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New Zealand Securities Commission |
Last Updated: 15 November 2014
Briefing Paper
for
Minister of Commerce
Hon Simon Power
20 November 2008
Securities Commission
Level 8, Unisys House
56 The Terrace
Wellington
CONTENTS
INTRODUCTION........................................................................................................ 5
CURRENT PUBLIC ISSUES ..................................................................................... 5
Supervision of financial advisers ......................................................................................................................... 5
Enforcement .......................................................................................................................................................... 6
Finance companies and mis-selling of financial products ............................................................................ 6
Tranz Rail settlements
.....................................................................................................................................
7
Law reform............................................................................................................................................................ 7
Capital Market Development Taskforce........................................................................................................ 7
Disclosure under the Securities Regulations 1983......................................................................................... 7
Securities Act review ....................................................................................................................................... 7
Mutual recognition arrangements .................................................................................................................. 8
Independent audit oversight
...........................................................................................................................
8
Market regulation................................................................................................................................................. 8
BACKGROUND ......................................................................................................... 9
The Commission ................................................................................................................................................... 9
Members of the Commission........................................................................................................................... 9
Role and powers of the Commission .............................................................................................................. 9
Resourcing – Vote
Commerce.......................................................................................................................
11
Relationships – the Government and regulatory environment....................................................................... 11
Registrar of Companies and National Enforcement Unit .......................................................................... 11
Ministry of Economic Development – Business Law Unit.......................................................................... 12
NZX ................................................................................................................................................................. 12
Takeovers Panel ............................................................................................................................................. 13
Other agencies ................................................................................................................................................ 13
Public education ............................................................................................................................................. 13
Industry groups.............................................................................................................................................. 13
Market participants
.......................................................................................................................................
14
International relationships................................................................................................................................. 14
International Organisation of Securities Commissions (IOSCO).............................................................. 14
Australian Securities and Investments Commission................................................................................... 14
Other overseas securities regulators ............................................................................................................ 15
Other overseas bodies
....................................................................................................................................
15
Securities markets............................................................................................................................................... 15
Primary and secondary markets .................................................................................................................. 15
The listed securities markets ......................................................................................................................... 16
Futures markets ............................................................................................................................................. 16
Unregistered securities markets ................................................................................................................... 16
Collective investment schemes ...................................................................................................................... 16
Unlisted debt – finance companies, banks, corporate bonds...................................................................... 17
Intermediaries
................................................................................................................................................
17
APPENDIX – MEMBERS OF THE COMMISSION .................................................. 18
INTRODUCTION
The Securities Commission is an independent Crown entity established under the Securities
Act 1978. It is New Zealand’s main regulator of the securities
markets.
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 efficiency and
integrity of capital markets – and of the financial
sector as a whole
– is fundamental to investor confidence, underpinning the sustainability
of New Zealand’s economic
development.
In recent years the Commission’s responsibilities have expanded to
include enforcement, market supervision and now oversight
of financial
intermediaries. The enactment in September of the Financial Advisers Act and the
Financial Service Providers (Registration
and Dispute Registration) Act
positions us as a financial services regulator, with a broad remit spanning
market participants, intermediaries,
investors and consumers.
CURRENT PUBLIC ISSUES
The current international market turmoil demands a multi-faceted regulatory
response to restore investor confidence, to boost industry
professionalism and
to sustain the domestic and international reputation of New Zealand’s
financial system. Our immediate priorities
are:
• bringing into operation the regime for supervision of financial advisers
• enforcement related to finance companies and mis-selling of financial products
• law reform to facilitate capital raising in New Zealand regarding
o Capital Market Development Taskforce recommendations
o mutual recognition arrangements.
These matters are outlined below along with other current related
issues.
Supervision of financial advisers
The financial advisers legislation was passed at the end of September and a
key focus for us is to bring into operation the regime
as soon as possible.
