Date: 29 January 2023
Soteria NZ (including any of our associated companies who may provide services via the Platform) (Soteria or we or us) offers a Platform that enables wholesale investors to invest in Pools which represents interests in underlying assets such as loans.
To invest in a Pool, you can allocate funds from your Account to the Pool via the Platform (which means subscribing for units in each Pool as a separate unit trust within the Soteria NZ Investment Programme).
Soteria is registered as a financial service provider on the Financial Service Providers Register (FSP 1004171). Soteria is not licensed by a New Zealand regulator to provide the Platform. Soteria’s registration on the New Zealand register of financial service providers does not mean that Soteria is subject to active regulation or oversight by a New Zealand regulator.
This risk statement sets out additional information for users of the Platform and investors in Pools. It is not comprehensive and other risks may apply. Further terms on which we provide the Platform are set out in the Platform Terms and Conditions (Terms). By accessing and using our services, you acknowledge having read this risk statement and agree to the Terms.
Capitalised terms used in this statement have the meaning given in the Terms.
Returns on your investment are not guaranteed. There is a risk that you could lose some or all of the money you have invested. Some, but not all, of the risks of investing using the Platform are set out below. Additional risks may be set out in the Pool Conditions or other Offer Terms of any Pool in which you invest.
Any information on the Platform does not constitute financial advice for the purposes of the FMC Act. Nor do any statements on the Platform or Soteria’s website take into account your personal financial circumstances and goals. You must carefully read all available information, including the risks set out below, and consider your personal financial circumstances before investing in the Platform. If you are unsure about any aspect of investing in the Platform, you should seek independent advice (legal, taxation, financial, technical or otherwise) before investing in the Platform.
All information accessible on the Platform relating to Pool assets and asset originators (including information memoranda, marketing materials, third party reports, periodic and current reporting and other similar materials) has been provided by the relevant asset originator or borrower. Soteria makes no warranty or representation as to the accuracy or completeness of such information. Soteria is not responsible for ensuring such information remains current. Investors must satisfy their own due diligence processes when making an investment decision and, in making their decision, must not rely on any information provided by Soteria or any affiliated party.
We make no representation or warranty that the Platform and Soteria’s website is appropriate or available for use in all countries or that the content satisfies the laws of all countries.
Some risks of using the Platform
Risks where Pools are invested in loans:
1. Market Risk
New Zealand has experienced a strong property market for an extended period of time. However, there is no assurance that this will continue into the future particularly as economic circumstances become more challenging.
Increases in material costs and global supply chain disruption has significantly increased the costs of real estate development. Conversely, recessionary concerns, industry factors (for example moving to more flexible working environments), lower employment rates and increased borrowing costs may reduce property demand.
All of these factors may negatively affect the value of the Pool assets which may result in a lower return on your units.
2. Interest Rate Risk
Higher interest rates may make significant impacts on the liquidity of borrowers under the loans constituting Pool assets, and increases the likelihood of default under these loans. See “- Borrower Risk” below.
Rises in interest rates may also make the interest yield on your units less attractive. While some of the Pool assets will have floating rate interest, others will have fixed rates, which means that increases in benchmark interest rates may not flow through to the interest you receive from a Pool. Consequently, your return may be less than comparable investments available at that time. See “- Illiquidity” below.
3. Borrower Risk
Each Pool’s income is derived from the interest paid and principal repaid on the loans constituting the Pool’s assets.
Changes in market or individual circumstances may result in a borrower being unable to continue to make their required loan payments. Such changes may include changes in the macroeconomic environment, regulation, interest rates, rental rates, material costs and other industry dynamics. See “- Market Risk” and “- Interest Rate Risk”.
In particular, many of the Pool assets are real estate development loans. Real estate development loans support the construction of assets which typically do not produce cash income until the development is completed. Real estate developments are subject to the risk of cost overruns which, if adequate additional funding cannot be found, may mean that the development is not completed as originally planned. This may result in a development of lower value.
