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Changes To Capital Market Rules Proposed To Help NZ Firms Through The Financial Crisis

Fuseworks Media
Fuseworks Media
Changes To Capital Market Rules Proposed To Help NZ Firms Through The Financial Crisis

28 November 2008 - The Capital Market Development Taskforce today released an interim report containing a package of proposals that will improve businesses' access to capital and reduce the costs of raising capital.

"Along with the rest of the world, New Zealand is in the middle of an unprecedented financial crisis", said Taskforce Chair, Rob Cameron. "In this environment access to capital will be a key issue in determining business survival. While there are a wide range of interventions that governments can take and are taking to reduce the impact of the crisis, capital markets are an important piece of the whole.

"We believe that our recommendations are a valuable addition to the package of measures that will help New Zealand through the crisis. We look forward to working constructively with Ministers in order to see proposals along these lines implemented in coming months."

Some of our proposals are for changes to NZX Listing Rules. These proposals have been developed together with NZX and are also contained in a consultation document released by them earlier this week.

The taskforce is due to report its findings in September 2009. In response to the financial crisis, it decided to also produce an interim report. Its final report will contain further recommendations to develop New Zealand's capital markets.

More information about the taskforce and its membership is available at

Dear Minister,

Congratulations on your appointment as Minister of Commerce.

I am writing to you in my capacity as Chair of the Capital Market Development Taskforce to provide you with an interim report on measures that we recommend Government consider taking in response to the current financial crisis.

It is already clear that the crisis is profoundly constricting the availability and cost of credit worldwide. It will have a significant and possibly prolonged impact on the global economy and is pushing the New Zealand economy, which had already been weakening, into recession. In this environment access to capital will be a key issue in determining business survival. While there are a wide range of interventions that governments can take and are taking to reduce the impact of the crisis, capital markets are an important piece of the whole.

In our view, it is critical to do everything we can to improve businesses' access to capital and reduce the costs of raising capital. We have therefore developed some concrete proposals along these lines. Although we are not due to finally report until September 2009, we consider it important to identify some changes that can be rapidly implemented in order to help New Zealand businesses in the current environment. We recognise that the Government is already taking a number of actions in response to the crisis and we hope that you will consider our recommendations a useful addition to the measures already under way.

The attached report contains a brief discussion on the role of the taskforce before setting out our recommendations.

I am available to meet with you to discuss this report and to consider how the taskforce can contribute going forward.

Finally, given their interest in this work, and the roles of their predecessors in this process, you may wish to forward this report to your colleagues the Prime Minister, the Minister of Finance and the Minister for Economic Development.

Yours sincerely,

Rob Cameron, Chair CAPITAL MARKET DEVELOPMENT TASKFORCE INTERIM REPORT RESPONDING TO THE FINANCIAL CRISIS NOVEMBER 2008 Along with the rest of the world, New Zealand is in the midst of a financial crisis. In large part, the impact of the financial crisis on firms and households will depend on how we respond. In our view, New Zealand will need to adopt a comprehensive package of measures if we are to minimise the costs of the downturn and speed the recovery. Ensuring that capital markets remain well functioning is an important part of that package. Although we are not due to finally report until September 2009, the taskforce considers that, given the current financial turmoil, it is important to provide Government with a set of recommendations in our area of expertise that are well thought through by an industry group and which in our view should be implemented quickly.

The recommendations set out in Section II of this report, concentrate on easing barriers to firms raising capital, without undermining investor protection. Some of the barriers we identify can be changed through amending NZX Listing Rules or Securities Commission Exemption Notices. Others require changes to securities legislation. Those recommendations relating to NZX Listing Rules are generally consistent with the proposals NZX released for consultation on 25 November. We have been working with NZX and support the thrust of their proposals. We have separated out our recommendations into those which we consider can be implemented more or less immediately, and those where we acknowledge that further work may be required to get the detail correct, but which we suggest should be progressed urgently.

Our recommendations for immediate action, and their impact, are summarised in the table below. They are based on two principles.