Early implementation of the financial advisers legislation is important to
restore investor confidence. Timely
implementation will also mean that investors
are able to obtain sound financial guidance when the two year Government deposit
guarantee
scheme is lifted in late 2010. Sufficient funding to implement this
has not yet been appropriated.
The financial advisers legislation places the Commission and other agencies
involved in an ideal position to strengthen the financial
services regulatory
framework, build partnerships with industry to promote professional behaviour,
and overhaul strategies to educate
and protect consumers. It offers Government
an ideal opportunity, given recent events in world markets, to reinforce its
commitments
to strengthening the financial system and consumer
protection.
The objective of enhancing professionalism is underpinned by the need to
implement high standards of competence across the financial
services sector,
particularly with financial
advisers who represent, for investors and consumers, the most visible face of
the finance sector. The effective setting of competence
standards, assessment
of adviser competence (knowledge based and “on-the-job”) and
delivery of training require effort
by the tertiary education network.
Initiatives are now required by the relevant industry training organisation to
help re-align capacity
in the public and private training sectors to swiftly
deliver to the financial services industry.
Over 2009 the policy framework for the financial advisors legislation will be
developed in close partnership with the financial services
industry.
Enforcement
Finance companies and mis-selling of financial products
Mis-selling of financial products and poor advisor conduct is becoming
evident in our enforcement work. One of the Commission’s
main enforcement
priorities is investigating the finance companies that have collapsed or frozen
repayments since June last year.
We are working with the Registrar of Companies,
the receivers of the finance companies, and other agencies to determine the
state
of affairs of these companies and whether civil or criminal action should
be taken. In particular, we are assessing whether the companies
misled their
investors or failed to disclose material information. If they did, the directors
can face criminal penalties of imprisonment
or substantial fines.
Every offer of securities to the public, including finance company debentures
and notes, must have a registered prospectus and an
investment statement. A
prospectus must be kept up to date. If it becomes misleading because of any
adverse circumstance, the issuer
must amend it or stop allotting the
securities.
If a prospectus is false or misleading in a material way, or if the
securities have otherwise been offered or allotted in breach of
the Securities
Act, the issuer and its directors can face criminal penalties of imprisonment or
substantial fines. In May 2008 the
Minister of Commerce agreed to allow
prosecutions to be funded from the Commission's litigation fund. Previously the
litigation fund
had been available for civil actions only, and the National
Enforcement Unit (NEU) of the Ministry of Economic Development had taken
Securities Act prosecutions. The Commission and the Registrar now allocate
Securities Act prosecutions between the Commission and
the NEU.
Also, law changes in force since October 2006 enable the Commission to go to
court to seek compensation for affected investors for
prospectuses registered
after that date. We can also seek civil penalties in some circumstances. These
actions can be taken against
each director of the company, and any promoter of
the offer. The Commission’s litigation fund will be topped up from the
Tranz
Rail settlement providing significant resources to take actions under the
new law.
Investors can also sue for compensation for loss caused by false or
misleading statements. The Commission is continuing to investigate
whether there
may be any prospects for compensation if investors’ losses can be
attributed to misleading statements or omissions
in the prospectuses.
The Commission cannot protect people against genuine investment risk.
However, some of the finance company collapses raise serious
questions as to
whether directors were giving
investors an accurate picture of their financial situation and the risks of
investing with them, or even, in some cases, whether there
was fraudulent
behaviour.
As well as conducting its own investigations, the Commission has assisted the Companies Office to gather evidence for its prosecutions of the directors of Five Star Finance Limited, Five Star Debenture Nominee Limited, Bridgecorp and National Finance 2000 Limited. Also, in respect of Bridgecorp, the Companies Office laid additional more serious charges against executive directors Rodney Petricevic and Robert Roest at the request of the Commission
after we had conducted further investigations.
Tranz Rail settlements
The Commission is in the final stages of its distribution of the $29million
settlement of its case on insider trading against Tranz
Rail. The Commission had
sought direction from the High Court regarding such distribution and the
Court’s order included payment
of the Commission’s costs, amounting
to $2 million. This money will go to the Commission’s litigation fund to
be available
for future enforcement work.
