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2004 Annual Report

ACHIEVEMENTS

ENFORCEMENT-BASED LAW AND PRACTICE REFORM

Responsibilities

make recommendations for law reform
review and comment on securities law and practice

Achievements this year

made submissions on
- the Business Law Reform Bill
- proposed reforms to securities trading law
- New Zealand equivalents to International Financial Reporting Standards
- amendment regulations for directors and officers disclosure
- the discussion paper about reform of the Financial Reporting Act 1993
continued the review of the Securities Regulations
commented on 11 exposure drafts for financial reporting and auditing standards

5% of expenditure

Business Law Reform Bill
The Securities Amendment Act 2004 and the Securities Markets Amendment Act 2004 came into force in April 2004. The amendments were part of a wider package of legislative change included in the Business Law Reform Bill 2003. The main changes to securities law are that employer superannuation schemes do not require a registered prospectus; securities can be offered to a wealthy person or an experienced investor, both of whom are defined in the new legislation, without meeting the normal disclosure requirements for offer documents; issuers can make statements inviting expressions of interest before a formal offer is made which includes a registered prospectus and investment statement; and there are new Court procedures for seeking validation of void allotments of securities.

Securities Trading Law
The Commission has been working with the Ministry of Economic Development on reforms to securities trading law. In July 2003 Cabinet took decisions on reforms which covered:

insider trading;
market manipulation;
investment advisers;
substantial security holder disclosure;
application of securities trading law; and
penalties and remedies.

The Commission has commented on the drafting of new legislation on these matters.

Financial Reporting
Preparation for adopting New Zealand equivalents to International Financial Reporting Standards (IFRS) gathered momentum this year. The Commission made submissions to the Financial Reporting Standards Board on the development of these standards for New Zealand, and on new standards and revisions to existing New Zealand accounting and financial reporting standards. The transition to New Zealand equivalents to IFRS has potential implications for compliance with the Securities Act and Regulations. The Commission will issue practice notes to focus attention on disclosure issues in periods before these standards are adopted.

The Commission worked with the Ministry of Economic Development on proposals for amendments to New Zealand's financial reporting laws and changes in the financial reporting framework. We have commented on the Ministry's discussion document for the review's first phase, and we are working with them on the second phase.

The Commission began a pilot project to review financial reporting practices of issuers in New Zealand. Preliminary results suggest there is scope for issuers to improve financial reporting practices in certain areas, and we are extending the scope of this review.

The Commission follows developments in international financial reporting and auditing, particularly work by IOSCO, the International Accounting Standards Board, and the International Federation of Accountants, and also the progress in the trans-Tasman harmonisation of standards.

Directors and Officers Disclosure
This measure, legislated for in December 2002 as an amendment to the Securities Markets Act 1988, came into force on 3 May 2004. Amendment regulations were proposed to give full effect to this legislation. The Commission worked with the Ministry of Economic Development on these regulations, and also granted a number of class exemptions to facilitate the operation of this disclosure in the securities markets.

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