Hon PANSY WONG (Minister for Ethnic Affairs)
on behalf of the
Minister of Commerce: I move,
That the Financial Advisers Amendment Bill (No 2) and the Financial Service Providers (Registration and Dispute Resolution) Amendment Bill be now read a third time. I acknowledge the cooperation of all parties in the House. We all want to ensure that confidence is restored in our financial market, and this is a step towards that. This legislation makes a number of amendments to the Financial Advisers Act and the Financial Service Providers (Registration and Dispute Resolution) Act, which were passed in 2008 by the previous Government to increase confidence in New Zealand’s financial system. Under the regime, financial advisers have to meet minimum standards of professionalism and have to make informative disclosure to clients while being subject to Securities Commission oversight. Furthermore, all financial service providers, including financial advisers, are required to belong to an approved dispute resolution scheme if they offer services to the public.
The legislation maintains the fundamental framework of registered advisers, authorised advisers, and qualifying financial entities established by the two primary Acts. However, these amendment bills reduce compliance costs and focus the regime on the core area of concern: personalised financial advice to retail clients. Compliance costs are reduced under these bills by clarifying key terms and requirements. Exemption and regulation-making powers are expanded, and the qualifying financial entity model is amended to account for the realities of business operations. The Financial Advisers Act is also amended to establish a practical regime for the regulation of money handling by financial brokers.
These changes respond to concerns raised in the past 2 years about the practicalities of making the regime work as we approach full implementation. Regulatory efficiency is vitally important, but as I have consistently stated, this regime is about restoring
investor and consumer confidence. To this end, the bill expands the powers of the Securities Commission so that it can more effectively perform its duties in the specific ambit of personalised services to retail clients.
I thank the Commerce Committee, officials, and the wider industry for engaging so conscientiously on this legislation. The next step is implementation, and I expect the industry to engage constructively with regulators to ensure that the regime is fully in place on time. I also expect officials to complete the regulations needed to finalise the remaining details in a timely fashion.
As previously announced, financial service providers will need to be registered under the Financial Service Providers Act and become a member of an approved dispute resolution scheme by 1 December of this year. Financial advisers, however, have until 31 March next year to be registered, allowing those seeking approval from the Securities Commission for authorisation status to obtain the necessary approval by 1 July next year. The Government recognises that it needs to rebuild mum and dad investors’ trust in capital markets, which has been severely dented by the global recession and finance company collapses. We want everyday investors to feel more confident about putting their savings into capital markets, through understanding the basics of investment, getting advice they can trust, and making informed choices. This regime is an important part of the wide-ranging reform agenda for financial sector regulation, which is crucial to economic growth and the well-being of New Zealanders. I commend this bill to the House.
Hon LIANNE DALZIEL (Labour—Christchurch East)
: I am very pleased to follow the Minister and offer our continuing support for the passage of the Financial Advisers Amendment Bill (No 2) and the Financial Service Providers (Registration and Dispute Resolution) Amendment Bill. I am very pleased to have been able to play a role as the chair of the Commerce Committee. I am pleased to have worked very closely with members of the Government and with the Minister and the staff of his office, and also with the officials, parliamentary counsel, and, of course, those all-important stakeholders who make up our crucial financial sector, which is so important to our economic recovery and also to our future.
I have already said in my second reading speech, so I probably do not need to repeat—but I will—that I think people worked together in a very positive and constructive way and it would be wrong not to mention it again. I pay tribute to the House for being prepared to set aside, essentially, a Standing Order to allow for the officials’ documentation to go to stakeholders so that they could remain engaged in the process of deliberating with the select committee in many respects, ensuring that we had the best-quality advice on how this legislation would work on the ground. The House gave our committee a fantastic signal of trust, but I would like us to consider whether we need to rethink some of our Standing Orders and whether we have too much of a closed environment once legislation goes to a select committee.
I reflect often on the United States of America, where one sees the head of BP before a Senate committee and the person gets grilled. I would like to do that with some of these finance company directors. It would be so neat to be able to hold them to account in our Parliament. Maybe we need a slightly more open process in our select committees, and perhaps the media need to take a little bit more interest in the work that we are doing. I have always described our select committees as the engine room of Parliament. They are not the engine room of Government; Cabinet is. Select committees are the engine room of Parliament, and I think the work that they do is important. These bills stand tribute to the efforts of our team that supported us, and our select committee clerks, and I would like the Office of the Clerk to take that comment back to them. We really were incredibly well supported. We worked to impossible deadlines, and they
really delivered for us, so we are very grateful to them for that. We are also grateful to the officials, as I have mentioned before, and to the wider stakeholders.