The first is that relevant information on firms already subject to and compliant with continuous disclosure will be known to market participants. In this case, much of the material in a prospectus is costly duplication and a simpler offer document would contain the relevant information potential investors need without undermining their protections. Some of these proposals draw on practice in Australia, so are not out of line with settings in other countries.

The second principle is that in a number of cases the existing exemptions under which firms are able to issue securities without offer documents can be simplified and clarified.

Government is already responding to the financial crisis in a number of ways and we welcome the priority that is being attached to it. We believe that our proposals comprise a package of measures that will help support New Zealand firms move through the crisis with the minimum disruption possible.

Given the importance of ensuring that firms can access capital as efficiently as possible in the current economic environment, we encourage the Government to consider implementing these recommendations by March 2009 where possible.

We have separately identified a number of additional changes set out in Section III, which we consider have merit but require further consideration.

The remainder of this report briefly summarises the role of the taskforce and our approach to our task to date, before setting out our recommendations.

Summary of Recommendations for Urgent Change Proposal Reduces cost and time of capital issuance Potential impacts on investors Other impacts A. Ease requirements for listed debt issuers a minimal B. Raise threshold for subsequent equity issues by listed companies before prospectus disclosure and shareholder approval is required a minimal C. Reduce timeframes for rights issues a minimal D. Increase the amount of capital that can be raised in secondary offerings without shareholder approval a minimal E. Allow remuneration of employees and directors by stock positive helps cash flow F. Making the exemptions for non-public offers more practical a reduces risk for issuers G. Amend Securities Act to allow persons who have invested $500,000 to make incremental investments without a prospectus or investment statement a H. Amend the wording of financial assets test in eligible persons exception to cover trusts a I. New power for the Securities Commission to issue "no action" letters a J. Focus required disclosure in prospectuses on meaningful items a minimal K. Streamlining Overseas Investment Commission consent a I The role of the taskforce

The taskforce was established in July this year and is due to report in September 2009 (an extension from the original intention to report in July 2009). Since its establishment, it is clear that the broader financial and corporate sector in New Zealand regard it as a significant opportunity for New Zealand to improve our capital markets. We have been actively engaging with a wide range of stakeholders and have received substantial offers of help and valuable contributions from a wide range of private sector participants.

Capital market development is important because there is strong evidence that a well-functioning financial system is an important precondition for economic growth. Increasingly, the evidence shows that both capital markets and the banking system are important for growth as they fulfil different, but complementary, functions. While some capital market functions may be able to be accessed from international markets, the evidence suggests that foreign and domestic capital are not perfect substitutes (as evidenced by current New Zealand wholesale funding constraints). Given that some parts of New Zealand's capital markets are small and underdeveloped by international standards, a focus on how to develop them is an important part of strengthening and developing our economy.

The terms of reference we were given were deliberately broad in order to allow the taskforce itself to define those areas where it can make the greatest contribution. Our focus is on the capital markets, which are the markets in which firms and governments raise capital directly and where securities representing claims to capital are traded. We are not covering the deposit and lending functions of banks or other deposit-takers, although some activities they may engage in such as bond issuance and trading are covered.

To progress our work, we have set up cross-cutting sub-groups looking at:

rules - covering government and market rules and regulations; tax - those tax settings which influence capital market activity; and infrastructure - infrastructure such as clearing and settlement systems which act as the plumbing for capital markets.

We are also scoping up work on issues such as the extent to which our markets are integrated with Australian and global markets, on the importance of talent in the capital market, on the link between the structure and ownership of our economy and capital markets, and on savings practices.

The diagram below sets out how we are conceptualising our work.

We expect to provide recommendations in three areas: Measures that the Government can take in response to the financial crisis - some are contained in this report and we are willing to report further on this if that would be useful; Measures that would improve our capital markets within current frameworks; and Measures that reposition New Zealand's capital markets in the global context - for example, opportunities where New Zealand can capture a share of global market activity in a particular area.

The first of these is contained in this report and we are aiming to deliver the second and third by September 2009.

II Early recommendations for change

The global financial crisis is making it considerably more difficult for New Zealand firms to access capital (including in some cases working capital) from their normal sources. The introduction of government guarantees for some parts of the financial sector (although an understandable response to the crisis) also reduces the attractiveness of lending to or investing in non-guaranteed companies if the pricing of those guarantees is too low. What is at this point a concern could, in our view, become a serious matter for many firms if investor risk aversion persists and the credit channel continues to tighten.

