Paul Swain Speech To Phillips Fox Forum
24 October 2001
Speech to Phillips Fox forum "New Zealand and Australia, A borderless market - fact or fiction?"
Thank you for the invitation to speak to you today and I welcome the chance to talk about the topic you have chosen for me - New Zealand and Australia, a borderless market - fact or fiction?
This is a timely topic and is a good opportunity to talk about some recent events.
What I want to focus on today is the steps the New Zealand and Australian Governments have taken to enhance the growth of trans-Tasman business activity since the CER agreement came into being.
In July 1988 our governments signed the Memorandum of Understanding on the Harmonisation of Business Law. This provided a starting point for dialogue on business law issues.
Good progress was made in several areas, however it became apparent that harmonisation would not always be the most efficient way of removing the regulatory barriers between Australia and New Zealand.
The focus then shifted from harmonisation to coordination of laws, which included mutual recognition of laws. Both countries agreed to revise and update the MOU.
The MOU on Business Law Coordination In August last year we signed the Memorandum of Understanding between New Zealand and Australia on the coordination of business law.
The MOU provides a framework for business law coordination which is flexible, but provides incentives for both countries to consider the trans-Tasman dimension in any business law reform which they undertake.
The MOU contains an annex of eight areas identified as possible candidates for coordination.
These are: · Providing for the cross recognition of companies; · Seeking greater compatibility in disclosure regimes for financial products; · Managing cross border insolvency · Providing a regulatory framework for mutual recognition of share markets between New Zealand and Australia; · Exploring coordination in the granting and recognition of intellectual property rights; · Sharing information and jointly participating in policy and education programs on consumer issues relating to business law; · Seeking greater consistency in legislation on electronic transactions; and · Exploring the potential for greater consistency in application and enforcement of competition law.
The MOU acknowledged that there was already a significant degree of coordination and cooperation in some of these areas, such as competition and consumer protection laws and in cross investment activity.
It recognises that one single approach is not necessarily suitable for every area of business law.
The focus of the MOU is on: · reducing transaction costs, · lessening compliance costs and uncertainty; and · increasing competition.
The MOU provides a clear and strong mandate for continuing work in the specific areas mentioned in the work programme.
It emphasises the trans-Tasman relationship, but also acknowledges the importance of a global approach to business law issues. An enhanced trans-Tasman commercial environment will allow New Zealand and Australia to share a common outward focus in commercial activities within the greater global market.
The framework established by the MOU includes principles to be followed in considering the benefits of coordination for each area of the work programme.
These principles focus on: · Ensuring that a firm will ideally have to comply with only one set of rules, and will have certainty on how the rules apply and which regulator is responsible; · What type of regulation is appropriate - two sets of domestic rules, or a bilateral or multilateral solution; and · Whether a good reason exists for the law to be different between New Zealand and Australia.
They also recognise that it is important to ensure in each case that the benefits of coordination outweigh the costs.
Progress since the MOU was signed Over the period since the MOU was signed significant progress has been made in a number of the areas on the work programme. There has been ongoing dialogue between New Zealand and Australian officials and formal meetings were held in July this year.
There have been instances of unilateral action, for example policy decisions made by New Zealand which have implications for the trans-Tasman market, and which bring about convergence in particular aspects of business law.
Examples of these developments are:
· Prevention, detection and enforcement of insider trading The government has announced decisions to improve the prevention, detection and enforcement of insider trading. These reforms bring New Zealand more into line with Australia. The main aspects of the reforms are:
Ø a continuous disclosure regime; Ø increases in directors duties; Ø statutory requirements on stock exchanges to inform the Securities Commission of any breaches of the law; and Ø the establishment of the Securities Commission as a civil enforcement agency for insider trading.
Legislation to implement these decisions is due to be introduced into the House in November.
· The introduction of the Takeovers Code The Code, which came into effect on 1 July, reduces transaction costs to international investors by providing transparency and certainty. This ultimately increases the ability of New Zealand 's sharemarket to be internationally competitive.
Ø The Code provides a takeovers regime which is similar to other jurisdictions, thereby creating greater confidence for international investors in the integrity of our market;
Ø The Code's disclosure requirements and rules for independent advisors ensure that shareholders can make informed decisions;
Ø The Code's prohibition on defensive tactics provides for competition in the market for corporate control.
· Trans-Tasman appointments We have also entered into an arrangement for reciprocal appointments to the New Zealand and Australian takeovers panels.
The appointment of Denis Byrne, a Brisbane based commercial lawyer and consultant, to the New Zealand takeovers panel was announced on 11 October. An announcement is expected shortly on a member of the New Zealand Panel to sit on the Australian Takeovers Panel.
Both governments see these Trans-tasman appointments as cementing the relationship of closer co-ordination in the area of takeovers law.
Earlier this year, Jane Diplock, a senior manager of the Australian Securities and Investment Commission (ASIC) was appointed as chairperson of our Securities Commission. Her experience in the Australian securities market will be valuable in the context of the continuing integration of the Australian and New Zealand economies under CER.
