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THIS STATEMENT OF INTENT

This Statement of Intent:

• sets out the main objectives the Securities Commission will achieve over the next three years and how those achievements will be measured; and
• presents publicly the Commission's forecast financial statements and forecast statement of service performance for the next 12 months.

MEDIUM-TERM INFORMATION

The information in this section relates to the financial years 2009/2010, 2010/2011 and 2011/2012. This section has key background information about the Commission, how it contributes to the Government's goal, and the environments in which it operates. It sets out the nature and scope of the Commission's functions and intended operations, the outcomes to which we contribute, the objectives and impacts we seek to achieve, and the main measures of achievement.

The Securities Commission

The Commission is New Zealand's main securities regulator. Securities include shares, debentures, bonds, term deposits, superannuation schemes, unit trusts and other managed investments, contributory mortgages and futures contracts. In addition, in 2008 a law was passed to give powers to the Commission to supervise financial advisers.

Our purpose is to strengthen investor confidence and foster capital investment in New Zealand by promoting the efficiency, integrity and cost-effective regulation of our securities markets.

The Government's goal

The Government's goal is to grow the New Zealand economy in order to deliver greater prosperity, security and opportunities to all New Zealanders. The Commission's main contribution to the Government's goal is through its objective of helping create an environment which promotes confidence in the securities market.

Key priorities

With the world in the grips of a financial crisis New Zealand is facing difficult times. Our own securities markets are under stress and investor confidence has taken a hit.

In this context the Commission's priorities for 2009-2012 aim to restore and maintain investor confidence in the regulatory environment. A fair and efficient regulatory regime underpins the development of capital markets which is essential for economic growth.

• finance company enforcement to deter bad practices and market misconduct
• implementation of the regime for supervision of financial advisers so that New Zealanders can have confidence in a competent and trustworthy industry
• law reform and exemptions to facilitate capital raising so that firms have ready access to funds and investors receive good quality information
• using international opportunities to improve confidence in New Zealand capital markets and in particular to encourage and facilitate investment in New Zealand
• raising public awareness and understanding about investing so that investors are equipped to make confident market decisions.

The environments we work in

National environment - New Zealand's securities and financial markets

The Commission regulates conduct in the primary and the secondary securities markets, and the disclosure obligations of investment advisers and investment brokers.

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 give the prospective investors sufficient information about the offer so they can 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.

We can:

• request that documents be amended
• ban offers from the market
• take court action seeking civil penalties and compensation against directors and promoters who mislead investors
• refer breaches of the law for prosecution or in some cases lay criminal charges ourselves
• report publicly on behaviour or circumstances we consider investors and market participants should be alerted to.

The secondary market is where securities are traded, for example, 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's role relating to the secondary market is to use its powers:

• to investigate misbehaviour in the secondary markets, including market manipulation, breaches of continuous disclosure requirements and insider trading
• to enforce securities law including taking legal action where appropriate
• to work with and oversee NZX under the statutory co-regulatory framework.

Investment advisers and investment brokers have to follow law relating to disclosure. The Commission enforces the disclosure rules by using its powers to make prohibition, corrective, disclosure or temporary banning orders. It can initiate court action for pecuniary penalties or banning orders

The Financial Advisers Act passed in September 2008 makes the Commission the main regulator of financial advisers. When the law is in force the Commission will be responsible for authorising advisers and monitoring their conduct and competency requirements. This legislation addresses the shortcomings raised in the Financial Sector Assessment Programme (FSAP) evaluation conducted by the IMF in 2003.

Co-regulatory environment

Currently NZX is the only registered stock exchange in New Zealand. The Commission and NZX have co-regulatory roles relating to the exchange under the Securities Markets Act 1988. 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.

The Commission gives the Minister of Commerce advice on NZX's rules and oversees NZX's performance of its regulatory role. This co-regulatory regime has addressed the matter of standards for exchanges which are self-regulatory organisations, raised by the 2003 FSAP.

A co-regulatory regime has the advantage of giving front-line responsibility to those who are closest to the market, and adds public accountability to this by the oversight and statutory enforcement powers of a public regulator.