Given that much of the financial crisis revolves around the lack of confidence in financial institutions, allowing firms to more easily access capital directly from capital markets acts to keep open the other major means of finance for these firms. To the extent that they deal with listed companies, these recommendations build on the continuous disclosure regime. Continuous disclosure requires issuers to keep the market fully informed in a timely way about material information relevant to it. In our view, given that all relevant information should already be in the public domain, the requirement to produce new and additional offer documents is unnecessary. Preparing new documents merely delays capital raising and add to its cost. Australia has already recognised this in their regime, but we have not yet done so

We also have a number of recommendations to reduce the capital raising costs of private companies, recognising that much of our economy comprises private companies. While it is not possible to rely on continuous disclosure requirements for these companies, we believe that there are a number of straight-forward changes which can be made in this area to simplify existing requirements, yet not undermine their intent. We recommend that Government seeks to make changes along the lines we suggest by March 2009. The changes we are suggesting sit in different regulatory areas. Some are in NZX Listing Rules. We have worked with NZX on these proposals and they have also released a consultation document on them. Others are contained in Securities Commission Exemption Notices or in the Securities Act 1978. These will require either changes by the Securities Commission or legislative change by Parliament. However, in a number of cases, changes can be made in several ways, or it is possible that changes to the Securities Act might subsume some of the specific suggestions we have made. We are less concerned with how the changes are made, than with their effect, so recognise that in considering these recommendations, Government may decide to deal with them in different ways.

Our recommendations for urgent change are grouped into the following categories:

Urgently recommended changes for listed companies; and Urgently recommended changes for private companies. Urgently recommended changes to ease capital raising constraints for listed companies

A. Ease requirements for listed debt issues

Given the restrictions on the normal sources of debt funding (i.e. banks), it is critical to allow issuers to raise capital via the debt market as rapidly as possible with the minimum necessary compliance costs. We consider that instead of requiring costly Investment Statements and Prospectuses, companies which already have listed equity on the NZX should only require the following documentation for debt security issues: a. A simple term sheet offering document that lists all the terms of the security being offered; and b. A signed warranty by CEO, CFO and the Board of Directors that the issuer has "complied with continuous disclosure in full and that they have no knowledge of any information which, if disclosed would be relevant to an assessment of the offer" and that "any new material during the offer period will be disclosed to NZX".

B. Raise threshold for subsequent equity issues by listed companies before prospectus disclosure and shareholder approval is required

Secondary share offerings by firms listed on the NZX generally require shareholder approval under NZX listing rules 7.3.1 and 7.3.1a. These rules state that "no issuer shall issue any equity securities... unless: the... terms and conditions of the proposal... have been approved... by a simple majority of Votes of holders of each Class of Quoted Equity Securities". Secondary share offerings also require a registered prospectus and investment statement under the Securities Act 1978.

There are a number of exceptions to these rules. NZX listing rule 7.3.4ba waives the requirement to gain shareholder approval for rights issues under $5,000 per shareholder. At the same time the Securities Commission has issued an exemption notice that waives the requirement for a registered prospectus and investment statement for rights issues under $5,000 (Securities Act (NZX - Share and Unit Purchase Plans) Exemption Notice 2005). The combined effect of rule 7.3.4ba and the exemption notice is to make it easier to raise small amounts of capital from existing investors by removing both disclosure and shareholder approval requirements for this issuance.

We recommend raising the threshold for these requirements from $5,000 to $25,000. Alternatively, the requirement for listed companies to prepare a prospectus before issuing equity to existing shareholders could be removed entirely, given that the company is already subject to continuous disclosure.

Relatedly, NZX is proposing a change to restrictions on the value at which secondary issues can occur. There is currently a requirement in listing rules that issues cannot be for less than 90% of the volume weighted average price of the past 20 days. This provides a protection against value losses for existing shareholders. While this works well in a rising or stable market, when prices are falling it can be difficult to achieve - and this may be precisely when an issuer needs the ability to raise additional equity. We recognise the problem and are broadly supportive of making changes here.