· The Electronic Transactions Bill The aim of the Electronic Transactions Bill is to allow statutory legal requirements for writing, signature, and retention and production of documents to be met using electronic methods. This will reduce compliance costs for business.
New Zealand's Electronic Transactions Bill has a common foundation with the Australian Act, as both are based on the UNCITRAL model law. Thus the Bill achieves consistency in how both countries treat electronic transactions.
· Commerce Act New Zealand has recently modified the competition test in the Commerce Act in a manner that makes it comparable to the test in the equivalent Australian law. This has been done by aligning New Zealand's key prohibitions in sections 36 and 47 against abuse of market power and anticompetitive mergers and business acquisitions with the equivalent Australian provisions.
· Insolvency The Government is currently reviewing several aspects of insolvency law, including considering whether to adopt the UNCITRAL model law on cross-border insolvency. Officials at MED have ongoing dialogue with their Australian counterparts on all the issues that form part of the insolvency review. As Australia is also likely to begin a review of its insolvency laws this year, this is a valuable opportunity to co-ordinate the laws in this area.
In some cases these are instances of the tendency towards regulatory convergence which is occurring in a number of jurisdictions on a unilateral basis. The MOU is designed to enable New Zealand and Australia to move beyond the unilateral approach and take a bilateral focus.
The MOU provides for consultation "when either Government considers that a difference between their respective business laws or regulatory practices gives rise to an impediment to the development of the trans-Tasman relationship". The two Governments have agreed that they will consult with a view to resolving the impediment, whether or not the area of law is already included in the work programme. ASX A current example is the issue which has arisen from the Australian Stock Exchange's proposal to amend its listing rules on 'foreign exempt' companies. This change could have important implications for New Zealand's capital markets.
The proposed rule change appears to raise costs for New Zealand companies, at least in the short term. It is likely to restrict trans-Tasman capital flows.
There has been a difference in approach to the regulation of securities markets in NZ and Australia. The developments and reforms which are already being implemented will bring the New Zealand approach in line with the Australian one.
The government is placing a high priority on the need to deepen the trans-Tasman capital market.
There needs to be a legal framework for this, based on co-regulation between the government, through the Securities Commission, and the NZSE; with effective monitoring and enforcement arrangements, for example:
Ø The NZSE Restructuring Bill introduces a rules approval requirement/disallowance process; and Ø The Securities Markets and Institutions Bill changes the functions of the Securities Commission so that it becomes an investigatory and enforcement body.
Discussions between the Securities Commission and the Stock Exchange market surveillance panel have already started on how to make the co-regulatory regime work.
We will be drawing on the expertise of Australia given that our legal framework will be very similar and we are aiming towards the same outcomes.
What does this mean in relation to the ASX rule change? We will be making a submission. We would like the rule change not to proceed; but at the very least, we will be wanting to reduce as far as possible the transaction/compliance costs associated with NZ firms having full listing on both exchanges.
And we will be encouraging NZSE and ASX to come together, as front line regulators in a harmonised regulatory system, to cooperate on future rule development.
Is a trans-Tasman Advisory Council the way forward? The government's aim is to minimise impediments to trans-Tasman business activity. The government welcomes input from the business sector on which are the most significant impediments. For the maximum benefit to be obtained from the MOU, it is essential that the business sector is part of the priority setting process.
There are processes for the business community to provide feedback to the Government on business law issues, including trans-Tasman issues. These include the Business Law Forum organised by the Ministry of Economic Development which is being held on 22 November this year, and the feedback form on the business law pages of the Ministry's website.
Setting up a formal group such as a trans-Tasman advisory council may not be the best way forward. However, if New Zealand business considers it would be in its interests to promote such and idea, it should be driven by business, with the idea being proposed in partnership with Australian business interests.
If the idea has mutual acceptance, then a proposal could be put to both governments for consideration and their possible involvement in such a process.
There is already a framework to progress issues aimed at removing impediments to trans-Tasman business activity. The MOU has been in existence for just over a year and provides the flexibility necessary to progress a range of initiatives through the ongoing dialogue between the Governments.
The MOU will be reviewed after five years, which should be a sufficient period to allow an assessment of the rate of progress on business law coordination.
Rather than businesses in Australia and New Zealand setting up an additional entity where their joint views are expressed, there may be more benefit in each country's business sector individually reaching a view on the areas which would encourage growth in trans-Tasman business activity.
This would be consistent with the MOU's recognition that the priorities of each country may differ, and that a framework is provided to deal with any differences so they do not create barriers to trade and investment.
The Vision for the Future The government has a continuing commitment and is taking an active approach to reducing costs for business, both within New Zealand and on a trans-Tasman basis.
An immediate priority is the consolidation of the work carried out to date and the progression of initiatives in the capital markets area. These are designed to reduce compliance costs associated with trans-Tasman transactions and the extra-territorial application of law. For example, one area being considered is the mutual recognition of securities offerings.
There is further securities trading law reform under consideration, with officials undertaking a fundamental review of insider trading, the possible implementation of more substantive market manipulation law and of criminal penalties.
This forum is very timely in raising these issues, looking at the lessons which have been learnt by businesses and allowing an exchange of views with the focus on how to achieve progress.