Law reform
Capital Market Development Taskforce
An immediate priority for the Commission will be to provide advice to the
Minister and MED on any recommendations made by the Capital
Market Development
Taskforce, which intends shortly to make recommendations to Government, aimed at
facilitating fund raising by
listed issuers. The Taskforce has brought forward
its reporting date in response to current global financial conditions and the
effect
of these on New Zealand firms, and the Commission sees a prompt response
to the work of the Taskforce as a high priority.
Disclosure under the Securities Regulations 1983
The Commission is also responsible for recommending any changes needed to the
existing disclosure requirements under the Securities
Regulations 1983. We
anticipate that changes will need to be made in the short term to disclosure
requirements for deposit takers,
in line with new prudential rules to be
administered by the Reserve Bank. We understand that the introduction of the
Government deposit
guarantee scheme has brought forward plans for the
introduction of these new prudential rules, and recommendations may need to be
made early in the new year.
Securities Act review
The Commission is currently contributing to the ongoing review of the
Securities Act, which incorporates reviews of trustee responsibilities
and
supervision, supervision of funds managers, and disclosure rules for securities
offerings. We are also working with the Ministry
of Justice on reforms to New
Zealand’s anti-money laundering laws. It is proposed that the Commission
will undertake a supervisory
role in relation to compliance with AML
requirements by some financial service providers.
Mutual recognition arrangements
A current priority is to explore opportunities for New Zealand to enter into further mutual recognition arrangements to deepen and strengthen the capital markets. Our work will
explore further potential arrangements with Australia’s securities
regulator (ASIC), as well as with regulators in key Asian
markets. The
Chairman’s role as Chairman of the Executive Committee of the
International Organisation of Securities Commissions
(IOSCO) will be
instrumental in achieving this, as well as facilitating effective cross-border
law enforcement.
Working closely with IOSCO’s other two main committees, the Technical
Committee and Emerging Markets Committee, the Chairman
is playing a leadership
role in the evolution of IOSCO’s work in shaping the future regulatory
architecture in response to
the global financial crisis.
Independent audit oversight
The Commission is of view that there needs to be effective independent audit
oversight in New Zealand, ie oversight that is independent
of the accountancy
profession. Related to this is the issue of whether key overseas jurisdictions
will recognize the audit oversight
regime in New Zealand in the future. In the
case of the EU we have been advised that if New Zealand does not develop, or
confirm
its intention to develop, within certain time-frames, a regime that
meets the EU equivalence requirements, New Zealand auditors will
not be able to
participate in the audit of New Zealand incorporated entities listed in EU
jurisdictions, without the imposition of
additional conditions.
Market regulation
In response to the global financial crisis the Commission is closely
monitoring the NZX’s supervision of capital ratio and client
fund
requirements for broker dealers on the NZX to ensure that, in the event of the
collapse of a broker-dealer, client funds are
protected.
Work has commenced on the Commission’s fourth annual oversight review
of the NZX.
In light of recent market events investigations are underway for potential
civil and criminal proceedings against board members and
senior management of
certain companies for breaches of market manipulation and secondary market
disclosure laws.
BACKGROUND The Commission
Members of the Commission
Members of the Commission are appointed by the Governor-General on the
recommendation of the Minister of Commerce.
The Commission currently has a full complement of 10 Members. The Chairman is
a full time position.
Other Members attend regular monthly meetings and conduct Commission business
in divisions which meet as required. Members’
workloads are generally 3-5
days per month.
Under the Financial Advisers Act 2008 a Commissioner of Financial Advisers is
to be appointed as an additional Member of the Commission.
The Ministry of
Economic Development is currently considering nominations and expressions of
interest for this position. It is expected
to be a full time role.