C. Reduce timeframes for rights issues

It currently takes around six weeks to make a rights issue from the time that offer documents are prepared. This slows capital raising, and makes pricing rights issues difficult, particularly in volatile markets. There are two delays: (a) Rule 7.10.10 specifies that offering documents and prospectuses must be submitted to NZX 10 business days before they are to be circulated. (b) Rule 7.10.2 states that the closing date for applications under rights issues must be 18 business days after offers are circulated.

We recommend reducing the timeframe under Rule 7.10.10 to 3 business days, and under 7.10.2 to 12 business days.

D. Increase the amount of capital that can be raised in secondary offerings without shareholder approval from 15% of market capitalisation per year to 20%.

As noted under B above, there are a number of exceptions to NZX Rule 7.3.1, which prohibits secondary issuance without shareholder approval. Rule 7.3.5 is another of these and permits issues so long as total issuance in any 12 month period is less than 15% of market capitalisation. There are additional safeguards for existing shareholders - for example this exception does not allow share issues to related parties.

We recommend increasing the threshold from less than 15% to less than 20% to allow greater amounts of capital to be raised in each 12 month period under this rule.

E. Allow remuneration of employees and directors by stock

We recommend allowing greater flexibility for firms in deciding how to remunerate employees and directors by stock. This can both help align management and shareholder interests more closely and also give firms that are potentially cash constrained more flexibility in the way they remunerate staff and directors. One example of a current inflexibility in the rules around this issue is in the NZX Rule relating to director remuneration (Rule 3.5.1) which only allows for Directors' remuneration to be paid by way of a monetary sum, and makes no provision for the issuing of shares. For firms that may be cash-strapped, flexibility on the type of remuneration paid is important.

We recommend changing these rules so that firms can chose to pay directors in stock to levels approved by shareholders at Annual Meetings.

Urgently recommended changes to assist private capital raisings

Securities Act

F. Making the exemptions for non-public offers more practical

Currently the Securities Act defines certain offers as being ones to which the prospectus regime need not apply (on the basis that the persons to whom the offer is made does not need a prospectus as they should already have the sort of information contained in it or be capable of obtaining it). The relevant exception is in section 3(2) of the Securities Act. A new series of exceptions was added to the Securities Act in 2004. These exceptions in section 5(2CB) of the Securities Act also provide that the prospectus regime need not be followed in relation to offers of securities to "eligible persons".

We recommend amending the Securities Act so that issuers can make offers, at the same time, to persons the Securities Act has determined do not require the need for a prospectus and investment statement, i.e. do not need the protections of the Securities Act. Currently, as drafted an issuer cannot, at the same time, make an offer to persons coming within section 3(2) (persons who are not members of the public) and section 5(2CB) (eligible persons). This simply adds cost and time for issuers for no good reason. We understand that the Securities Commission would be supportive of an amendment to the Securities Act to address this practical problem.

G. Amend Securities Act to allow persons who have invested $500,000 to make incremental investments without a prospectus or investment statement

Section 3(2)(a)(iia) allows securities to be offered to a person investing at least $500,000 without a prospectus or investment statement. The section does not permit issuers to make subsequent incremental offers to these persons. We think it would be helpful if it did so. H. Amend the wording of financial assets test in eligible persons exception to cover trusts

We recommend amending s5(2CD) of the Securities Act to clarify that an eligible person includes a trust, given that many wealthy/semi wealthy people hold their assets in trusts for good estate planning purposes. To come within the exception a person needs net assets of at least $2m or an annual gross income of at least $200k. While the Securities Commission considers that as drafted the exception covers family trusts, some advisers continue to believe it does not. We understand that the Securities Commission is unlikely to have any issue clarifying that the exception covers family trusts. The Australians have amended the equivalent provision in their legislative regime to specifically cover trusts. We understand Australia has also extended the life of a certificate from an auditor from 6 months to 2 years (around certifying an eligible person has a minimum level of assets or income). Extending the "life" of a certificate obviously reduces costs by limiting the number of times auditors need to be paid to "refresh" a certificate in respect of an investor.