I have already had my little confessional moment, my mea culpa, where I have confessed that as the previous Minister of Commerce I did not have my head around the technical detail of how the legislation that I was responsible for would work on the ground as well as I do now as the select committee chair. Select committee members are in a privileged position, in that they have a higher level of input into the development of that technical detail, and, of course, they have that wider support from stakeholders. I do not know that this is a failing in the system, because certainly the feedback from people whom I spoke to was that we really could not tell how it would work in practice until we started implementing the legislation. It was during that phase that people started to say that the legislation introduced by the Government does not actually go far enough and does not address many of the concerns that they had and the difficulties they were coming up against in terms of its implementation.
Of course, the other group is lawyers. I know that I should not be saying this, as I am standing next to my very good colleague Charles Chauvel, but lawyers—and I confess to being one of those as well—have a habit of looking for problems. That is how they get paid: they get paid to solve problems, but they have to find them first. Unfortunately, I think that some of the advice given to those in the sector raised concerns that were not really valid, in my view. But the fact that lawyers were raising those concerns with those particular companies and individuals meant that they had to take action; they had to prepare themselves for that to be the interpretation, just in case. So it was right and proper that they brought those concerns to the select committee in the submissions process. We listened to those concerns and, as a result, we have better legislation.
There are not many opportunities in this House for a previous Minister to also have the privilege, in a different role as the chair of the select committee, of seeing through changes to the original legislation that one has brought in. I make no secret of the fact that I would rather be the Minister, but I am not. But, in playing that particular role, I was very, very grateful to be able to make a contribution, and I think we did.
I said in my second reading speech that an exposure draft bill accompanying discussion documents at an early stage of the process, in the way that experts in the field are consulted on tax bills, would improve the process. I know that some people would be concerned that some of the interests in the financial sector would be self-serving, but in the entire time that I was Minister, not once did any stakeholders say to me that they did not want regulation. They all wanted regulation in this field. Why? It is because the sector requires confidence. It does not operate without confidence. People do not invest unless they know they can do so with confidence. The sector knows that it needs that confidence restored if it wants our financial markets to flourish.
The last thing I want to comment on is the people who have lost money. I will never ever in my life forget the meetings that I had with people, from one end of this country to the other, who had lost money. I do not know how many meetings I had with people who had lost money in finance companies—for instance, who lost money in Blue Chip, which fell outside the system. We now have a law that will capture the Blue Chips of the future, and if the law is not tight enough—there are people out there who are looking to avoid the application of the law; that is their job, and they do it every second of every hour of every day—we now have provisions in place that will enable the Securities Commission to haul them into the frame. That will ensure there are better protections in place for the future.
But I give a warning to people who want to invest, and that is to take good-quality advice. People can ask questions of their advisers, and ask who is paying the way for
them. Issues relating to commissions still need to be addressed, but I will never forget meeting those people who lost money. At a time when we want to encourage people to save, we are not necessarily providing all the best options for people to consider doing that. The people who lost money were variously described by various media as being greedy, as being out for a higher interest rate, and as knowing very well the risks that they were taking. I cannot say honestly to this House that I met anyone whom I would describe as greedy. I met people who had been conned. I met people who had been duped. I met people who had no idea of the level of risk that they were taking with their hard-earned money. I met people who were so embarrassed at what they had done that they did not tell their adult sons and daughters what they had done with their inheritance. Essentially, the money was all gone, and they were embarrassed that they had fallen for it.
These people require some protection, but at the end of the day, where there is risk and the rate of return is proportionate, it is balanced against that risk, the Government cannot make the risk go away because then there would be no financial sector. At the end of the day, people need to understand what those risks are and they need to take good-quality advice. This legislation means that they can rely on this sector again, and I am very pleased to have played a role in achieving that.
PESETA SAM LOTU-IIGA (National—Maungakiekie)
: It is a privilege to speak to the third readings of the legislation arising from the Financial Service Providers (Pre-Implementation Adjustments) Bill. Much has been said this morning and last night on this legislation. I do not want to regurgitate what has already been said over and over again, except to say that it was a pleasure to work on this legislation, personally speaking. It was a pleasure because members of the Commerce Committee were working effectively as a team. Putting political differences aside, we worked together as a team with the clerks, the Parliamentary Counsel Office, and the industry stakeholders who came and presented submissions, and there were many of them. There were also those who contacted us personally through emails and calls. People care about this sector, and that is why there was such huge interest in this legislation.
This legislation is not just a collaboration between the lawmakers, the officials, and the stakeholders. It is a collaboration with the practitioners. This legislation is designed to provide a degree of certainty and confidence in capital markets, because, at the end of the day, capital markets provide the basis on which businesses thrive, through access to capital. Obviously, that leads to jobs and opportunities, and the prosperity of this country depends very much on our having confident and robust capital markets.