Members hold office for a term not exceeding five years and may be
re-appointed. Chairman Jane Diplock AO was reappointed in 2006
for a second five
year term which will expire on 3 September 2011. One Commission Member’s
term will expire in August 2009,
while the terms of four others will expire
during 2010, of which two will be completing a second term.
Profiles of Members are included in the Appendix.
Role and powers of the Commission
The legislation relevant to the Commission includes:
• Securities Act 1978
• Securities Markets Act 1988
• Securities Regulations 1983
• Securities Act (Contributory Mortgage) Regulations 1988
• Securities (Fees) Regulations 1998
• Financial Reporting Act 1993
• Corporations (Investigation and Management) Act 1989
• Crown Entities Act 2004
• Financial Advisers Act 2008
• Financial Service Providers (Registration and Dispute Resolution) Act
2008.
The role of the Commission can be broadly described as follows:
To carry out this work the Commission’s powers include:
• to carry out inspections
• to publish reports and comments
• to exempt persons from compliance with provisions of the Securities and
Financial Reporting Acts or Regulations
• to suspend or cancel a registered prospectus
• to suspend or prohibit an investment statement
• to prohibit advertising of any securities
• to approve trustees and statutory supervisors
• to accept enforceable undertakings
• to hear appeals against certain decisions of the Registrar of Companies
• to recommend regulations
• to enforce insider trading, market manipulation and substantial security holder law
• to make orders requiring disclosure by unregistered exchanges
• to require an exchange to provide information and assistance to the Commission
• to administer the law relating to futures contracts
• to recommend approval of electronic systems for the transfer of securities
• to enforce investment adviser disclosure law
• to authorise, suspend and ban financial advisers (expected to be in place by 2010)
• to receive financial statements of issuers which do not comply with the Financial
Reporting Act 1993
• to approve directions to ‘at risk’ corporations
Resourcing – Vote Commerce
The Commission is funded by Government grant via Vote Commerce. The
Commission also charges fees for exemptions from securities law
and
authorisations of certain market participants. Government appropriations for the
Commission for 2008/09 are $7.3million ($6.5
million in 2006/07 and 2007/08).
The Government also provides a litigation fund for Court actions taken by the
Commission.
With the Commission’s increased functions which have recently evolved and the new role related to financial advisers legislated for this year, the Ministry of Economic Development is conducting a base line review of funding to ensure that we have the required resources to
carry out the functions now required of us under legislation. The expanded
responsibilities for the Commission arising from the Financial
Advisers Act have
necessitated the baseline review looking afresh at the Commission’s entire
infrastructure. The doubling of
staff numbers, the likely opening of an Auckland
office, and the need for computer systems to deal with the authorisation and
monitoring
of financial advisers require this agency to reshape significantly.
Importantly, much of this will be funded on a “user-pays”
basis with
industry fees and/or levies being introduced.
Implementation of the Financial Advisers Act has funding implications beyond
the Securities Commission, and other commerce related
agencies (the Registrar of
Companies for the registration infrastructure and the Ministry of Consumer
Affairs for the dispute resolution
framework). Additional funding to support the
tertiary education system in realigning its capacity is important because the
new professional
adviser framework depends on competency assessment and training
becoming available across the country.
The Commission provides quarterly reports and financial statements to the
Ministry of Economic Development (MED) as well as presenting
its Annual Report
to the Minister for tabling in Parliament.
Relationships – the Government and regulatory
environment
Registrar of Companies and National Enforcement Unit
The Commission works closely with other agencies that have related regulatory
and enforcement functions. The Registrar of Companies
is responsible under the
Securities Act for the vetting and registration of prospectuses. The Registrar
also conducts investigative
work for the Commission by conducting inspections
under the Securities Act at the request of the Commission.
The Securities Act contains a number of criminal offences. Until earlier this year the Commission was not funded to take criminal proceedings. Where Commission investigations led to criminal proceedings these prosecutions were brought by the National Enforcement
Unit of the Ministry of Economic Development on referral from the Registrar
of Companies or the Commission. However, in May 2008 the
Minister of Commerce
agreed to allow prosecutions to be funded from the Commission's litigation fund
which had previously been available
for civil actions only. The Commission and
the Registrar now allocate Securities Act prosecutions between the Commission
and the
National Enforcement Unit.
