2008 Annual Report

Report against the Statement of Intent

ENFORCEMENT

Objective - enforcement work is targeted at those issues most likely to deter bad practice in key areas.

Objective - our enforcement actions achieve the desired regulatory results.

The SOI said the Commission will have achieved the enforcement objectives when:

• resources are applied in accordance with its enforcement priorities; and
• the Commission achieves the desired regulatory outcome in at least 80% of cases.

Performance against enforcement objectives

The Commission allocated its resources according to its priority and case selection criteria so that enforcement work was targeted at issues most likely to deter bad practice. The Commission's enforcement work this year focussed heavily on finance companies, exercising powers in respect of companies in distress with a view to securing remaining assets and removing companies from the market in the interests of investors.

Enforcement resources have also been applied to investigations of failed finance companies with a view to bringing Court proceedings to seek criminal convictions, civil penalties, or compensation for investors.

Each enforcement action taken this year achieved the desired regulatory result, either to secure assets or to remove an offer from the market in the interests of investors.

MONITORING AND MARKET OVERSIGHT

Objective - monitoring and market oversight work corrects identified deficiencies and communicates the Commission's expectations of standards of conduct in the market and the requirements of the law.

Objective - monitoring and market oversight work is targeted at those issues most likely to deter bad practices in key areas.

Objective - NZX properly fulfils its regulatory role in the market.

The SOI said the Commission will have achieved its monitoring and market oversight objectives when:

• in 90% of cases where deficiencies are identified the desired regulatory result is achieved;
• its resources are applied in accordance with its monitoring and market oversight priorities; and
• it has published a report of its annual oversight review of NZX.

Performance against monitoring and market oversight objectives

The Commission achieved a satisfactory regulatory outcome in monitoring and oversight activities described on pages 6 - 8 and detailed in the Statement of Service Performance by appropriately addressing breaches of the law and by signalling the standards of behaviour expected in the markets.

The Commission allocated its work in accordance with its priority and case selection criteria. The criteria are reviewed regularly so that the focus is on key areas where its actions will effectively contribute to a well-regulated and well-informed market.

The Commission's report Oversight Review of NZX 2007 published on 20 June 2008 concluded that NZX was performing its regulatory obligations as a registered exchange, but noted some areas of concern. The review considered that responses to, and actions resulting from, the Commission's recommendations made in the Oversight Review of NZX 2006 published on 28 June 2007 were satisfactory. NZX's responses to recommendations from the latest review will be reported in the Commission's next annual report.

LAW REFORM

Objective - provide robust advice to Government to give priority to reforms needed to address shortcomings in the law identified through the Commission's work.

Objective - high quality advice and assistance is given to the Government's financial services policy development.

The SOI said the Commission will have achieved the law reform objectives when:

• advice given seeks priority for reforms to address identified shortcomings in regulation of financial intermediaries, disclosure about investment products, issues identified by FSAP which will bring our law up to the standards required by the IOSCO Principles, Securities Regulations, and auditor oversight; and
• the quality, quantity, and timeliness of the Commission's advice and assistance to the Ministry of Economic Development's reform programmes satisfy the MED.

Performance against law reform objectives

The Commission:

• sought urgent changes to the law to give trustees more powers in relation to investors in finance companies; and
• provided advice and assistance on: the reform of financial adviser law and regulations under the Securities Markets Act; the review of financial products and providers; and the Ministry of Justice's anti money laundering proposals.

The MED has confirmed that it was satisfied with the advice received from the Commission during the year.

EXEMPTIONS AND AUTHORISATIONS

Objective - all exemptions and authorisations are completed within the agreed time.

Objective - an effective regime is in place to authorise futures dealers.

The SOI said the Commission will have achieved its exemptions and authorisations objectives when it has:

• dealt with all applications for exemptions and authorisations within the time agreed with the applicants; and
• introduced and communicated a new policy for authorisation of futures dealers.

Performance against exemptions and authorisations objectives

The Commission:

• received 66 applications and granted 43 exemptions;
• completed the five-yearly exemption review which saw 37 notices renewed, 12 notices revoked or allowed to expire and 1 new exemption granted;
• completed 100 % of applications within the time agreed with applicants;
• authorised 6 futures dealers on terms and conditions consistent with the Securities Markets Act; and
• decided to defer settling a formal policy for authorisation of futures dealers in view of the forthcoming reforms for all financial advisers.

INTERNATIONAL COOPERATION AND RECOGNITION

Objective - the Commission's contribution to the work and development of IOSCO and other relevant international bodies promotes New Zealand's markets and regulatory environment.

Objective - the Commission has a strong relationship with ASIC.

Objective - the Commission fulfils its obligations under the IOSCO Multilateral MOU and bilateral MOUs with overseas regulators.

The SOI said the Commission will have successfully achieved its international cooperation and recognition objectives when it has:

• taken part in all relevant IOSCO meetings and made a presentation which includes promoting New Zealand's markets and/or regulatory environment at 60% or more IOSCO regional meetings;
• met regularly with ASIC and cooperative work is completed to agreed standards and time frames; and
• obligations under IOSCO and bilateral MOUs are fulfilled within agreed time frames.

Performance against international cooperation and recognition objectives

The Commission:

• took part in meetings of IOSCO's Asia Pacific Regional Committee (APRC), Executive Committee and Presidents' Committee and the IOSCO Technical Committee's meetings with industry. Opportunities were taken to promote New Zealand's regulatory framework to IOSCO and business audiences on 9 occasions;
• Members met with ASIC on 2 occasions; staff worked with ASIC at an operational level on various matters including finalising the regime to regulate securities offered to the public under the trans-Tasman mutual recognition scheme; and
• fulfilled its obligations and/or made use of the IOSCO MMOU and bilateral MOUs 6 (8) times in the course of enforcement work.

PUBLIC UNDERSTANDING

Objective - the Commission's education projects, websites, publications and presentations provide investors and potential investors with information to help them understand the law and practice of securities.

Objective - a guide to new securities law is published.

The SOI said the Commission will have achieved the 2007-2010 public understanding objectives when:

• its education projects are completed and meet the measures of success set for each project (90%); and
• the guide to new securities law is published before the law comes into force in 2007.

Performance against public understanding objectives

The Commission:

• carried out four public education projects - New law for market participants, New law for investors, Youth education (via Enterprise New Zealand Trust's financial studies course), and Be a smart investor. All projects met the measures of success as described in the Statement of Service Performance on page 45; and
• published a guide, New securities law for investment advisers and market participants, in December 2007 as soon as regulations were settled and before the law came into force in February 2008.