ISSN 1174-4758
ISSN 1177-7184 (online)
The Quarterly Newsletter of the New Zealand Securities Commission
No.44 July 2008
This issue
At the announcement of the new regime for trans-Tasman securities offerings (left to right): Jeremy Cooper, Senator the Hon Nick Sherry, Hon Lianne Dalziel and Jane Diplock AO.
The Securities Commission and the Australian Securities and Investments Commission (ASIC) last month welcomed the announcement of mutual recognition of securities offerings (MRSO) by the Commerce Minister, Hon Lianne Dalziel, and the Minister for Superannuation and Corporate Law in Australia, Senator the Hon Nick Sherry.
The MSRO means issuers of securities can now 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.
Legislation and regulations were introduced in each country by the respective Governments to bring this regime into effect.
“The new regime will mean cost savings for companies offering securities and will benefit investors with a wider range of investments. It is a significant step towards achieving a single economic market,” Commission Chairman, Jane Diplock, says.
“Since the agreement came into force I am delighted that one international investment bank has already given notice of their intention to use the scheme for 24 Australian managed funds to be made available to New Zealand investors. The MRSO underpins the strength of each country’s regulatory regime and the co-operative relationship between the two nations.
We have worked closely together to ensure the new regime maintains the existing protections for investors while reducing the capital-raising and compliance costs for issuers,” ASIC Deputy Chairman, Jeremy Cooper, says.
The agencies have also published joint guidance to New Zealand and Australian issuers offering shares, debentures, or managed or collective investment schemes in both countries. The guide, available on www.seccom.govt.nz, explains what issuers have to do under the trans- Tasman mutual recognition scheme for offers of securities and the role of the regulators in both countries in relation to an offer.
It also alerts issuers to the specific parts of Australian and New Zealand law that will continue to apply when offers are made under the MRSO, such as the prohibition on door-to-door selling in New Zealand and the securities hawking laws in Australia. The MRSO is overseen by ASIC in Australia and the Companies Office and the Securities Commission in New Zealand.
These agencies have developed protocols on cooperation and information sharing to ensure the smooth running of the new regime.
The Commission has a number of long standing class exemptions for offers from Australian issuers which will now be reviewed. The Commission will undertake targeted consultation during the review. If you would like to be consulted contact huanlan.yap@seccom.govt.nz. Appropriate transitional provisions will be put in place where changes are made.
New law requiring investment advisers and brokers to provide up-front disclosure before they give investment advice or receive investment money from the public in relation to securities came into force on 29 February this year.
As a part of its market monitoring and oversight function the Commission wrote to 1451 individuals/entities on 3 March 2008, requesting copies of their disclosure statements.
A sample of the investment statements received is being reviewed in detail and the investment advisers/brokers contacted if there are any compliance matters to raise.
Preliminary checks of the statements received indicate that the general level of disclosures made is relatively good. However, in some aspects there appears to be a wide variance in the level of disclosures made. One such aspect is the requirement to disclose the nature and scope of the adviser’s professional indemnity insurance. The Commission is currently considering the matters that should be included and proposes to provide guidance on it.
The application of the new investment adviser and broker disclosure laws to certain activities also does not appear to be widely understood. For example, the application of the broker disclosure laws to lawyers who operate solicitors’ nominee companies and receive investment money or property in respect of investments made through their nominee companies. This does not appear to be widely understood particularly in light of the limited exemption available for lawyers who give investment advice.
The Commission will take enforcement action where appropriate and will continue to monitor disclosure documents of investment advisers and brokers.
Failure to comply with the disclosure obligations is an offence with fines of up to $300,000. Civil penalties of up to $1 million can be imposed by the Court.
The Commission has assisted the National Enforcement Unit (NEU) of the Companies Office in prosecuting the directors of three finance companies.
Criminal charges have been laid against directors of Five Star Finance Limited, Five Star Debenture Nominee Limited and Bridgecorp Limited.
The directors of Five Star Finance Limited and the Directors of Five Star Debenture Nominee Limited, Marcus MacDonald, Anthony Bowden and Nicholas Kirk, have been charged with offering and allotting debenture stock to members of the public without having a registered prospectus or investment statement.
Directors Rodney Petricevic and Robert Roest of Bridgecorp Limited have been charged in relation to statements made in the company’s prospectus, and in a director’s certificate given to the trustee.
The defendants were summonsed to appear in the Auckland District Court on 4 August and 29 July 2008 respectively. If convicted on these Securities Act charges, the directors and promoters are liable to a fine not exceeding $300,000. The two Bridgecorp directors, also have been charged under the Companies Act, which carry a maximum penalty of 5 years imprisonment or a fine of up to $200,000.
The Commission has provided information and analysis to the NEU, and continues to assist as required.
The Commission and the Serious Fraud Office are also conducting separate investigations into the affairs of these finance companies.
Future criminal prosecutions against finance companies that have misled investors will be able to be funded from the Securities Commission’s Litigation Fund.
Announcing this change in May, Commerce Minister Lianne Dalziel said. “I want the regulator to have every support possible in order to allow it to take prompt and effective action that will help to rebuild public confidence in the finance market.”
Criminal enforcement falls within the powers of the Securities Commission, but previously the litigation fund was available for civil prosecutions only. In the past, criminal cases have been handled by the Registrar of Companies’ National Enforcement Unit within the Ministry of Economic Development.