We suggest the Securities Act be amended to allow certification every 12 months and to ensure Trust assets can be included in the assessment of a persons assets.

I. Include a new power for the Securities Commission to issue "no action" letters, which would prevent it from taking action in relation to a matter (particularly where the question of breach is arguable or on matters which are not material)

The taskforce has received market feedback that the inability to issue "no action" or comment letters has stifled new products in our securities markets. Accordingly, we recommend amending the Securities Act to specifically empower the Securities Commission to issue no action or comment letters in appropriate circumstances.

J. Focus on the disclosure of meaningful items in prospectuses

We recommend a number of simple changes to the Securities Regulations to reduce costs to issuers without reducing investor protection:

Reg. 12 - amend this regulation. It limits the financial information that can be referred to the most recent audited accounts. There may, in fact, be more up to date information. The law already prohibits any misleading advertising under the Securities Act. We have been advised that the constraints of Reg. 12 have become particularly acute with companies in difficulty as it curbs their ability to adequately inform stakeholders. It also prevents effective summary balance sheet financial information being distributed in investment statements.

Reg. 15 - amend this regulation which limits circumstances in which prospective financial information can be provided. Given the general prohibition on misleading and deceptive conduct, it is questionable whether such prescription is necessary. In any event, it would be helpful if the legislation was amended to allow prospective financial information in a prospectus or advertisement to be referred to in accompanying documents. As the Regulation is drafted it contemplates that prospective financial information must only be contained in a prospectus or advertisement together with the assumptions and methodology behind it. This limits the ability to also distribute an expert's report which might accompany such documents under which the expert comments on the prospective financial information. The experts might, for example, do some sensitivity analysis. This information may be useful to investors. However, as the regulation is drafted it is difficult to provide this information without an exemption (which involves time and cost).

The Securities Commission currently has before it various changes to the Securities Regulations that would, we understand, reduce compliance costs for issuers. The Securities Commission should be asked to finalise these Regulations as a priority, subject to other urgent priorities.

K. Streamlining Overseas Investment Office (OIO) consent

Virtually every law firm, adviser and business person that has given feedback to the taskforce recommends that the OIO regime be reviewed and simplified. It adds significant additional cost and delay to transactions. Given that the overwhelming majority of transactions are approved, the time taken currently provides little or no benefit to New Zealand in these cases.

We think the regime needs a fundamental review. In the interim, we ask that relevant Ministers instruct the OIO to speed up the process in order to facilitate transactions where there are no sensitive issues.

III Recommendations for changes which require some further consideration

We also have a number of other changes we consider have merit, but which require some further analysis before being implemented. We recommend that urgent consideration be given to assessing the merits of this second group of changes

Securities Act

L. Eliminating the over-use of appraisal reports

Appraisal reports are established in NZX Listing Rule 1.2 and are required under Rules 4.5.8, 6.2.2 and 9.2.5. The purpose of these reports is to mitigate potential conflicts of directors' interests and reports are made by independent and NZX approved parties. We consider that in many situations a board of directors should make its own judgment as to whether it is in an appropriate position to give clear guidance to shareholders on a particular issue, or may require an appraisal report. The potential over-use of appraisal reports is an added cost to issuers and is not generally seen to provide any real shareholder protection. They could thus be an option, but not a requirement for boards - who are ultimately accountable to shareholders.

M. Related party transactions

The current definition of material transaction which determines the ease of an issuer entering into a related party transaction is currently set at only 5% of average market capitalisation for the company (in NZX Listing Rule 9.2.2). We recommend consideration be given to increasing this to 10%, recognising that market capitalisations have fallen, that related parties are often the quickest source, or last source of funding, and that, for small companies in particular, 5% is a trivial number. For example, Hong Kong and Canada have a 10% threshold. N. Consider adding a new "registered investors" exception to the non-public offers section of the Securities Act

Consider adding as an exception to what is on offer to the public in the Securities Act an offer accepted by "registered investors or persons controlled by registered investors". We recommend considering a provision which states something to the effect that no person may become a "registered investor" unless: s/he has signed a form confirming that s/he understands the nature of the protections under Part II of the Securities Act which will not apply; that form has been witnessed by a solicitor or JP who attests that the Part II protections have been explained and in the opinion of the witness understood;

Possible additional requirements which could be considered are: the form which must be signed could be reasonably detailed in relation to the protections being "foregone"; offerors relying on this exemption must disclose this in a prominent place and not allot to a person unless a separate "risk acknowledgment" has been received.