Ministry of Economic Development – Business Law Unit
The Commission has a function to review the law relating to securities and to
make recommendations for change to the Minister of Commerce.
In practice the
Commission focuses its work on recommendations for changes to the law that arise
from our enforcement work and other
practical experience of the securities
markets.
The Commission also works closely with Ministry officials on securities law
reform projects, providing comment on draft and final
discussion papers,
regulations, and bills drawing from our enforcement and other practical
experience of the securities markets.
The Commission is consulted on cabinet
papers affecting securities law.
NZX
Under the Securities Markets Act 1988 New Zealand has a co-regulatory regime
for listed securities markets. The legislation provides
for the registration of
securities exchanges and futures exchanges. The New Zealand Exchange Limited
(NZX) is the front line regulator.
The Securities Commission overseas this
regulatory activity.
NZX is currently the only registered securities exchange and following
demutualization is a listed company on its own exchange. The
Government approves
NZX’s conduct rules for listed companies and market participants. The
Commission advises the Minister on
these rules and on any amendments.
The Commission conducts an annual oversight review of NZX’s performance as a front-line regulator. This review has occurred for the past three years. The Commission has made recommendations to NZX, NZX Discipline and the NZX Discipline Special Division. Among the recommendations these have addressed NZX Discipline’s exercise of its
discretion whether to publish decisions which identify market participants who have breached the Participant Rules; and the NZX Discipline Special Division’s formalising of its procedures. Our recommendations have also resulted in the NZX ensuring that attachments
to issuer announcements (such as annual reports) are made available on the
public website. The Commission is satisfied that NZX, NZX
Discipline and the NZX
Discipline Special Division have responded appropriately to Commission
recommendations as a result of these
reviews.
In certain circumstances the Commission can give compulsory directions to a
registered exchange requiring it to suspend trading in
particular securities, or
to take some other action relating to trading in securities.
To facilitate their relationship the Commission and NZX have signed a Memorandum of
Understanding, which addresses thresholds, procedures, and processes
for:
• consultation on waivers from continuous disclosure
• procedures relating to the Commission’s power to give directions to the NZX
• procedures to consult on new NZX Conduct Rules and amendments to
these rules.
Takeovers Panel
The Commission has provided administrative and support services to the
Takeovers Panel in accordance with the Securities Act and under
a Memorandum of
Understanding. Under revised arrangements that were fully implemented from 1
September 2008, the Panel has become
responsible for its staff. The Panel
continues to co-locate with the Commission, making a contribution towards the
administrative
and support services it shares with the Commission. Once it has
secured extra funding, the Panel will relocate to separate premises.
The
separation is currently planned for 1 July 2009.
Other agencies
The Commission works with other public and regulatory agencies. These include the
Reserve Bank, Commerce Commission, Serious Fraud Office, Office of the
Auditor General, New Zealand Trade and Enterprise, Ministry
of Foreign Affairs
and Trade, Retirement Commission, Ministry of Consumer Affairs, Advertising
Standards Authority, Banking Ombudsman,
Law Commission, the Government Actuary
and Enterprise New Zealand Trust.
The Commission, along with the Registrar of Companies, Serious Fraud Office,
Reserve Bank, Government Actuary, Takeovers Panel, and
Commerce Commission,
meets several times a year as the Financial Regulators Coordination Group to
discuss current issues and to share
information. A multilateral MOU has been
developed to assist information sharing among members of the group.
Also, the Chairman has been meeting monthly since March 2008 with the
Registrar of Companies, the Director of the Serious Fraud Office,
and the
Establishment Director of the Organised and Financial Crime Agency of New
Zealand to co-ordinate finance company enforcement
action.