We typically have secured claims on the assets of each borrower. Further, asset originators are required to hold at least 10% of each loan and have subordinated their claims to the claims of investors in the Pool providing investors with an extra cushion.
However, if the borrower’s circumstances or the value of its assets have significantly deteriorated, we may still not be able to recover the full loan amount from the borrower (including by way of a mortgagee sale). This could negatively impact your returns from the Pool.
4. Valuation Risk
Property valuations are based on valuers’ opinions given at a point and time and subject to economic and other conditions applicable at that time. Valuations are inherently subjective and, in practice, there can be significant differences between valuations and the property value actually realizable in a sale. Property values can be impacted by a number of factors, including changes in the wider economic environment, government regulation or individual property related issues. Further, valuations relay on assumptions including, in property developments, that the development is completed as planned.
In an enforcement scenario, the value actually realizable from any particular asset may be lower than the valuation, and, if there is a substantial negative change, we may not be able to recover the full loan amount from the borrower. This could negatively impact your returns from the Pool.
5. Insurance Risk
The property which is mortgaged to support Pool assets could be damaged in the future. While our loan assets require borrowers to adequately insure their assets, there are circumstances in which an insurer may decline a claim. If a claim is declined, the value of the Pool assets will decrease which may negatively affect the return on your units.
While Soteria may accept requests to redeem your units prior to maturity, Soteria is under no obligation to do so and you should expect that your investment will remain until maturity of the relevant Pool.
A secondary market is not currently available for you to sell your units however Soteria intends to develop this in the future. When it is established, you may still not be able to sell your units if other units are available with a higher interest rate or more desirable Pool assets. You may therefore find that you are required to hold your units until maturity of the Pool and you should ensure that you are comfortable having your money committed until such time.
Also, if the borrower defaults and it takes some time to remedy that default or sell the property, this may mean that the maturity date of the Pool is extended.
We are not responsible for any loss of value that arises from delays in transferring returns to you
There is a risk of early repayment and a reasonable proportion of the investments you make may be fully repaid before the maturity date of the Pool. The consequence of early repayment is that investors may not receive the amount of interest income that they would have received if the loan had continued for its full investment term.
7. Disclosure Risk
The Soteria platform is only available to ‘wholesale investors’ as defined in the Financial Markets Conduct Act of 2013 (the FMCA). This means that Soteria is not subject to the product disclosure requirements of that Act.
The information made available to investors on the platform regarding the Pool assets is prepared solely by the asset originators (lenders). While Soteria endeavours to ensure the information provided to you is sufficient for you to make an investment, Soteria has not undertaken full due diligence of this information and makes no warranty or claim as to its accuracy or completeness. Further, asset originators are also responsible for ongoing reporting, and Soteria does warrant the accuracy or completeness of any subsequent reports or information posted on the platform.
Consequently, unit holders bear the risk that the information provided may be materially inaccurate or incomplete. This may negatively affect the value of the underlying assets.
Processing of Transactions
There is a risk that transactions cannot be settled or are delayed at settlement, that processing times differ for each transaction, or a transaction may be incorrectly processed. These risks can result from, amongst other issues:
a) user error when providing transaction details (such as providing an incorrect bank account number or other information);
b) increases in the volume of investments, and / or withdrawal requests, on the Platform;
c) increases in the volume of transactions our third-party providers are experiencing;
d) or a failure in the Platform (see further information below at System risks and Technological risks that may affect our third-party providers), a failure in any third-party providers’ technology or systems, or a failure in an underlying network or software.
It may not be possible to reverse a transaction once processing has commenced.
System Risks and Cyber-Security
The Soteria platform is entirely online which exposes us to the threat of cyber-attacks.
Soteria takes cyber-security extremely seriously. Should a cyber-attack manage to breach our system, your money is held in separate bank accounts and can only be transferred out of the platform using our online banking system with dual signing authority.