O. Consider adding as an additional exception to the Securities Act an equivalent of the Australian "20:12 rule"

In Australia companies can make offers to up to 20 people in 12 months for an aggregate of A$2m without a prospectus. We understand that on a number of occasions legal practitioners have sought to have a similar rule to added to our Securities Act. Those in favour of such an approach believe it would be particularly useful to SMEs.

The Securities Commission has not been receptive to this suggestion. We understand that ASIC see the Australian exception as an anomaly. The Securities Commission's view is that the Securities Act is there to protect people such as employees by requiring they be provided with all relevant information (i.e. a prospectus) before subscribing.

The taskforce recommends that consideration be given to including an exception similar to Australia's and indeed reviewing generally the various exceptions to the prospectus/investment statement requirements in the Securities Act to see if they fit market practice. This would need to include an assessment of the pros and cons of any such change.

P. Amend Securities Act to define investments in limited partnerships under the Limited Partnerships Act as equity investments

Over the course of discussions on the Limited Partnership Bill, how limited partnerships are treated for the purposes of the Securities Act became a major issue. The NZVCA took the view that they should be treated as an equity security (like a company). As it stands, interests in a Limited Partnership are a participatory security, which means that when a limited partnership raises money from the public, a statutory supervisor must also be appointed under the Securities Act. This adds cost and complexity for little gain or protection for investors. As a result of this, public limited partnerships are unlikely to be used to raise money and a company form is more likely to be used. We think that this is an unnecessary requirement which limits the flexibility around what is otherwise a good fund raising vehicle.

Q. Review Securities Act and Regulations to make disclosure in prospectuses more meaningful

It has been suggested to the taskforce that it would be helpful to consider whether the current Securities Regulations and requirements in respect of prospectuses result in the most meaningful information being provided to investors. In some cases the currently required information imposes unnecessary cost and restrictions on issuers (resulting in their having to apply to the Securities Commission in some instances for exemptions - this adds cost and time). Matters raised with the taskforce include:

Clause 1(4) first schedule (price prescription). Repeal or amend this regulation. This clause currently does not allow the price to be determined by a formula. There is an exemption from the Securities Commission for listed issuers to use a formula. Non-listed issuers need to go to the expense of separately applying for an exemption to use a formula - that adds cost and time, which we do not believe is justified or adds any value. The offer documents will need to set out clearly the basis for calculating the price so as to avoid being misleading or deceptive.

It has been suggested to us that the prospectus requirements regarding the information required if an offer is made on half-yearly numbers are different from the requirements for half-yearly accounts under applicable financial standards. The taskforce needs to investigate if that is correct, but if it is then it will be helpful to bring the two into alignment.

R. Retrospective exemption power for Securities Commission

It would be helpful if the Securities Commission could exempt people retrospectively if they have breached the law. We recommend amending section 5 of the Securities Act to enable the Securities Commission to:

grant retrospective exemptions (particularly for matters which are not material) - cf s. 45(1)(2) Takeovers Act; allow exemptions from penalties for non-compliance with exemption conditions (particularly for matters which are not material). In the 2005 Review of Financial Products and Providers it was suggested that there be provision for setting out in exemption notices consequences for minor breaches of conditions of exemption, so that non-compliance with these conditions would not result in allotments being other than a completely void offer (as has been done in the Mutual Recognition of Securities Offerings Regime introduced with Australia). Although it's helpful to be able to apply to a court for validation, this is onerous for minor breaches.

S. Financial Reporting Act

The fact that New Zealand-registered companies with 25% or more overseas ownership (and which meet a size threshold) need to file financial statements with the Companies Office puts them at a commercial disadvantage to other New Zealand companies and businesses. We have heard from a number of New Zealand companies that have welcomed "foreign" (often via Australia) private equity investment (where that has been the only realistic capital available for them to expand and flourish) and then found they must file financial statements at the Companies Office, unlike their New Zealand competitors. They believe that their competitors access their financial information to compete with them. They do not see the playing field as fair.

