Chapter 8 Agreement with New Zealand in relation to Mutual Recognition of Securities Offerings

Background

8.1                   The proposed Agreement between the Government of Australia and the Government of New Zealand in relation to Mutual Recognition of Securities Offerings (the Agreement)[1] is part of a general initiative for greater coordination of business law between Australia and New Zealand.[2]

8.2                   A Memorandum of Understanding (MOU) provides the framework for the coordination of business law between Australia and New Zealand.[3] The first such MOU formed part of the 1988 review of the Australia New Zealand Closer Economic Relations Trade Agreement (ANZCERTA).[4]

8.3                   New Zealand is Australia’s fifth largest merchandise export market and Australia is New Zealand’s top merchandise export market. New Zealand is the sixth largest foreign investor in Australia and Australia is the largest investor in New Zealand. In 2004, two-way investment between the nations was A$61.8 billion.[5]

8.4                   The economic and trade relationship between the countries has been shaped by ANZCERTA since it came into effect in 1983. Both the Australian and New Zealand governments have also indicated that they are committed to working towards a trans-Tasman single economic market.[6]

8.5                   On 4 October 2001, the Australian Minister for Financial Services and Regulation wrote to the New Zealand Minister for Commerce proposing that Australia and New Zealand consider formal processes for mutual recognition in financial services regulation.[7]

8.6                   Under the current regulatory regime issuers from one country (the home jurisdiction) who wish to offer securities to investors in the other country (the host jurisdiction) need to comply with two substantive regimes.[8]

Purpose of the Agreement

8.7                   The Agreement provides for a scheme to offer securities[9] and managed investment interests in both Australia and New Zealand, in the same manner and with the same offer documents.[10] Securities include shares[11] and debentures.[12]

8.8                   The Agreement is a further step towards a single trans-Tasman economic market, based on common regulatory frameworks. Entering into the Agreement will remove regulatory barriers for business and allow for increased investment with New Zealand resulting in an increased choice for investors from both countries.[13]

8.9                   The Committee received evidence that it is likely that the Agreement will be of more benefit to New Zealand than to Australia because of New Zealand’s smaller economy and evidence that issuers issuing into Australia do not currently issue into New Zealand due to additional costs and requirements. This does not diminish the importance of the Agreement for Australia as it will serve to promote trans-Tasman investment.[14]

8.10               Treasury informed the Committee of the benefits of the Agreement:

… this treaty achieves a balance of outcomes that will remove unnecessary regulatory barriers for business, allowing for increased investment with New Zealand and increased choice for investors while ensuring investor confidence in the regulation of securities offerings is maintained. The proposed treaty when implemented will produce a positive economic and political benefit. Gains include a reduction in compliance costs and red tape for companies offering into New Zealand with enhanced competition in capital markets and increased choice for investors. The treaty also reaffirms Australia’s previous commitment to a single trans-Tasman economic market based on common regulatory frameworks.[15]

8.11               In relation to a single trans-Tasman Economic Market, Treasury stated:

There is also work ongoing between the various attorney-generals’ departments on closer harmonisation of court proceedings. We have now also launched negotiations between Australia and New Zealand on adding an investment protocol.[16]

8.12               The Committee also received evidence that in addition to working towards a joint therapeutic products agency and having in place ANZCERTA, Australia and New Zealand are also considering other areas of cooperation in business law which include:

Mutual disqualification of directors and those involved in managing a company and mutual disqualification of financial intermediaries or mutual recognition of qualification as a financial intermediary. They are some of the aspects that we are looking at. Also, accounting standards are being examined.[17]

Entry into force and withdrawal

8.13               The Agreement will enter into force when the Parties exchange diplomatic notes.[18] Either Party may terminate the Agreement by giving written notice through diplomatic channels on a date agreed or one year after the date on which the notice was received.[19]

Consultation

8.14               Relevant Australian Government agencies have been kept informed at all stages of the development process and were consulted prior to commencing negotiations and before the finalisation of the Agreement.[20] States and Territories were consulted at the early stages of negotiations and were kept informed through the Ministerial Council for Corporations. States and Territories will also be consulted on the legislative amendments to the Corporations Act and the approval of the Ministerial Council prior to introduction.[21]

8.15               The Australian and New Zealand Governments prepared a discussion paper which outlined three possible models and identified Australia and New Zealand’s preferred model.[22] Most of the submissions preferred the adopted model.[23]

Costs

8.16               Compliance costs associated with the need to adhere to the different regulatory requirements for Australia and New Zealand are likely to be reduced. There may be some small additional costs for ASIC in relation to trans-Tasman enforcement. While there are no estimates as to how much this will be, the additional costs are likely to be negligible.[24]

Legislation

8.17               The Corporations Act 2001 (Cth) will be amended to give effect to Australia’s obligations under the Agreement.[25] The Government has indicated that relevant amending legislation will be introduced into Parliament in late 2006.[26]

Conclusion and recommendation

8.18               The Committee understands that Australia and New Zealand share a close relationship created through migration, trade, tourism, defence cooperation, and strong personal links. Australia and New Zealand also maintain a close political relationship and work together through regional bodies such as the Pacific Islands Forum, the Asia-Pacific Economic Forum and the Southeast Asian Nations Regional Security Forum.

8.19               The Committee believes that this Agreement will serve to increase two-way investment between Australia and New Zealand and also strengthen existing ties between the countries to forge a greater link towards a single trans-Tasman market.

Dr Andrew Southcott MP

Committee Chair

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