We had to balance out the competing interests, and they were quite clear. There was an interest in protecting investors who were investors of all different classes. They were wealthy investors, not-so-wealthy investors, elderly investors, and investors whom some might call unsophisticated or vulnerable. We sought to protect in this legislation a number of types of investor by regulating the affairs of intermediaries and financial advisers. We were careful not to over-regulate to the extent that some would feel the need not to be part of this industry. So those were the basic competing interests.
As I said earlier on in the debate, I believe that the regulator—or super-regulator, as it is about to become—must be well resourced in its role of monitoring the advisers in the industry. It must enforce, because enforcement is the key to deterring those who think they can get away with the types of acts that have been talked about during this debate. Enforcement and the imposition of appropriate sentencing and penalties are important.
This legislation will not solve all the problems in the financial industry; I think we have been clear about that. But, certainly, this legislation has put together enough
submissions, ideas, and principles of the industry for us to be confident the industry will go forth with some trust and a degree of integrity. I support this legislation. Thank you.
CHARLES CHAUVEL (Labour)
: I welcome the third readings of the Financial Advisers Amendment Bill (No 2) and the Financial Service Providers (Registration and Dispute Resolution) Amendment Bill. I echo the comments that my colleagues have made to thank officials and stakeholders for the work that they have put into making the legislation, hopefully, a success.
It is true that the members of the Commerce Committee worked hard, under the whip of their very diligent chairperson, the Hon Lianne Dalziel. The work put in, in terms of the number of hours spent sitting beyond normal sitting times, reflects the desire to get the legislation as right as is humanly possible so that investors are never again disadvantaged in our financial services market as they have been over the last few years. It is terrible that people have lost their savings as a result of the lack of proper regulation in those markets. Parliament should have regulated the sector earlier. It is good that we are finally doing so, and it is to be hoped that the legislation will serve its purpose.
I pick up on a comment that Lianne Dalziel made about the attempts the committee made to ensure that its process was inclusive. We had a suggested series of amendments from the Government, which came to us quite late in the piece. We wanted to make sure that people knew about those suggested amendments, so, as Lianne Dalziel has indicated, we agreed as a committee to try to open up the process more than the Standing Orders would normally allow. We got the House to authorise a process whereby folk who were interested could essentially stay in the loop with regard to the work of the committee and the advice that we were receiving from officials. That is a good process. Sometimes I think we pat ourselves on the back as a Parliament a little too much about being open to public submissions, because, sure, we are open in that way on a comparative basis but we could always be looking to improve those processes. This process certainly provided for a greater public input and a greater interested-person input than would otherwise have been the case if the Standing Orders had been applied strictly.
I want to say something about the Supplementary Order Papers that were tabled at a very late stage in the piece. We always knew that technical amendments would be coming from the Minister of Commerce to the Committee of the whole House. But I have had texts and emails today saying that there is a problem with the parliamentary website on the Internet. People have not been able to access the texts of the Supplementary Order Papers. They have not been able to make their views known at this late stage, as they tend to do via email to members directly when a late Government Supplementary Order Paper comes forward. That also, obviously, has ramifications for MPs themselves who are relying on remote access and want to see a proposed amendment at a late stage. If we want to be an open legislature, we need to use new technologies to make sure that we are accessible to the public. We need to make sure that the technologies are actually working. I see that the Clerk at the Table is making a phone call now, and hopefully that will do something to remedy the situation. But unfortunately, given that we are now in the third reading debate, it is too late.
I also point to the indisputable fact that there is no justification for legislating under urgency, in respect of this bill. The example that I have just used is probably a very good illustration of why we should not be doing this under the extraordinary procedures that the Standing Orders allow to the Government if it has a majority on an urgency motion. If we had had a bit more time, so that those Supplementary Order Papers could have been properly considered, could have been read by the public, and could have had some time for input, then we might have been able to make sure and to satisfy ourselves
that we were not legislating inadvertently. I do not think any members could put their hand on their heart and say that they have read thoroughly the Supplementary Order Papers that have come in at the last moment. I certainly have not had a chance to. There might be one member, who is sitting next to me, who claims she can, and I would not doubt her word. But, generally speaking, the Supplementary Order Papers are not accessible in the way they should have been, and they certainly have not been accessible to the public. Urgency for this legislation makes it worse.
I will say a word in defence of lawyers, because they have been sorely defamed by my colleague in this process. Of course, what participants in the financial services industry have had to do when faced with significant new pieces of legislation from Parliament, such as the Financial Advisers Act, the Financial Service Providers (Registration and Dispute Resolution) Act, and now the pre-implementation legislation, is go to their lawyers and ask what the ramifications are for this new set of rules that Parliament is visiting on them. It has to be said that we have a very sophisticated profession in this country, particularly when it comes to financial services. We are lucky still to have that level of sophistication. It is something that will hopefully stand us in good stead going forward if the Government’s stated aims to have a financial services hub or industry in this country ever come to anything. I do not see a lot of activity or action in moving that aspiration forward. It would no doubt be a good thing, but if we are to have it, it will be in part because we have those sophisticated transactional lawyers available to advise such parts of the financial services industry that are still based in New Zealand.
