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Launch Of The Institute Of Finance Professionals

Speech To Launch Of The Institute Of Finance Professionals

Hon Dr Michael Cullen, Minister Of Finance

1.00pm, 12 June 2002

Grand Hall, Parliament House, Wellington.

It is a great pleasure for me to address today’s launch of an organisation which I am sure will play an important role in the future of the New Zealand economy.

As you are aware, the NZ Society of Corporate Treasurers and the NZ Society of Investment Analysts have represented the treasury profession and investment analysts respectively for more than 15 years. There is increasingly a great deal of overlap between these two disciplines, and hence there is now a strong logic in having a single body to represent the interests of corporate treasurers and investment analysts and to promote and foster excellence in financial management.

New Zealand has for the last 15 years or so pursued a model of financial market regulation that emphasizes light-handedness and transparency. This model relies upon industry bodies such as the new Institute for the maintenance of a culture characterised by high standards of ethical conduct, professional development and education. Today’s merger is an important development with many potential benefits for the investing public.

The reality for small countries like New Zealand is that in many areas we need to learn to box above our weight. We have to maintain global standards, and if anything exceed those standards, if we are to maintain the confidence of both overseas and domestic investors.

Finance professionals have a crucial role in the management of risk and the realisation of opportunity. We tend to hear a lot about the former, and justifiably so. Spectacular collapses such as those of Enron and Andersons or, in an earlier era, Barings Bank, remind us of how much power can rest in the hands of rogue individuals, and of how difficult it is to maintain vigilance in a world of complex global financial transactions.

They also remind us that a modern economy still runs upon the perception of trustworthiness. It is the oil that enables power to be transmitted smoothly through the engine. And as the loss of oil pressure in an engine can cause it to seize up very quickly, so any question mark over the quality of financial management in New Zealand could cause our economy to slip into neutral, or worse.

The high standard of financial management in this country is already attested by our credit rating, by the level of foreign direct investment and by the international interest in our bond markets. But this cannot be taken for granted, and the Institute of Finance Professionals will assist in ensuring that it is not.

Of course the government also has an important role to play, in particular through the design and administration of the legal framework and the management of its own finances. As you will be aware, the government recognised when it took office that some work was necessary to improve the law relating to our securities markets, and has embarked upon a programme of security law reform designed to increase the integrity of the New Zealand market.

The Takeovers Code was introduced in July 2001 with the aim of protecting minority shareholders in the event of a takeover. And the Security Markets and Institutions Bill is currently before select committee and is designed to ensure confidence in the New Zealand market by increasing the effectiveness and the efficiency of the law governing securities markets and its regulatory institutions and the comparability of that law with the law of other jurisdictions.

Among the Bill’s provisions are:

- A statutory continuous disclosure regime relating to price sensitive information that is not generally available to the market;

- A requirement that directors disclose their securities dealings at the time they occur, as a deterrent to insider trading;

- New obligations on securities exchanges to assist and inform the Securities Commission of possible contraventions of the law and other material information; and

- A legal mechanism to reduce compliance costs associated with cross border offers by recognising overseas regulatory requirements for cross-border offers of securities.

This is not the end of the government’s reform programme. Three discussion documents have been released recently on Market Manipulation, Insider Trading, and Penalties & Enforcement. I would urge you all to study these closely and work with us to suggest further improvements to the regime.

Managing risk, of course, is only one side of the coin. One might even say that it is the necessary evil, and that the more important task for finance professionals is structuring the financial supports for exploiting business opportunities.

This is where the real work needs to be done. New Zealanders aspire to a better standard of living, and we know that the only way to achieve this is by lifting our rate of sustainable growth, and that means transforming the fundamentals of our economy. But that of course is now a debate which will be waged in other places. In the meantime, I wish the new Institute well.

Thank you.

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