The Commission is working with the Registrar of Companies on allocating responsibility for criminal prosecutions.
Minister Dalziel said criminal prosecutions under the Securities Act are an important part of the enforcement of the law. “It’s clear that the threat of criminal conviction is an effective deterrent to criminal behaviour. The government is committed to making sure the Securities Commission has the money to do the job well.”
The Commission has decided to renew exemptions that will reduce the costs for small and medium businesses raising capital. The exemptions, and the conditions on which they are available, are contained in the Securities Act (Venture Capital Schemes) Exemption Notice 2008. The new exemption will come into force on the expiry of the existing exemption for the scheme on 31 July 2008.
The Notice exempts small and medium businesses from registering a prospectus, meeting the minimum allotment provisions and, in the case of participatory securities, having a deed of participation and statutory supervisor. They are also exempted from the usual advertising requirements.
To rely on the exemptions businesses offering securities must do so through a venture capital scheme operated by a designated Scheme Administrator in accordance with a Code of Practice approved by the Commission. The Commission has approved a revised Code of Practice which sets requirements about how the securities can be advertised, offered and allotted. Key changes to the exemption and code are:
The Commission has continued the designation of eight existing scheme administrators, and has designated one new scheme administrator. It has also confirmed the criteria it will use to consider future applications for designation of scheme administrators.
Information about applying to be designated as a scheme administrator, including what the Commission will consider in assessing applications and the Code of Practice are available at www.seccom.govt.nz/exemptions.
The Notice is available at the New Zealand legislation site www.legislation.govt.nz.
The Commission’s third annual oversight review has found NZX’s performance as a registered exchange continues to be good.
“These annual reviews help to strengthen investor confidence in NZX’s performance of its regulatory role,” Chairman Jane Diplock says.
The Commission reviewed NZX’s performance of its regulatory functions as a registered exchange under the Securities Markets Act 1988 and focused on NZX’s arrangements in the 2007 calendar year for discharging its obligations. The overall conclusion is that NZX is satisfying its obligation to operate its markets in accordance with its conduct rules.
Among other things, the Commission found:
NZX, NZX Discipline and the Special Division have agreed to report to the Commission by 30 September 2008 in regard to matters arising from this review, and the Commission will publish such responses.
Oversight Review of NZX 2007 is available from www.seccom.govt.nz.
Commission Chairman Jane Diplock has been re-elected Chairman of the Executive Committee of the International Organization of Securities Commissions (IOSCO) for an unprecedented third term at its annual conference in May this year.
IOSCO has over 100 members and is recognized by the international financial community as the global standards setter for securities regulation. Its members regulate over 90 percent of the world’s capital markets.
“I am very pleased to have the opportunity to continue our contribution to IOSCO,” Jane Diplock says. “It is an honour for New Zealand to be recognized at such an important international level, acknowledging the development of our own regulatory framework in line with international best practice.”
In 2005, under her leadership, IOSCO took on a new strategic direction focusing on raising standards of securities regulation and promoting its Multilateral Memorandum of Understanding (MMOU).
The MMOU enables regulators to exchange information for effective enforcement across borders. Jane Diplock is keen to see through the milestone of all members signing up to it by 2010. “It will be an important legacy for investor protection, transparency and efficiency across borders.”
The International Organisation of Securities Commissions (IOSCO) held its 33rd annual meeting in Paris in May.
Some conference highlights:
The communiqué is available from www.iosco.org
The Minister of Commerce, Lianne Dalziel, has announced the appointment of Elizabeth (Liz) Hickey as Member of the Commission and re-appointment of Members Mai Chen and Keitha Dunstan.
Liz Hickey is a chartered accountant with more than 30 years experience and specialist expertise in complex accounting, financial reporting and disclosure issues. She has been with the International Accounting Standards Board (IASB) in the UK since 2003 and has recently completed her term there. Liz Hickey previously served as a member of the Securities Commission from 1992 to 2003. She was also a member of the Accounting Standards Review Board (ASRB) from 2002 to 2003 and was the Chair of the ASRB in 2003.
Mai Chen is a founding partner of Chen Palmer, Barristers and Solicitors. The firm specialises in government regulation of business, administrative and constitutional law, public policy and legislation. She is a Member of the New Zealand Trade and Enterprise Beachheads Advisory Board and the Asia New Zealand Foundation.
Keitha Dunstan is a Research Professor at the School of Accounting and Commercial Law, Victoria University of Wellington. She is the founding director of the Centre for Accounting, Governance and Taxation Research at Victoria University of Wellington, and is the New Zealand President of the Accounting and Finance Association of Australia & New Zealand.
Angus Dale-Jones has been appointed as Director - Supervision. He is leading the Commission’s expected new work on supervision of financial advisers. Angus comes from the Australian Securities and Investments Commission (ASIC) where he was the Regional Commissioner, Western Australia since 2004. Since 2005, he also held other senior positions including Director, Financial Services Regulatory Operations, and Strategy Adviser to the National Executive at ASIC.
Roger Marwick took up the position of Communications Manager in May. He has two decades of communications and marketing experience in both the public and private sectors. Most recently he worked for the Department of Internal Affairs and the Department of Labour.