We do not believe the requirement is necessary - if a market participant (e.g. a creditor or supplier) wants this information, it could be obtained by private treaty in the same way as it is for New Zealand companies owned 100% by New Zealanders. We therefore recommend removing this requirement.

Tax changes

The taskforce also considers that there are a number of tax issues which require urgent attention. However, we recognise that these need to be considered within the context of our overall taxation settings and we will be considering these in our final report. Annex: Original terms of reference for the Capital Market Development Taskforce


To develop and launch a blue print to improve New Zealand's financial system for the benefit of the New Zealand economy and its businesses.


The taskforce will:

identify key constraints and key opportunities for the development of NZ's financial system; identify and debate options to improve the performance of New Zealand's financial system; and develop a blue print for the development of New Zealand's financial system.


The taskforce will produce a blue print for the development of New Zealand's financial system. The blue print will include:

an analysis of the current strengths and weaknesses of New Zealand's financial system and consequent implications for New Zealand's economic growth; an assessment of the key factors which will set the international context in which the blue print would be delivered; an articulation of the options for New Zealand's financial system and the costs, benefits and tradeoffs of those options, in particular on economic growth; a view on which option would best serve New Zealand given its current situation and future risks and opportunities; and identification of the key changes New Zealand would need to make to deliver such a financial system.

The taskforce will seek to win support from Government and business to take action to deliver the blue print. Action agreed will be published separately in an action plan which would include clear milestones.

The blue print and action plan will be launched at an industry event, similar to that of the November 2007 Investment Forum. Where feasible, business and the Government will announce actions that they have already agreed on and can commit to taking.


Membership is not intended to be representative, but based on expertise to provide a vehicle for focussed discussion.


The taskforce will be chaired by a senior business representative and have the freedom to refine the focus for this work and confirm its method of working. In that sense, these terms of reference are intended as a draft to be developed by the group

The taskforce will operate for one year, beginning in July 2008. The taskforce will operate under Chatham House rules in order to promote free and frank discussion.

Scope and relationship with other processes/mechanisms

The taskforce will complement rather than duplicate the work of other advisory or representative bodies that already have remits to investigate issues that may be of interest to the taskforce.

The functioning of the financial system is influenced by settings in many areas of the economy (e.g. immigration, tax and education settings, to name just three). Where specific factors are seen as a key constraint to the functioning of the financial system they can be noted by the taskforce. However, it is likely that any recommendations for action in those areas will be more appropriately addressed by other groups or processes (e.g. in the case of taxation, by using the generic tax policy processes followed by Inland Revenue Department and Treasury). This is important to limit duplication of activity and to ensure that any recommendations are informed by a balanced assessment of the pros and cons of change.


The taskforce will be jointly funded by Government and business. Government will provide the secretariat and a small amount for research. Business will provide secretariat for any working groups and a small amount to co-fund streams of research.

Meeting frequency

The group will meet quarterly at key points in the process. However, outside of formal meetings, the chair can play a more active role. The members need to be sufficiently involved in order to steer the work and be able to commit to concrete actions at the end of the process.

Role of secretariat

A small secretariat in MED will provide both secretarial support (i.e. meeting organisation) as well as analytical support to the discussions at the taskforce and draft reports for members to consider.

Engagement with stakeholders

The taskforce cannot include all those with a legitimate interest in the issues it will be discussing. Nor will members necessarily have the most expertise in some of the areas discussed. Ensuring that the taskforce members are able to effectively bring others along with them will be important to maximise the chance of their findings being both well informed and effective.

Taskforce members can be expected to do some of this engagement as part of their regular discussions with others in their industry and the secretariat can also maintain contact with a wider group of stakeholders.

Ministerial involvement

Ministers will not normally attend meetings but will be regularly updated on progress and provide input via the taskforce chair and officials. The Ministers involved will be the Minister of Finance, the Minister for Economic Development, the Associate Minister of Finance and the Minister of Commerce.

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