contractual terms. For higher-risk, novel or bespoke transactions, more robust evidence may be required, such as independent valuations, external benchmarks, and specialist advice. Early engagement with the supervisor is encouraged, particularly for novel, complex and bespoke transactions.

Good practice may include the following considerations:

Early engagement with supervisors where transactions are novel or complex;
A documented process with decisions explained;
Whether independent valuations are required;
Benchmarking the related party transaction against comparable unrelated transactions;
Retention of negotiation records;
Use of internal pricing models or cost allocation methodologies;
Clear audit trails;
Relevant board and committee decisions or minutes;
Due diligence evidenced with sign-off by boards;
Ensuring there are appropriate policies and frameworks to manage RPCs, such as maintaining a related party transactions register and the register being subject to regular compliance assurance programme testing.

Example 16

What amounts to reasonable evidence will depend on the facts and circumstances of the transaction. The nature, extent and strength of the evidence should be proportionate to the risk that the related party connection has improperly influenced the transaction or may result in investor harm.

The scenarios below illustrate how differences in risk may affect the evidence reasonably required to support an RPC. Evidence should address the particular risks and matters relied on in the relevant certification.

Scenario	Risk indicators	Reasonable evidence
The manager of Scheme A (a registered scheme) proposes to invest, through Scheme B (managed by a related party of Scheme A), in Company C, which is also a related party of Scheme A. Company C requested or materially influenced the arrangement. The investment involves unlisted assets that are difficult to value and for which there are limited market comparables. Some decision-makers hold overlapping roles across the relevant entities, and there have been previous concerns about the manager’s investment decision-making or conflicts-management processes. The manager of Scheme A relies on the arm’s-length terms exception.	Higher risk indicators: • related-party initiation or material influence; • close relationships and a layered transaction structure; • overlapping roles or incentives; • valuation uncertainty and limited market comparables; • uncertainty about whether unrelated alternatives were adequately considered; and • weaknesses in governance or conflicts management.	Robust, objective and transaction-specific evidence is likely to be required. Depending on the particular risks, this may include independent valuation or valuation review, relevant market comparables or benchmarking, analysis of available alternatives, evidence of the commercial and investor-centred rationale for the investment, documented management of conflicts, and evidence of independent decision-making, challenge and approval.
The manager of Scheme A (a registered scheme) invests in a wholesale fund (Fund B) that is managed by a related party of Scheme A and established to provide operationally efficient, pooled exposure to widely traded listed securities. Fund B is used primarily by registered schemes managed by the same	Lower risk indicators: • the arrangement has a clear operational and investor-focused rationale; • the structure and investment mandate are uncomplicated and transparent;	Limited evidence may be reasonable. This may include the governing terms and fee schedule, relevant published pricing or market information, existing due diligence confirming consistency with the scheme’s mandate, and a
MIS manager and has no comparable unrelated investors. Fund B’s mandate and costs are transparent, the underlying assets are valued using observable market prices, and the fees associated with the structure are readily benchmarked. The investment is consistent with Scheme A’s SIPO and is approved through established investment and conflicts-management processes. The manager relies on the arm’s-length terms exception.	• the underlying assets are liquid and valued using observable market prices; • fees and costs are transparent and capable of external benchmarking; • the investment is consistent with Scheme A’s SIPO; • the arrangement is routine and well understood; and • established investment decision-making and conflicts-management processes apply.	concise record of the investment decision and conflicts assessment.

RPCs to be kept under review

Any RPC for a series of transactions must be kept under review. Where there is a change to a specific term of a transaction, a benefit or the basis on which the transactions are permitted, that ought to be reviewed and, if appropriate, a new notification and RPC issued in respect of future transactions.

Managers and supervisors should have an adequate process to consider the validity of a notification and an RPC at the time they are provided, as well as processes and controls to ensure RPCs are only relied on for subsequent transactions where appropriate. For recurring transactions, this does not necessarily require reassessment each time a transaction or payment occurs. Rather, RPCs should be reviewed on a proportionate, risk-based basis and reconsidered where there is a material change affecting the basis on which the RPC was provided. These processes could be enhanced by having a related party transactions register, and ensuring RPCs are subject to a compliance assurance programme testing.

