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2003 Annual Report

FROM THE CHAIRMAN

Jane Diplock AO, Chairman

This year the Commission has taken on new responsibilities and increased its capacity and capabilities to meet these. New securities law came into force in December 2002. This law expanded our enforcement role, and strengthened our coregulatory role with the newly demutualised New Zealand Stock Exchange - now New Zealand Exchange Limited (NZX).

Our new role with the NZX is set out in a memorandum of understanding, and we have received a number of referrals of matters for investigation from the NZX.

Accounting standards and their application have been of concern worldwide. Our inquiries into Wakefield Hospital Limited and Vertex Group Holdings Limited highlighted aspects of accounting standards and how these should be applied in New Zealand. These inquiries also contributed to our focus on corporate governance.

It is vital for our capital markets that New Zealand's financial reporting and underlying corporate governance are on a par with best international practice. We published basic principles which we believe are important for good corporate governance with the aim of contributing to the overall debate. Other agencies, including the Institute of Chartered Accountants of New Zealand (ICANZ), the NZX, and the Australian Stock Exchange, have published important papers on corporate governance.

We believe that it is time to bring all the information together and to seek consensus on these critical issues. We are pleased the Minister of Commerce has asked the Commission to take a leading role in seeking an agreed set of corporate governance principles that are appropriate for New Zealand.

Our core business focuses on offer documents, disclosure and financial reporting in the interests of investors. Contributory mortgages are still a cause for concern and the Commission will continue to act against brokers who do not meet the standards required of those who raise money from the public.

We worked to raise the international profile of New Zealand's securities markets. We contributed to the international debate on securities issues as a member of the Executive Committee of the International Organization of Securities Commissions (IOSCO). We have applied to join IOSCO's new multilateral memorandum of understanding which aims to enhance communication between regulators. We are delighted that our offer to host the February 2004 annual meeting of the Asia Pacific Regional Committee (APRC) of IOSCO in Wellington has been accepted.

We have been preparing for our part in the Financial Sector Assessment Programme's (FSAP) assessment of New Zealand later this year. The FSAP, developed by the International Monetary Fund and the World Bank, assesses a country's financial systems, in particular the regulatory frameworks, for financial stability. It aims to identify aspects in the financial systems which are potentially vulnerable.

Government has allocated funds for the Commission in the 2003 - 2004 year to increase its work in the public understanding of securities by taking an educational role. We are developing a programme to help New Zealanders make better investment decisions. This will be implemented in the new financial year.

I wish to thank the Members and staff of the Commission for the high level of professionalism, enthusiasm and commitment to our work this year.

New Zealand's continuing prosperity depends on vibrant and attractive capital markets. To attract investment we need to have, and be seen to have, well regulated markets in which compliance with the law is enforced. The Commission will continue to play its part in this in the year ahead.

Jane Diplock AO
Chairman

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