Statement of Intent 2006 - 2009

The environment we work in

National environment - New Zealand's securities markets

As the main regulator of investments in New Zealand, the Commission has oversight of both the primary securities market and the secondary securities market.

The primary market covers investments offered to the public for the first time. These include shares, debentures, bonds, term deposits, superannuation schemes, unit trusts and other managed investments, and contributory mortgages. An issuer who offers these securities must do so in offer documents (usually a registered prospectus and an investment statement) which comply with the law. The purpose of the law is to provide the prospective investor with sufficient information to compare one investment with others and to make an informed decision on whether or not to invest.

The Commission's role relating to the primary markets is to enforce the law regarding offers of securities and advertising for securities, and to intervene if an offer is misleading, deceptive, or confusing. It can request that documents be amended and can ban offers from the market. The Commission can report publicly on behaviour or circumstances it considers worthy of comment. The Registrar of Companies also has certain enforcement powers relating to the primary markets.

The secondary market is where securities are traded e.g. on a stock exchange or futures exchange. Participants in these markets have to comply with the rules of the exchange and with the law. The Commission has powers to investigate, and take legal action on, various types of misbehaviour in the secondary markets, e.g. trading by "insiders" who have information that is not known to other shareholders.

Co-regulatory environment

Currently New Zealand has only one registered stock exchange, the NZX. The Commission and the NXZ have co-regulatory roles relating to the exchange under the Securities Markets Act 1988. The NZX is the front line regulator concerned with breaches of the rules of the exchange and the Commission is the statutory regulator concerned with breaches of the law.

A co-regulatory regime has the advantage of giving responsibility at the front line to those who are closest to the market, and adding public accountability to this by the oversight and statutory enforcement powers of a public regulator. As well as the existing regime for securities markets the government plans other co-regulatory arrangements in the financial sector. Good working relationships between the Commission and co-regulators are essential to the effectiveness of any co-regulatory regime. The Commission is committed to this form of regulation and to maintaining effective working relationships with its co-regulators.

Legislative environment

The government is conducting several reviews that will affect the regulatory regime for securities markets. While the detailed design of future regulatory regimes has not yet been finalised, the general directions for reform have been made public by the government. In particular:

• financial intermediaries - in 2005 cabinet agreed in principle to a co-regulatory framework for financial intermediaries involving the Securities Commission and industry-led approved professional bodies;
• financial products and providers - the government is reviewing the wider law relating to offers of securities, and the regulation of managed funds, superannuation and life insurance, and other financial products. Officials are considering the adoption of a co-regulatory model for regulating trustee companies and statutory supervisors which involves the Commission, as well as a role for the Commission in the regulation of funds managers;
• Financial Action Task Force recommendations - the government is reviewing changes needed to secure compliance with New Zealand's obligations to combat money laundering and terrorist financing. The Commission may have a supervisory responsibility for financial institutions in the securities sector.

Trans-Tasman environment

New Zealand has strong economic ties with Australia and is currently working with that country towards a single economic market. The government has recently entered into a revised MOU with the Australian government aimed at improving the trans-Tasman business environment. The two governments have also signed an agreement which commits to removing unnecessary regulation and costs of offers of securities made in both countries. This not only removes barriers and costs for issuers, but also broadens the choice of investments for investors. A vital part of providing these benefits is that the Commission and ASIC work closely together so that regulatory standards are consistent and duplication of work is kept to a minimum.

International environment

Securities markets are global. Transactions take place instantly around the world. This brings enormous benefits for both business and investors. It is important for New Zealand to benefit from globalisation of the markets. To do this it must be seen to have a securities regulatory framework that is on a par with international standards and best practice. This will help attract international investors to our markets.

The globalisation of the securities markets also provides opportunities for international financial fraud. To combat this regulators must be able to work together across traditional jurisdictional boundaries. These issues are being addressed by IOSCO, particularly through the IOSCO MMoU to which the Commission is a signatory.

Who we work with

In accordance with our independent statutory functions and powers, we work with the Minister of Commerce and the Ministry of Economic Development on policy, regulatory matters, law reform, and appropriations. We report to these authorities on our achievements under our output agreement and in our annual report.

Under the Securities Markets Act we have a co-regulatory role with the NZX over the markets operated by that exchange. NZX is currently the sole registered exchange in New Zealand.

We also work with other government agencies including the Registrar of Companies, Reserve Bank of New Zealand, Serious Fraud Office, Commerce Commission, Retirement Commission, Police, and State Services Commission, as appropriate and in accordance with our statutory functions and powers.

We work with overseas securities regulators and agencies in accordance with the IOSCO MMoU, bilateral MOUs and applicable law.

We also work with a variety of industry organisations and professional bodies.