Changes that may be material and require an RPC to be reviewed include changes in:

the fees structure;
investment mandates or strategies;
related party relationships;
quality of governance or conflicts management frameworks;
the nature and extent of the related party benefit;
relevant valuations;
the assumptions or evidence supporting the certification;
market conditions relevant to any arm’s-length assessment;
change in valuation methodology or pricing inputs for illiquid assets.

Example 17

The manager of Scheme A (a registered scheme) commits to making a series of investments in a private fund managed by a related party. An RPC covering the anticipated capital calls is completed at the outset. Before a subsequent capital call, the fund changes its investment strategy to permit greater exposure to illiquid assets and type of assets it may invest in, market conditions affect the valuation of its existing portfolio, and its liquidity position becomes more constrained. Under the terms of the investment agreement, these changed circumstances entitle the manager of Scheme A to decide not to invest further.

The capital call remains within the amount and timing contemplated by the original commitment. However, the changed circumstances may affect the basis and evidence supporting the original RPC. The manager should therefore reassess whether the original RPC continues to provide an adequate basis for capital calls and whether further evidence, and a new RPC is required should it decide to continue to invest.

If the original RPC no longer accurately addresses the transaction or the grounds on which it was given, the manager should promptly engage with the supervisor and determine what further notification, certification, evidence or other action is required.

Risk management considerations and strategies

Where related party transactions are entered into with robust governance, clear investor‑centred rationale, transparent assessment of value to investors and proportionate evidence, the FMA considers the risk of investor harm to be lower. Conversely, arrangements that obscure the substance of related party benefits, minimise or disregard exposure to loss, or appear to prioritise group or related party interests over those of scheme participants are more likely to attract close regulatory scrutiny.

The FMA recognises that there is common use of related party transactions in the MIS sector, often arising from commercial group structures. While they are not inherently inappropriate, they carry a heightened risk of conflicts of interest, which in turn may increase the risk of investor harm if not carefully identified, assessed and managed.

The FMA considers the following to be indicators of higher-risk related party transactions:

The transaction structure is complex or layered;
Related party involvement is indirect, contingent or embedded within broader arrangements;
The transaction could reasonably be perceived as designed to obtain a favourable outcome for a related party while limiting scrutiny;
Terms are difficult to benchmark (e.g. illiquid assets, bespoke fees, opaque services);
The transaction is material to scheme outcomes (e.g. NAV impact, liquidity profile, unit pricing or performance fees);
Valuation, liquidity or financing features increase uncertainty, reliance, or contingent exposures;
Decision-makers have overlapping roles or incentives across related entities;
Governance and independence are constrained, including where there is limited evidence of meaningful challenge or late escalation.

Each situation should be considered on its own facts and in light of the materiality of the relevant information in context. We recognise the need for a risk-based approach, with the level of scrutiny, supporting evidence and oversight calibrated to the risk of improper influence and investor harm in the particular circumstances. In the Appendix, we produced high-level illustrations of what risk-based application may look like in practice and how different factual situations may give rise to different risk profiles and approaches.

There are strategies that may assist managers to better manage the risk of potential investor harm, including the following:

Identify early and in substance: look through structures and transaction chains to detect indirect or embedded related-party benefits or exposures.
Strengthen governance and independence: ensure meaningful challenge, clear escalation, and appropriate management of conflicts (including separation of roles/recusal where relevant).
Assess exposure to loss (investor lens): document direct and contingent risks, opportunity costs, reduced flexibility and downside scenarios – avoid relying on terms such as “no loss has occurred” as comfort.
Evidence arm’s-length terms: support conclusions with credible, proportionate benchmarking and analysis, including consideration of benefits with economic or financial value.
Address valuation, liquidity and fee conflicts: apply heightened controls where related party transactions affect valuation/pricing (especially illiquid assets), liquidity/financing reliance, or fees/expenses (including ‘fee leakage’ via related service providers).
Maintain clear records and conduct ongoing reviews: document rationale, evidence, approvals and conditions; maintain related party transaction registers and refresh assessments when circumstances change; avoid routinely reusing certificates without reassessment.
Engage the supervisor early for higher-risk transactions: provide sufficient information for meaningful oversight, particularly for complex, novel or material arrangements.

