
	Advanced Search

...PREV | CONTENTS | NEXT...

2008 Annual Report

Monitoring and market oversight

The Commission monitors market activity to identify and investigate possible breaches of securities law and encourages entities and their directors to strive for international best practice in corporate governance.

Report on the Feltex inquiry

The Commission completed its inquiry into the 2004 IPO prospectus of Feltex Carpets Limited and the company's compliance with financial reporting and continuous disclosure obligations in the period between its listing in 2004 and the appointment of liquidators in late 2006. The inquiry concluded that the IPO prospectus was not misleading in any material particulars. However, it found that Feltex failed to disclose certain material information to the market concerning changes to its banking facility agreement with ANZ in October 2005, failed to disclose the breach of its banking covenants and did not properly classify its debt in its 31 December 2005 half-year financial statements. The Commission also found that work undertaken by Ernst & Young New Zealand in its review of Feltex's 31 December 2005 half-year financial statements failed to meet the required standards.

The Commission referred matters arising from its findings to the Registrar of Companies, the Accounting Standards Review Board, and the New Zealand Institute of Chartered Accountants.

Oversight of NZX

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

In June it published the third annual oversight review of NZX's performance of its regulatory functions as a registered exchange. The review covered the 2007 calendar year and focused mainly on NZX's policies on the continuous disclosure rules and its administration of these, including publishing market announcements. The Commission's overall conclusion was that NZX had met its obligation to operate its markets in accordance with its conduct rules. The Commission was also satisfied with the actions taken by NZX, NZX Discipline and the Special Division in respect of recommendations made in the previous review. Concerns were noted in some areas and NZX, NZX Discipline and the Special Division will respond to these by 30 September 2008.

Market misconduct

The Commission investigates, and if necessary takes enforcement action, on breaches of the laws on insider trading, market manipulation and disclosure by substantial security holders and investment advisers and brokers.

The Commission initiates investigations into possible market misconduct based on information obtained through its own market monitoring and from NZX referrals under the Securities Markets Act 1988. During the year it undertook 33 investigations.

Investment adviser disclosure project

The Commission undertook an extensive education campaign to alert investment advisers to their responsibilities well before new law came into force on 29 February 2008. The law requires advisers to provide investors with a comprehensive disclosure statement. The Commission sought disclosure statements from advisers in March 2008 and from a sample checked found that most comply with the law.

Reviews of financial reporting

The Commission published reports on two further cycles of its Financial Reporting and Surveillance Programme (FRSP). This work encourages high quality financial reporting so that investors can have confidence in the credibility of information provided by issuers. It focuses on compliance by issuers with Financial Reporting Standards and other elements of Generally Accepted Accounting Practice (NZ GAAP).

Cycles 5 and 6 reviewed the financial reports of 40 and 30 issuers respectively. In both cycles the Commission was prompted to write to some issuers for further information or for commitment to revise or enhance disclosures in future financial statements.

The Commission reviewed 12 issuers in Cycle 5 and seven issuers in Cycle 6 that had applied New Zealand Equivalents to International Financial Reporting Standards (NZ IFRS). Overall, the Commission considers that compliance by these issuers with NZ IFRS is good. For issuers transitioning to NZ IFRS the Commission has provided feedback and information on NZ IFRS adoption issues in the cycle reports.

The Commission is pleased with the cooperation from issuers to resolve the matters that have been raised with them. It is encouraged by the commitment of issuers and their auditors to comply with NZ GAAP. This will help provide a true and fair view of the state of affairs of those issuers and further raise the quality of financial reporting in New Zealand.

Enforceable undertakings

The Commission accepts enforceable undertakings from those who breach the law. These are a cost-effective enforcement tool that enable the breach to be remedied, address investors' interests, and avoid court action. All undertakings are published and this communicates the standards of behaviour the Commission expects in the markets.

This year the Commission accepted one enforceable undertaking from Foodstuffs Wellington Cooperative Society Limited and its directors addressing historical non-compliance with the Securities Act. The Commission also accepted an extension of an undertaking previously offered by Contributory Mortgage Investment Limited and its directors that would otherwise have expired at the end of March 2008.

Law reform

The Commission recommends to the Minister of Commerce improvements to securities law that will achieve a regulatory regime that is internationally acceptable, cost-effective and suited to New Zealand's markets.

Regulation of financial products and providers and financial advisers

The Commission has been heavily involved in the Government's review of financial products and providers, and financial adviser regulation. Discussion documents were published in late 2006 and subsequent work has resulted in some reforms currently before the House in bills relating to deposit takers, registration and dispute resolution, and financial advisers. The Commission is continuing to work with officials on matters including deposit takers, collective investment schemes, securities offerings and mutual governance.

Securities Legislation Bill regulations

The Commission contributed to regulations required to bring the Securities Markets Amendment Act 2006 into force. Changes to the Securities Act 1978, increasing the Commission's ability to bring Court actions for breaches of securities law, came into force in October 2006, while changes to the Securities Markets Act came into force on 29 February 2008.

Securities Amendment Regulations 2007

The Commission used its power to recommend urgent regulations under the Securities Act for the first time.

In early September 2007 it responded to a request by the Minister of Commerce to consider whether any immediate changes could be made to the rules of law concerning finance companies, in particular to assist trustees to get the information they need to perform their statutory functions. After consulting with trustee companies the Commission recommended urgent regulations be made to improve trustees' ability to obtain information, to have information independently verified, and to receive reports from finance companies. New regulations came into force on 21 September 2007.

The Commission is currently consulting with industry to review the effectiveness of the regulations, with a view to recommending any changes that may be needed to ensure that the new rules achieve the best results for trustees and investors.

Accounting and auditing

The Commission made submissions on draft financial reporting standards to the New Zealand Institute of Chartered Accountants and the International Accounting Standards Board and participated in a working group on audit oversight.

Anti money laundering

The Commission is working on the inter-agency project on Anti Money Laundering and Countering the Financing of Terrorism (AML/CFT) aimed at strengthening New Zealand's anti money laundering laws. One aspect of compliance is that institutions that are subject to regulatory requirements are supervised by an appropriate agency. It is proposed that the Commission will have a role as the AML supervisor for certain institutions in the financial sector.

Trans-Tasman mutual recognition regime

The Commission and the Australian Securities and Investments Commission (ASIC) completed work on a regulatory regime for securities offered on both sides of the Tasman which came into operation in June 2008. This enables issuers from each country to offer in the other country using the same offer documents. It will reduce compliance costs and benefit investors with a wider range of investments.

...PREV | CONTENTS | NEXT...