Public education
The Commission recognizes the importance of raising the general level of
financial literacy among New Zealanders and is keen to see
this addressed by
Government in a coordinated manner. We have been working with other government
agencies from our perspective of
financial education around investing.
We are also continuing work undertaken over a number of years with Enterprise
New Zealand Trust, sponsoring elements of the Trust’s
financial work in
schools with the aim of developing a generation that will be financially aware
and invest confidently. However,
the Commission is concerned that delays in the
development of relevant unit standards are hindering uptake of financial studies
papers
by schools.
Industry groups
The Commission maintains links and consults with industry groups, including the Investment
Savings and Insurance Association, New Zealand Institute of Chartered
Accountants, Institute of Directors, Trustee Corporations Association,
Institute
of Financial Advisers,
Financial Services Federation, Bankers Association, New Zealand Law Society, New
Zealand Shareholders Association, and Listed Companies Association.
Market participants
The Commission’s work ultimately concerns three groups of market
participants – investors, intermediaries, and issuers
of securities. It
does so in the exercise of its functions, including enforcement work, processing
exemption or authorisation applications,
and promoting public understanding
through its communications and educational programmes.
International relationships
International Organisation of Securities Commissions (IOSCO)
The Commission has been an active member of the International Organisation of
Securities Commissions, IOSCO, and of its Asia Pacific
Regional Committee, for a
number of years. Chairman Jane Diplock was re-elected chairman of IOSCO’s
Executive Committee, its
governing body, in May 2008 for a third two-year
term.
IOSCO is recognised as the global policy forum and standard setter for
securities regulation. Its members total 109 securities regulators
and a number
of affiliate organisations. Member jurisdictions regulate over 95% of securities
markets world wide.
Among IOSCO’s important initiatives are its 30 Objectives and
Principles for Securities Regulation (IOSCO Principles) which
are promoted for
full implementation in each member jurisdiction with the aim of raising the
standards of regulation of securities
markets globally. Through a Multilateral
Memorandum of Understanding (IOSCO MMOU), IOSCO facilitates exchange of
information and
cooperation for cross border enforcement. New Zealand is a
signatory to the MMOU.
New Zealand has benefited from the Commission’s involvement with IOSCO
in the development of domestic securities policy and
legislation. The
Commission’s acceptance as a signatory to the IOSCO MOU has increased the
number of jurisdictions with which
the Commission can cooperate to enforce
securities law. It has used the forum to promote and garner respect for New
Zealand’s
regulatory framework and capital markets.
The Commission works with the Ministry of Foreign Affairs and New Zealand
Trade and Enterprise to arrange speaking opportunities for
the Chairman when
travelling internationally to IOSCO meetings to promote New Zealand’s
regulatory framework and capital market
to investor and business
audiences.
Australian Securities and Investments Commission
The Commission has a close relationship with the Australian Securities and
Investments Commission (ASIC) including a bilateral agreement
to exchange
enforcement-related information. The two commissions regularly meet to discuss
matters of mutual interest consistent
with the Closer Economic Relations
accord.
In July 2008 the Australian and New Zealand governments brought into force
the arrangement on mutual recognition of securities offerings.
This aims to make
it easier and more cost effective for businesses to raise capital across the
Tasman and provide more
choices for investors while ensuring their interests are protected.
Consistent with the Single Economic Market programme we will be
exploring
further opportunities for mutual recognition with Australia, as well as with
other markets, for the purposes of strengthening
and deepening our capital
markets.
Other overseas securities regulators
The Commission has bilateral MOUs with securities regulators in Australia,
China, Dubai, Hong Kong, Indonesia, Israel, Japan, Jordan,
Malaysia, Papua New
Guinea, Sri Lanka, Taiwan, United States of America and United Arab Emirates,.
These MOUs facilitate the exchange
of information between the Commission and its
counterparts in these countries.