Appendix

Figure 1: Related party transactions – high-level illustration of risk-based application
Figure 2: Scenarios side by side L/M/H
Figure 3: Scenario – same transaction can have different risk profiles

RELATED PARTY TRANSACTIONS – HIGH LEVEL ILLUSTRATION OF RISK-BASED APPLICATION

This is an Illustration only and not a checklist

CONTEXT/STARTING POINT

Related party transactions may form part of ordinary commercial activity. Purpose of related party provisions: • investment decisions should not be improperly influenced by the interest of related parties; • target value extraction or risk transfer; • managers cannot avoid the regime through structuring.

KEY QUESTIONS

What is the structure and purpose of arrangement?
Who are relevant parties and what is the relationship to the scheme?
What benefits are identifiable?
Is there a pathway for value extraction or investor harm?
Are the permissible transaction grounds met, and can they be evidenced?

KEY RISK DRIVERS & MATERIALITY

Nature of benefit
Degree of relatedness
Level of control / influence
Complexity of arrangements
Transparency of terms
Valuation and benchmark availability
Materiality of investor harm

RISK-BASED APPLICATION & EXAMPLES

LOW RISK
Routine & well understood
• Common market
arrangements
• Transparent, fair value
exchange
• Conflicts structurally
managed
• Routine and repeatable
MEDIUM RISK
Some conflict potential
• Costs elevated or hard
to benchmark
• Complexity or opacity in
fees
• Related parties have
economic exposure or influence
• Valuation uncertainty
HIGH RISK
Significant conflict / impact
• Complex or layered structure
• Opacity or lack of disclosure
• Risk or evidence of
undisclosed fees or abnormal charges
• Use of scheme property to
support or finance external activities
GREY
ZONE
ESCALATE
EXAMPLES
• Appointment of third-party
managers or administrators at market rates
• Retail-to-wholesale feeder
structures for operational or investment efficiency
• On market transactions with
transparent or observable pricing and no meaningful related party influence EXAMPLES
• Retail scheme investing into a
related wholesale fund where market comparators are limited requiring further assessment of liquidity, valuation, fees or other key commercial terms
• Co-investment that may favour a
related party alongside independent investor participation
• Services from a related party where
benchmarks are thin
EXAMPLES
• Investment into a related
scheme at the related party's request
• Unlisted, hard-to-value assets
acquired from a related party

CALIBRATION AND JUDGEMENT IN PRACTICE

Significant vs remote benefit
Higher scrutiny
Benefit is direct, significant, or a key feature of the arrangement, which appears structured around providing a benefit to the related party.
Lower scrutiny
Benefit is remote, minor, or incidental consequence of an otherwise ordinary commercial arrangement.
Relatedness
Higher scrutiny
Relationship creates a genuine risk of conflict, influence, preferential treatment, or misalignment of interests.
Lower scrutiny
Relationship arises primarily by operation of the legislative definition between otherwise unrelated parties, with limited practical ability to influence outcomes.
Connected arrangements
Higher scrutiny
Clear or foreseeable pathway through which value, economic benefit, risk transfer, or advantage may flow to a related party. Multiple steps appear connected and should be considered together.
Lower scrutiny
Any benefit is highly contingent, speculative, or remote.
Transactions appear commercially separate, with no meaningful linkage or common purpose. No evidence of control or influence.
Arm’s length terms
Higher scrutiny
Terms are unusual, difficult to explain commercially, lack transparency, involve material discretion, imbalanced negotiating power, or there is uncertainty about whether outcomes are commercially reasonable.
Lower scrutiny
Terms are transparent, commercially understandable, and supported by market information, comparable arrangements, balanced negotiating power, or other evidence of commercial reasonableness.
Series of transactions
New certification
Subsequent transactions are not yet known or defined, or the terms, grounds and basis for certification can differ from the transaction certified. A single certificate should not be relied on across the series; certify again.
Reliance
Transactions are repeatable and on the same or similar key terms, so the grounds and basis for certification hold for each one. A series certificate can be relied on, with a refresh when terms change materially and periodic reviews.

