Financial intermediaries discussion paper

Commerce Minister Lianne Dalziel released a discussion paper on the co-regulatory model proposed for financial intermediaries on 4 July 2006.

“This is the next step in the review of financial intermediaries, which, together with the Review of Financial Products and Providers, will result in a quality regulatory framework for the financial sector,” Lianne Dalziel said.

In December 2005, Cabinet agreed in principle to the adoption of a co-regulatory model on the basis that:

• industry has the experience to suggest to government the skills and practices a good adviser should have, and what a consumer should expect;
• government oversight reduces the risk of inconsistencies across industry practice in the co-regulatory model, so that no one sector is disadvantaged; and
• consumers rely on intermediaries to provide them with the information they need to make good financial decisions.

Feedback is being sought on:

• who is a “financial intermediary”, what are the different levels of “financial intermediary”, what is “financial advice” and what is a “financial product”?;
• the conduct and disclosure standards for financial intermediaries; and

• the co-regulatory model, including the powers of the Securities Commission, the powers of the Minister, the powers and rules of the “approved professional bodies”.

Submissions close on 1 September 2006 and final policy decisions will be presented to Cabinet in late 2006.

The discussion document is available from www.med.govt.nz in the regulation section.

Directors and officers disclosure review

The directors’ and officers’ disclosure obligations in the Securities Markets Act are to be reviewed.

“Feedback from the market indicates that disclosure obligations are harder for companies to comply with than was originally anticipated, particularly in relation to officer disclosure,” Lianne Dalziel said on 29 May 2006. “The review is to see if we can lighten that burden”.

Policy proposals will be announced after consultation with the industry. Discussions will also be held with the Australian Government, which is also reviewing law in this area, and a comparative analysis of other overseas jurisdictions will also be undertaken.

Protecting investors

Budget 2006 boosted the funding for court cases so the Securities Commission can better protect investors.

The Commission’s litigation fund is increased by $5.8 million over the next four years boosting the available funds for cases if required to $8.1 million. This enables the Commission to pursue litigation under new insider trading powers.

Cycle 3 report soon

A report on the third cycle of reviews in the Commission’s Financial Reporting Surveillance Programme is nearing completion.

In Cycle 3 the Commission reviewed the financial reports of 45 issuers with balance dates from 31 March 2005 to 30 September 2005 to identify the level of compliance with Financial Reporting Standards and other elements of Generally Accepted Accounting Practice and to assess the overall quality of financial reporting.

After each review the Commission publishes a report to help market participants improve their financial reporting.

The overall aim is to encourage New Zealand issuers to improve the quality of their financial reporting so that:

• issuers’ financial report disclosures are clear and comprehensive;
• investors can have confidence in the credibility of financial information provided by issuers; and
• high quality financial reporting will contribute to the integrity of New Zealand’s securities markets.

Reports of the first two reviews are available from www.seccom.govt.nz

Effects on the markets - Telecommunications Stocktake Paper release

The Commission expects to publish a report on its inquiry relating to the release of the Government’s Telecommunications Stocktake Paper shortly.

The inquiry is considering whether the conduct and circumstances surrounding the release of the Stocktake Paper in May 2006 affected the transparent and orderly functioning of the securities markets.

The report will cover any issues of securities law and/or securities market practices arising from the conduct and circumstances surrounding the Paper’s release.

The inquiry is being conducted under sections 10(b), 10(c) and 10(caa) of the Securities Act 1978.