24 October 2001
Speech Notes - Hon Paul Swain
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.
Ends