CALIBRATION OF DETAIL AND EVIDENCE TO RISK

RISK & SCRUTINY	LOW RISK LIGHT SCRUTINY	MEDIUM RISK ENHANCED SCRUTINY	HIGH RISK INTENSIVE SCRUTINY
LEVEL OF DETAIL	• Short-form description of the transaction and why it is permitted • Some reliance on information and materials already provided • Series certificate where key terms repeat	• Proportionate detail on the arrangement, the relationship and the benefit • The enquiry made and the conclusion reached, recorded at the time	• Full picture: structure, purpose, who initiated it, and why the grounds are met • Certification escalated through governance and supervisor engagement
LEVEL OF EVIDENCE	• Existing disclosures; terms comparable to market • Internal documents may be appropriate (such as Board or Committee paper) • More detailed analysis and further evidence if requested	• Benchmarks where available; commercial reasonableness where they are not • Conflict management and governance approval on record	• Independent valuation and independent analysis • Contemporaneous evidence and a full business case

Detail and evidence scale with risk: the greater the knowledge, influence and opacity, the deeper the enquiry and the more that is recorded in the RPC. Supervisors can request additional information at any time. Quality not quantity matters.

GUIDING PRINCIPLES

Ground the approach in the risk of improperly influenced decision-making and potential for investor harm
Understand the purpose behind the transaction(s) and arrangements
Review and inquiry may be required before a view can be reached on whether RPT/RPB requirements are triggered
Apply judgment – not a tick box nor set and forget exercise
Calibrate the level of scrutiny, detail and evidence required to the level of risk, with greater focus on transactions that present genuine risk to investors rather than routine market activity
Not every RPB is problematic: high risk means enhanced scrutiny is required.

OUTCOME SOUGHT: Proportionate approach that protects investors by targeting inappropriate value extraction, while enabling efficient, transparent and innovative market activity.

Parties & relationship Whether there Is a related party benefit and transaction permissibility Risk calibration grid RPC detail & evidence level At-a-glance summary

LOW RISK OVERALL CONCLUSION: LOW RISK — The overall risk of detriment to the scheme and investors is LOW.

A
B appoints external investment manager

Party A
Manager of Registered MIS
• Conducted due diligence on B per documented
processes (governance, capability, investment philosophy, financials, performance, costs)
• Contracted some of its MIS functions to B
• Negotiates fees, which are not out of market context
•Fee impacts on unit price and is disclosed in PDS as estimated investment management fee

Party B
Global Investment Manager
•Scheme-connected person by virtue of appointment
• Makes all investment decisions per mandate from A
• Mature organisation which assessed the merits of
appointment in its own right

1 Relationship between the parties and to the scheme — B is a related party under s172(2)(a) 2 Benefit given or received — B receives a fee for investment management services 3 Out of scheme property — the fee is paid out of scheme property 4 Fee or expense paid to manager — An investment management fee is paid to B out of scheme property and not to the manager 5 Permitted transaction —arm’s length terms, each party assessed the merits of transaction, is sufficiently knowledgeable

✓ RPB Rule Engaged? — Yes. ✓ Permissible transaction grounds – Yes.

Risk Factor	Risk Rating	Detail
Degree of relatedness	LOW	Relatedness by operation of provisions, not personal connection
Level of influence / control	LOW	B acts under mandate; low ability to influence
Nature of benefit	LOW	Standard investment management fee
Common market engagement?	LOW	Outsourcing of investment management is common
Complexity	LOW	Simple structure
Transparency of terms	LOW	Fee disclosed in PDS; mandate documented
Negotiating power	LOW	Balanced, both parties independently negotiated
Comparability with market	LOW	Fees consistent with market practice
Overall Risk Assessment	LOW

