Useful enforcement guidance from NZX

We welcome the transparency and guidance NZX has provided about its enforcement processes, says Josh Blackmore, a partner at Chapman Tripp.

It continues a recent trend, led by the Financial Markets Authority (FMA), of New Zealand regulators providing more information on the goals and priorities of enforcement activity.

Although NZX hasn’t picked up the FMA’s terminology of “willing compliers”, guidance from both indicates a focus on intentional, reckless or negligent breaches – as opposed to honest mistakes – and will both prioritise breaches which they consider are likely to pose the greatest risk to fair, efficient and transparent financial markets (e.g. material losses for investors or a broader loss of investor confidence). 

This guidance is from NZX Regulation (NZXR) – which is separate from the NZ Markets Disciplinary Tribunal (NZMDT)– and outlines how NZXR approaches investigations and enforcement action short of a referral to NZMDT.The nature of any enforcement action by NZXR will take into account NZXR’s stated goals and priorities, as well as the history of the particular market participant’s compliance (or non-compliance). 

Good corporate citizens should, if the NZX is true to these stated intentions, be able to expect that they will not have the book thrown at them on the first instance of an inadvertent breach.

Continuous and periodic disclosure is a natural area of focus for NZX, as is “corporate governance”.  Given the NZX’s current review of its own corporate governance guidelines for issuers (and our comments on the overcrowding of New Zealand guidance on corporate governance when compared with Australia) one obvious conclusion is to prioritise compliance with the NZX’s corporate governance rules.

Engagement with the market is clearly a focus – which is right and proper – and accords with our experience where NZXR staff are generally willing to go the extra mile to assist issuers with difficult situations.Helpfully, there are also some timelines which will give issuers/participants a better sense as to how long any investigation should take (although NZXR stops short of committing to these timelines).  A referral by NZXR to NZMDT should occur within four months of commencement of an enquiry and anything short of that should be concluded in three months.

The note also clarifies that there are some matters which don’t fall within the ambit of NZXR, and must be referred to FMA instead (e.g. breaches of legislation, such as insider trading or a failure to make disclosure of a relevant interest).

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