Other overseas bodies
Chairman Jane Diplock is a member of the Trans-Tasman Leadership Forum. From
time to time the Commission is in contact with other
international bodies
affecting securities markets including the Financial Stability Forum, OECD, and
the International Accounting
Standards Board.
Securities markets
Primary and secondary markets
It is convenient to divide securities markets, from a regulatory perspective,
into primary and secondary markets. The primary market
involves the offer and
issue of securities by companies and other issuers. This includes public
offerings of shares, debt securities,
units in unit trusts, superannuation and
life insurance products, and interests in syndicates and other participatory
schemes. The
secondary market is the subsequent trading of securities, whether
on regulated exchanges or elsewhere.
The primary market is regulated under the Securities Act. This Act applies to
any offer of securities to the public. Non-public offers
of securities are not
subject to this law. The regulatory regime is largely disclosure-based. To offer
securities an issuer must
have a registered prospectus disclosing all material
matters about the issuer and the securities on offer and an investment statement
which contains information about the offer in plain English.
The secondary market is regulated under the Securities Markets Act 1988. This
Act applies to:
• registration and oversight of securities exchanges
• insider trading laws
• market manipulation laws
• continuous disclosure laws
• directors’ and officers’ disclosure
• investment adviser disclosure
• substantial security holder disclosure
• futures dealing.
The listed securities markets
NZX operates three securities markets:
Futures markets
The only active authorised futures exchange is the Sydney Futures Exchange
Limited (SFE ). The New Zealand Futures and Options Exchange
Limited (NZFOE)
which is a wholly owned subsidiary of SFE is authorised but no longer operates.
NZX derivative products can be traded
on the SFE market.
Futures dealers must be authorised by the Commission. Participants of SFE or
who are approved by NZX as Futures and Options Participants
can deal in futures
contracts under class authorisations granted by the Commission. Other dealers
must be individually authorised.
Unregistered securities markets
The Securities Markets Act applies to trading on registered securities
exchanges. No one can call their securities market a “stock
exchange” or “securities exchange”, or state or imply that a
market is regulated under New Zealand law unless that
person is registered as an
exchange. However this does not stop any trading platform from operating,
although the Minister of Commerce
has the power to prevent a body corporate from
operating without registration. There are a number of unregulated trading
platforms
operating including Unlisted.
Collective investment schemes
Interests in collective investment schemes – including interests in
unit trusts, superannuation, and life insurance –
are securities under New
Zealand law. Primary offers of these products to the public are regulated under
the Securities Act. In addition,
specific legislation for the formation and
governance of some schemes is found in the Unit Trusts Act 1960, the Life
Insurance Act
1908, the Trustee Companies Act 1967 (in respect of Group
Investment Schemes), and the Superannuation Schemes Act 1989. These Acts
all
include restrictions on the operation of such schemes, but there is no licensing
of fund managers.
A small number of unit trusts have securities listed on the NZSX market.
Other participatory schemes can offer securities to the public under the
Securities Act and must appoint a statutory supervisor which
must be a statutory
trustee corporation or a person approved for the purpose by the Commission.
These include forestry and agricultural
syndicates, limited partnerships, and
some property interests. The Securities Act regulates
only the offer of securities by these schemes and does not prescribe the
legal form or organisation of the schemes.
Unlisted debt – finance companies, banks, corporate
bonds
The Reserve Bank is the main regulator of registered banks. Registered banks
are also subject to the Securities Act when they offer
securities (including
bank accounts) to the public. Registered banks are exempt from the prospectus
and trustee requirements of securities
law. Investment statements are not
required for any call debt securities.
The Reserve Bank will also now have prudential regulation of non-bank deposit
takers following legislation enacted in September 2008.
Finance companies
offering debt securities, usually debentures, are also subject to securities
legislation and the Commission is
undertaking a number of investigations against
failed finance companies.
Issuers who offer debt securities to the public must appoint a trustee which
must be a statutory trustee corporation or a person approved
by the Commission
to act as a trustee for debt securities. Typically, debt security trust deeds
include lending ratios and other
prudential controls. Other issuers of debt,
such as building societies and credit unions, are also subject to the Securities
Act
and also to their own industry-specific legislation.