RPC Level of Detail (lower risk = lower detail) •The arrangement and key terms: appointment, fee basis, term, termination •How the parties are related: B is a scheme-connected person by appointment •Nature and value of the benefit: the fee paid out of scheme property •Ground relied on (s174 arm's length) and why the terms are reasonable Evidence Level (lower; some reliance on information provided) •Board paper on completed due diligence process • Evidence supporting lower risk: low relatedness, low influence, market-standard fee •A statement that each party is sufficiently knowledgeable, and the basis for it Reliance on RPC for a Series Appropriate? Yes — keep under review for changes

RPB rule engaged	Yes
Overall risk level	Low
Key drivers of low risk	Low relatedness, low influence, disclosure, market standard arrangement and fee, balanced negotiation
Appropriate approach	Lower level of detail and evidence in RPC is appropriate

MEDIUM RISK OVERALL CONCLUSION: MEDIUM RISK — Enhanced, proportionate scrutiny is appropriate.

A
C invests alongside independent investors

Party A
MIS Manager of Scheme X
•The MIS Manager subscribes in a capital raising by Company C, on behalf of Scheme X

Party B
Private Equity Fund managed by a related party of Scheme X •Already holds a significant interest in C
• Has board representation
• May benefit if the raising succeeds

Party C
• Company undertaking capital raise

Company C capital raising 1 Relationship between the parties and to the scheme — B is a related party with an existing economic interest in C. 2 Benefit given or received — B may benefit if the raising preserves or enhances its investment. 3 Out of scheme property — Scheme A’s subscription is funded from scheme property. 4 Nature of potential benefit — The benefit is indirect and must be assessed in the context of the raising as a whole. 5 Permitted transaction — Equivalent third-party terms may support commercial reasonableness but are not determinative.

✓ RPB Rule Engaged? — Yes. A fact-specific assessment is required. ? Permissible transaction grounds - Potentially.

Risk Factor	Risk Rating	Detail
Degree of relatedness	MEDIUM	Existing economic exposure
Level of influence / control	MEDIUM	Board representation; no stated control
Nature of benefit	MEDIUM	Plausible indirect benefit
Common market engagement?	LOW	Institutional co-investment is present
Complexity	MEDIUM	Increased due to number of considerations
Transparency of terms	LOW	Same class, price and principal terms
Negotiating power	LOW	Independent investors participate
Comparability with market	LOW	Third-party participation supports comparison
Overall Risk Assessment	MEDIUM

RPC Level of Detail (medium risk = proportionate detail) •Structure, purpose and key terms of the capital raising •Nature of B’s existing interest and board representation •Potential benefit to B and the conclusion reached •Significance of independent participation on equivalent terms Evidence Level (proportionate; enquiry documented) •Board or committee paper recording the analysis •Capital-raising terms and third-party participation •Conflicts and independence of Scheme A’s decision • Supporting information on B’s exposure and role in C Reliance on RPC for a Series Only where the key terms, benefits and grounds remain materially the same.

RPB rule engaged	Yes — assess facts
Overall risk level	Medium
Key drivers of medium risk	Existing exposure and influence, balanced by equivalent third-party terms
Appropriate approach	Proportionate enquiry and contemporaneous record

HIGH RISK OVERALL CONCLUSION: HIGH RISK — The overall risk of detriment to the scheme and investors is HIGH.

A
C invests via Scheme Z

Party A
MIS Manager of Scheme Y and
Scheme Z
•Invests registered Scheme Y property into unregistered Scheme Z at the request of Company C, with funding approved from Scheme Z which is derived from Y •Knows at the time of the decision that the benefit will be passed on to C

Party C
Related Party Company
• An associated person of Party A, and therefore a related
party of Scheme Y
• Receives scheme property indirectly through Scheme Z
• Invests in unlisted assets that are hard to value and
associated with C
• The transaction is driven by the related party's request

1 Relationship between the parties and to the scheme — C is a related party of Scheme Y under s172(2)(b) 2 Benefit given or received — C receives scheme property routed through Scheme Z 3 Out of scheme property — the investment is funded out of scheme property 4 Indirect benefit — A knows the benefit will be passed on to C, so the whole arrangement is the transaction 5 Permitted transaction — arm’s-length terms not established; transaction driven by C’s request

✓ RPB Rule Engaged? — Yes. ? Permissible transaction grounds – Uncertain. Requires scrutiny.