Soteria’s technology is continuously being developed and the networks and software may be subject to technical weaknesses, bugs, system failures, and attacks by external parties. These failures may affect the Platform.
If we become aware of an attack, we will assess the best response on a case-by-case basis, which may include suspending transactions in relation to the Platform.
Hackers are sophisticated and you may also be targeted by ‘phishing’ attacks or other scams. Phishing includes where third parties masquerade as a legitimate Soteria site, social media account, telephone support number or application in order to steal your credentials. You should only access the Platform through its official website (www.soteria.xyz). Never click on a link or download an application from a third party. We strongly recommend that you do not share your user details to prevent unauthorised account use. Your passwords should be unique to Soteria and should never be stored insecurely on any personal device. If you are a victim of such an attack or scam, the hacker may be able to get you to send them money or your returns or your interests in the Platform.
The transmission of information over the internet (including to or from the Platform) is not completely secure or error free. You should stop transacting when it is clear or you suspect there has been a breach of security or a system failure that poses a risk to security exists (such as malware, ransomware or phishing).
Your ability to interact with the Platform may be affected by these technical failures or attacks either on the Platform or our third-party providers’ systems and networks.
We will make reasonable efforts to notify users if the Platform, or a particular transaction on the Platform, has been subject to a technical weakness, bug, system failure, or hack.
We may also need to do maintenance or upgrades on the Platform from time to time which could affect your ability to interact with the Platform.
It is important you understand the technological risks that may affect our Platform.
There is always the inherent risk that technology of any kind may contain weaknesses, vulnerabilities, or bugs that could cause, among other things, our Platform and/or the technology of our third-party providers or their component parts to fail.
Technological risks may include (but are not limited to):
a) hardware and software vulnerabilities;
b) attacks against you via or outside the Platform (identity theft, malware, phishing, etc.);
c) malicious attacks on smart contract infrastructure or their component parts (i.e., a programmer who finds a vulnerability and uses it to break the protocol or steal from it); and
d) rare and critical surprise attacks on a system (e.g., where the attack is on collateral types that we hold on your behalf, or a large and unexpected price decrease of one or more collateral types).
Soteria investments are limited to wholesale (or other qualifying) investors only. Soteria does not make “regulated offers” of financial products in New Zealand under the FMC Act. Therefore, the protections which apply to regulated offers under the FMC Act do not apply. General consumer protection law, and ‘fair dealing’ protections under the FMC Act may apply, however, to investing in the Platform, including the services provided by us and, to the extent such consumer laws do apply we do not seek to exclude any of your rights that we cannot by law exclude.
As a financial service provider, Soteria is subject to ongoing regulation. Soteria’s primary regulator is the New Zealand Financial Markets Authority (although we are not required to hold any licence because we deal only with wholesale clients). While we currently believe we comply with all of our regulatory obligations, the regulatory environment in New Zealand for financial institutions is rapidly evolving. Future regulatory changes may create additional costs for our business which we would need to recover from our investors out of Pool returns.
New or changing laws and regulations, or interpretations of existing laws and regulations, may adversely impact or significantly change your returns from investing in the Platform, or whether you will receive back all the money you have invested.
Users are responsible for ensuring they comply with all laws that may affect them regarding their investment on the Platform.
If you are outside of New Zealand, you may be subject (or we may become subject) to laws or regulations of other countries which could prevent you from investing in the Platform or cause us to change the availability of the Platform in your country or how we operate or offer the Platform.
Tax Treatment and Accounting
Your investment, and any returns you receive may be subject to the tax laws of New Zealand and other jurisdictions. We do not provide any tax advice. You are solely responsible for understanding how your activities in relation to the Platform will be taxed under the laws applicable to you.
Soteria and any person associated with us (including directors, shareholders, employees and any other related parties) may invest in Pools via the Platform, or may have other interests (including as an originator of loans) in underlying assets of Pools.