Intermediaries
Intermediaries, including investment advisers, sharebrokers, financial
planners, and other promoters or marketers of financial products,
are involved
in both the primary and secondary markets.
The Securities Markets Amendment Act 2008, which came into force in February,
strengthened the disclosure obligations for financial
advisers. Advisers are
required to give their clients a disclosure statement with information about
themselves, the products they
advise on and the way they are paid. If they fail
to comply the Commission can make orders and can take advisers to court to seek
compensation and penalties.
The recently passed Financial Advisers Act 2008 will require financial
advisers to meet standards for competence, professional conduct
and disclosure
and make them accountable for the quality of advice they give to clients. The
Commission’s responsibilities
will include authorising financial advisers
who advise on more complex (‘category 1’) products such as
securities, real
estate and futures contracts, and administering a Code of
Conduct. The Commission will be able to require advisers to meet their
obligations.
APPENDIX – MEMBERS OF THE COMMISSION
Jane Diplock AO BA (Hons), LL B, DipEd (Sydney), Dip Int Law (ANU), FIPAA, FNZIM. Chairman of the Commission since September 2001.
Professional: Barrister and Solicitor of the ACT Supreme Court and High
Court of Australia, Barrister of the New South Wales Supreme
Court; Fellow of
the Institute of Public Administration of Australia; Chevening Fellow at London
School of Economics; Chairman of
the Executive Committee of IOSCO; Fellow of the
New Zealand Institute of Management.
Colin Beyer LL B, DistFInstD.
Consultant to Simpson Grierson, Wellington. Professional: Solicitor,
Wellington.
Mai Chen LL B (Hons) (Otago), LL M (Harvard), FNZIM.
Partner of Chen Palmer, Wellington, Barristers and Solicitors, Public Law Specialists. Professional: Specialist in government regulation of business, administrative and
constitutional law, public policy and legislation. Member of the New Zealand
Trade and Enterprise Beachheads Advisory Board and the
Asia New Zealand
Foundation. Formerly on the Advisory Board of AMP Life Limited (NZ) and Senior
Law Lecturer at Victoria University
of Wellington. Fellow of the New Zealand
Institute of Management.
Annabel Cotton BMS (Accounting and Finance), ACA, CSAP. Business Consultant, Hamilton.
Professional: Consultant to companies listed in New Zealand and overseas.
Directorships: Genesis Power Limited, Kingfish Limited, Barramundi Limited, Marlin Global
Limited and a number of private companies.
Keitha Dunstan PhD (QLD), M Bus (QUT), Grad Dip Mgt (UCQ), B Com (QLD), CA. Research Professor, School of Accounting and Commercial Law, Victoria University of Wellington.
Professional: Head of School, School of Accounting and Commercial Law at Victoria
University of Wellington.
Elizabeth Hickey M.Com(Hons), FCA, MInstD. Professional: Chartered
Accountant, Auckland.
John Holland B Com, LL B. Solicitor, Christchurch.
Professional: Partner of Chapman Tripp specialising in securities and competition law and mergers and acquisitions.
Directorships: Board member of Chapman Tripp.
David Jackson M Com (Hons), FCA. Company Director, Auckland. Professional: Chartered Accountant.
Directorships: Fonterra Co-operative Group Limited, Nuplex Industries Limited, Pumpkin
Patch Limited, and The New Zealand Refining Company Limited.
Cathy Quinn LL B. Solicitor, Auckland.
Professional: Partner of Minter Ellison Rudd Watts specialising in corporate
and securities law. Member of the Government appointed
Capital Market
Development Taskforce.
Neville Todd B Com (Otago). Company Director, Wellington.
Professional: Managing Director of Kinloch Funds Management Limited. Directorships: Kinloch Funds Management Limited and its subsidiaries.
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