Risk Factor	Risk Rating	Detail
Degree of relatedness	HIGH	Multi-layered arrangement directed by related party C
Level of influence / control	HIGH	C directs the transaction; same manager for Y and Z
Nature of benefit	HIGH	Unlisted assets associated with C
Common market engagement?	MEDIUM	Uncertain. May be if capital commitment but requires fact specific scrutiny to conclude
Complexity	HIGH	Complex and layered structure
Transparency of terms	HIGH	Downstream application not transparent
Negotiating power	HIGH	Imbalanced. Transaction initiated at C's request
Comparability with market	HIGH	No comparable market terms; valuation risk
Overall Risk Assessment	HIGH

RPC Level of Detail (higher risk = higher detail) • Purpose of transaction and downstream use of scheme property explained • Description of transaction and applicable arrangements (treat arrangements as a transaction) • Full description of the relationships and the downstream chain of interests to C • Key terms, including terms on which further funds may be called • Detailed explanation of ground relied on and basis for it i.e. how arm’s length terms have been established • Monetary value of the benefit or nature and extent of the benefit where monetary value cannot be quantified Evidence Level (higher; independent verification expected) • Board paper on purpose, due diligence, valuation and conflicts management • Independent valuation and pricing evidence for the unlisted assets • Record of how influence and conflicts were managed in decision-making • Contemporaneous documents attached rather than reliance on prior materials Reliance on RPC for a Series Not appropriate here — key terms and benefits differ; separate RPCs

RPB rule engaged	Yes
Overall risk level	High
Key drivers of high risk	Purpose of transaction, knowledge of downstream use, relatedness, high influence, valuation risk
Appropriate approach	Higher level of detail and independent evidence in the RPC is required

ILLUSTRATIVE EXAMPLE ONLY Each scenario is facts and circumstances dependent. This is an illustration only and not a checklist.

SCENARIO

FUND A

Diversified income fund seeking stable returns
Holds a large parcel of corporate bonds

Off-market bond transfer No market trading

FUND B

Conservative superannuation fund seeking long-duration fixed-income assets

The MIS Manager manages two related managed funds. An off-market trade is arranged — bonds transferred directly from Fund A to Fund B without market trading.

POTENTIAL FOR MISCHIEF — TWO POSSIBLE OUTCOMES

LOWER RISK Operational

✓ The transaction could be purely operational with benefits to both funds

✓ Reduces costs and enables more efficient portfolio rebalancing

✓ Benefits are sound, fair and in the best interests of both funds

HIGHER RISK Potential for Mischief

Bonds issued by a company whose financial position has deteriorated
Bonds are illiquid and difficult to sell in the market
Assets transferred at a price above what an independent third party would pay
Risks include favouring client groups, smoothing performance or managing redemptions

RISK CALIBRATION QUESTIONS

1 What is the relationship between the parties and to the scheme? Degree of relatedness and alignment of interests.

2 Purpose of transaction? What problem is being solved and why an off-market trade is appropriate?

3 Nature of benefit? Who benefits, how, and is it consistent with investors' best interests?

4 Degree of control or influence? Does the manager have the ability to influence both sides of the trade?

5 Pricing transparency and valuation? How was fair value determined and evidenced? Any valuation challenges?

6 Governance and conflict management controls? Board/RC oversight, conflicts identified and managed, documentation?

RELIANCE ON RPC FOR SERIES OF TRANSACTIONS

Prior RPC may be appropriate when: Covers routine, lower-risk transactions where circumstances are consistent with those in the RPC on file.

BUT…Circumstances Change — Higher-Risk Indicators Indicators that may mean reliance on prior RPC is no longer appropriate:

Transfer of illiquid or hard-to-value assets
Deterioration in issuer credit quality
Material price or valuation uncertainty
Significant benefit to one fund over another
Increased redemptions or performance management pressures

Illustrative Example Only. Each scenario is facts and circumstances dependent. This is an illustration only and not a checklist

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