Legislative environment

The Government is conducting several reviews on the regulatory regime for securities markets. In particular reforms relating to:

• Capital Markets Development Taskforce recommendations
• Broader review of Securities Act, including
  • trustee supervision
  • collective investment schemes and managed funds
  • disclosure rules

The Commission worked with the Ministry of Economic Development (MED) on a Bill, currently before Parliament, that will allow listed issuers to use a "simplified disclosure prospectus".

The Commission is also working with the Ministry of Justice and MED on proposed reforms to New Zealand's anti money laundering laws which may see the Commission take on a supervisory role for some parts of the financial sector in relation to money laundering. The Government introduced the Anti Money Laundering and Countering the Financing of Terrorism Reform Bill in April.

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 a memorandum of understanding (MOU) with the Australian Government aimed at improving the trans-Tasman business environment.

The two Governments have an agreement which commits to removing unnecessary regulation and costs of offers of securities made in both countries. In June last year a regime for the mutual recognition of securities offerings (MRSO) came into force and the Commission facilitated its implementation. The MSRO enables issuers of securities to use one prospectus to offer shares, debentures or managed or collective investment schemes to investors on both sides of the Tasman, subject to meeting certain requirements. Companies offering securities benefit by saving on costs of preparing separate sets of offer documents while investors benefit by having a wider range of investments to choose from.

The two Governments are working towards a trans-Tasman Single Economic Market. The Commission and its counterpart, the Australian Securities and Investments Commission (ASIC), work jointly to promote these efforts.

International environment

As a small market New Zealand is very exposed to trends and events affecting world markets. Over recent months we have seen deteriorating conditions in global capital markets. Well-regulated and liquid capital markets play a crucial role in the global economy and are at the heart of the recovery of the global financial system. Now, more than ever, it is important that we maintain our international presence and visibility.

Through the International Organisation of Securities Commissions (IOSCO), securities regulators internationally are assessing the lessons to be learnt from the financial crisis and are actively contributing towards regulatory standards-setting solutions at the global level. IOSCO is the international standards setter for securities regulation. Its membership from around the world comprises regulators from 109 jurisdictions covering 95% of global capital markets.

The Securities Commission is involved at a high-level through its Chairman, Jane Diplock, who is in her third two-year term as Chairman of the Executive Committee, IOSCO's governing body. The Commission will assess any findings for relevance to the New Zealand market and these may or may not require a regulatory response in New Zealand.

New Zealand has undertaken significant reforms since 2000 which have brought our regulatory regime and market infrastructure close to international best practice. It is important that these changes are communicated to key institutions and investors internationally, especially in times of market uncertainty.

In December 2008, the Commission's Chairman was appointed to the Financial Crisis Advisory Group jointly set up by the International Accounting Standards Board and the US Financial Accounting Standards Board. This high-level global advisory group is looking at financial reporting issues arising from the financial crisis requiring immediate attention, as well as long-term issues and will report in 2009.

The Commission uses its position within IOSCO to promote New Zealand as an attractive and well regulated place to do business and to invest, to a wider international audience. We work with the Ministry of Foreign Affairs and Trade and with organisations such as New Zealand Trade and Enterprise to identify specific opportunities to raise awareness about developments in New Zealand markets and to inform overseas investors and firms of the high standards of regulation and compliance in New Zealand.

Cross-border cooperation is a vital part of successful enforcement of securities laws. IOSCO has developed a Multilateral Memorandum of Understanding (MMOU), to which 52 of its members (including New Zealand) are signatories, enabling cross-border cooperation and information sharing to combat international fraud. All other member regulators are committed to joining the MMOU by 2010.

It is very much in the national interest to support effective international cooperation through multilateral and bilateral agreements because many firms operating in the New Zealand markets are overseas owned.

The Commission is part of the IOSCO MMOU Screening Group, which vets applications for admission to the MMOU. We encourage and assist non-signatories to take the necessary steps to reach the standards required to be accepted as signatories.

The Commission also negotiates and settles bilateral MOUs with some jurisdictions, either to recognise a special relationship with the jurisdiction (eg. Australia) or as part of our encouragement to the jurisdiction to join the IOSCO MMOU.