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2009 Annual Report

PERFORMANCE AGAINST OBJECTIVES

In June 2008, the Commission published its third Statement of Intent (SOI) under the Crown Entities Act. This outlined work for 2008-2011, and detailed plans for the 2008/09 financial year.

We report below against SOI objectives for the 2008/09 financial year. The Statement of Service Performance (page 44) details activities under each output for the same year.

As medium-term measures were included for the first time in the 2008-2011 SOI, we also report progress on the medium-term performance for each output.

Surveillance and enforcement

The Commission monitors market activity to identify and investigate potential breaches of securities law. We encourage entities and directors to strive for international best practice in financial reporting and corporate conduct and governance.

Enforcement sends the market clear signals on complying with the law and on expected standards of behaviour.

We work with the Ministry of Economic Development's National Enforcement Unit and the Serious Fraud Office to ensure agencies deal appropriately with alleged breaches.

In July, our output agreement with the Minister of Commerce was amended to allow us to use our litigation budget to pursue criminal prosecutions.

Surveillance and enforcement resources were prioritised to target issues most likely to deter bad practice. In the last year, we completed 88 investigations into suspected breaches of the law.

The majority of enforcement issues dealt with are still under investigation or before the Courts. Two enforcement cases were completed and in both the desired regulatory result was achieved.

In 98% of surveillance cases a positive outcome was achieved.

Finance companies

Finance companies that failed or froze repayments were the focus of our enforcement work. Our investigations involved 35 finance companies.

In December, we filed civil and criminal proceedings against all five directors of Bridgecorp Limited (in receivership and in liquidation) and Bridgecorp Investments Limited (in liquidation); also against all four directors of Nathans Finance NZ Limited (in receivership). We allege that these directors misled investors by making untrue statements in their companies' offer documents.

Civil proceedings are a step towards compensating those who invested according to prospectuses these companies issued in December 2006.

In April, we banned Propertyfinance Securities Limited advertisements for a proposed restructure of moratorium arrangements. We believed these failed to comply with the law and were likely to mislead investors.

We reviewed nine moratorium proposal documents for compliance with securities law.

Real property proportionate ownership schemes

In the latter part of the year, we saw a significant rise in the number of real property proportionate ownership schemes. We reviewed the offer documents for 12 schemes. Some of these matters are ongoing, but as at 30 June seven issuers had voluntarily withdrawn their documents or corrected their information after we raised compliance issues with them.

Other issuers

In addition we reviewed offer documents for other types of securities and possible scams. Five issuers voluntarily withdrew securities offers or corrected information after we raised compliance issues. Four matters were referred to other agencies.

Market misconduct

We investigate and, if necessary, take action against breaches of insider trading, market manipulation and continuous disclosure laws.

Based on information from our market monitoring and from NZX referrals under the Securities Markets Act 1988, we investigated 27 cases of possible market misconduct.

Financial reporting

We published two reviews as part of our Financial Reporting and Surveillance Programme. This work encourages high-quality financial reporting so investors can be confident about the information issuers provide.

The programme focuses on issuer compliance with Financial Reporting Standards and other elements of Generally Accepted Accounting Practice (NZ GAAP).

The two reports - Cycles 7 and 8 - reviewed the financial reporting of 44 and 40 issuers respectively. We wrote to some issuers for more information or a commitment to revise or improve future financial statement disclosures.

Corporate governance review is now part of this programme. We believe that in the current financial climate, investors need more assurance that issuers have robust corporate governance arrangements.

Oversight and supervision

The Commission oversees NZX's performance of its regulatory role, advising the Minister of Commerce on NZX's rules.

Passed in September, the Financial Advisers Act makes us the main regulator of advisers. The Act will hold advisers accountable for the quality of advice they give clients. Once it comes into force, we will be responsible for authorising advisers and monitoring their conduct and competence.

NZX

We made significant progress on our fourth oversight review of NZX's regulatory performance as a registered exchange. The review covers the 2008 calendar year and focuses on the effectiveness of NZX's risk-based approach to supervision of market participants.

Financial advisers

We carried out initial planning and consulted with the industry and the education sector on implementing the financial adviser regime.

Following her May appointment, Commissioner for Financial Advisers Annabel Cotton sought expressions of interest for Code Committee membership. The committee will draft the Code of Professional Conduct for authorised financial advisers. We aim to have the new regime in place by the end of 2010.