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2004 Annual Report

FROM THE CHAIRMAN

This has been a very exciting and successful year for the Commission. Regulators and market participants around the world are grappling with important changes to improve the efficiency and integrity of securities markets including improved corporate governance practices and the adoption of international accounting standards.

At the request of the Minister of Commerce we consulted widely on the best regime for corporate governance for New Zealand and published Corporate Governance in New Zealand - Principles and Guidelines in February 2004. We recommended a principles based approach for New Zealand, as favoured by those who took part in the consultation process. This was well received, and we subsequently published a Corporate Governance Handbook for Directors, Executives, and Advisers to help them apply and report against the principles. We believe that adopting the principles will improve corporate governance generally and be of particular benefit to investors. We will be interested to see how entities apply the principles and will comment publicly when we think it useful to do so.

New Zealand will move to international standards for financial reporting from 2005. This is an important and demanding change and the Accounting Standards Review Board and the Financial Reporting Standards Board are working to produce appropriate New Zealand equivalents in time for the transition. We will be publishing a practice note to assist entities reporting during the period of transition.

The Commission is committed to adopting best practice in both corporate governance and financial reporting. In this report we have documented our performance against our own corporate governance principles. We intend to be an early adopter of International Financial Reporting Standards (IFRS), publishing our full NZ IFRS financial statements for the year ending 30 June 2006.

We have increased our enforcement focus and capability. We have used our new powers of accepting enforceable undertakings and achieved some significant regulatory outcomes which would have been difficult to achieve without this remedy. We have commenced litigation in relation to substantial security holder disclosure issues and successfully defended two applications for judicial review.

Our relationship with New Zealand Exchange Limited (NZX) has been enhanced and strengthened. We have welcomed NZX's implementation of the NZX Discipline Rules and have advised the Minister of Commerce on the conduct rules for NZX. We have investigated a number of insider trading inquiries referred by NZX to the Commission.

Our core business continues to focus on offer documents, disclosure, and financial reporting in the interests of investors. Our enforcement work included acting against misleading offer documents and accepting enforceable undertakings from market participants who breached the law, but who agreed to take specific steps to rectify the matter. We initiated an education programme, aimed at investors and potential investors, to increase understanding of the securities markets and to help people make better investment decisions.

We were deeply involved with the International Monetary Fund and World Bank assessment of New Zealand towards the end of 2003. It is pleasing that New Zealand was given a good report by the international experts who conducted this intensive inspection, while recognising more work needs to be done on the regulation of financial intermediaries.

Our work on the international scene continued to raise this country's profile among international securities markets and regulators. After intense scrutiny of our legislation and practices the Commission was accepted as a signatory to the International Organisation of Securities Commissions' (IOSCO) multilateral memorandum of understanding. We also signed bilateral MOUs with our counterparts in China, Indonesia, and Malaysia.

In May at the annual IOSCO meeting I was elected to chair IOSCO's Executive Committee for a two year term.

We hosted a meeting of the Asia Pacific Regional Committee of IOSCO in Wellington in February. A highlight of this was a public lecture by Commissioner Roel Campos of the United States Securities and Exchange Commission. We contributed to the international debate on securities issues as a member of IOSCO's Executive Committee to which we were elected in 2002. In May 2004, New Zealand was elected deputy chair of IOSCO's Asia Pacific Regional Committee.

Our relationship with the Australian Securities and Investments Commission has developed significantly and the two commissions held an historic joint meeting in June 2004.

It has been a year of considerable achievement and I thank the Commission Members and staff for their high level of professionalism, enthusiasm and commitment.

Vigorous and well regulated capital markets are crucial to New Zealand's prosperity. The Commission will continue to contribute to achieving this in the year ahead.

Jane Diplock AO
Chairman