In that regard I will say a word about the approach that has been adopted by the House in this particular legislation. It was an approach that was taken by the previous Labour Government; this is a conversation I had with the previous Minister of Commerce when I was chairing the Commerce Committee in the last Parliament that heard submissions on the providers and advisers bills. Many of the financial institutions that operate in New Zealand also operate in Australia. Many of them are branch offices of larger entities that have headquarters across the ditch. Why do we not simply adopt a similar, or virtually the same, regulatory regime that the Australians operate in this area? Why do we not negotiate to have a joint regulatory approach with joint regulators? I understand that there is some proposal that we might take this approach in competition regulation, with the chairman of our Commerce Commission being dual-warranted in respect of the Australian Competition and Consumer Commission. That is a very good approach; it is very sensible. It will keep costs down for these businesses because they will have to have just one compliance approach trans-Tasman, rather than have one set of rules that they comply with in Australia and another set of rules they have to comply with in New Zealand.
If we take the single economic market seriously and if we want to give meaning to the idea of Prime Minister Rudd’s visit next week, then this is the sort of approach we should be trying to negotiate with the Australians across the board. This should be instead of having things like separate competition authorities, separate financial regulators, and now, for goodness’ sake, a separate productivity commission, which is a bureaucracy to be created, we are told, by this Government to perform exactly the same role as its counterpart across the Tasman. Instead, we should be cooperating much more and seeking negotiated solutions that do not expose businesses to double sets of compliance across the two jurisdictions.
That is the not the path that has been chosen by Parliament. The path is the one that we are debating today. I wish the regime well and I hope it makes a difference to vulnerable financial services provider consumers. I hope we will see an end to the ripping off of mum and dad investors. Let us hope it is a step on the way. Let us hope
that in a couple of weeks’ time, on the next members’ day, we will also see the Government taking a consistent approach to financial services regulation and agreeing to support my colleague Carol Beaumont’s bill to regulate the loan shark sector, because that is another sector where people are vulnerable and require protection. There is no reason why we should not provide it in one part of the industry as we are today. To deny it to the most vulnerable, as it appears the Government intends to in a couple of weeks, would be a real shame. It would be a failure on the part of this Parliament to provide the protection that New Zealand consumers deserve. I hope that the National and ACT Party members will rethink their stated approach on that issue.
RAHUI KATENE (Māori Party—Te Tai Tonga)
: E te Rangatū pai mua o te Reo o te Whare, tēnā koe. We all agree that things must change in terms of creating an environment where integrity, accountability, and transparency actually count for something. One of the clearest indications that things are changing is that we are able to link to the Ministry of Economic Development website—I pick up on what Charles Chauvel said: the site is down at the moment, but normally we can do that—and have immediate access to the papers that are on there. I refer in particular to the Cabinet paper that proposed the Financial Service Providers (Pre-Implementation) Adjustments Bill a mere 6 weeks ago. There is no need to apply for material under the Official Information Act or to make panicked calls to the Minister and the Minister’s officials for a briefing; it is all there on the website as clear as day.
I like the sound of the proposals in the paper, dated 3 May 2010. They tell me that under the Financial Advisers Act advisers will now have to register, obtain authorisation, comply with the competency and conduct obligations, and make a full disclosure before providing advice to a client. The paper goes further and promotes the establishment of a regulatory framework that is designed to encourage public confidence in the integrity and professionalism of financial advisers.
As every member of this House knows, the issues of integrity and accountability in the finance sector are absolutely pivotal. Given this fact, I was somewhat surprised that out of the 93 submissions received on this bill, only one submission came from Māori. Mind you, the Māori submission was fairly substantial and came from the Māori Trustee. The Māori Trustee wanted amendments to the bill to clarify and limit the scope of an estate or interest in land and to provide an express exclusion for the Māori Trustee in respect of the Māori Trustee’s core statutory functions. It recommended that in order to limit the uncertainty in respect of an estate and interest in land—and subsequently to lessen the impact this uncertainty has in respect of leases, licences, and mortgages—section 5 of the Financial Advisors Act should be amended. That amendment would insert a definition for “estate” and “interest in land” that provides that an estate or interest in land does not include advice, guidance, or recommendations relating to the granting of any leasehold interest or licence right or any form of easement or mortgage in respect of land. That all sounds pretty technical to me but I have it on pretty strong authority—the authority of the Māori Trustee—that such a definition would be a key way of protecting the interest of Māori landowners in respect of estates and interest in land, and we therefore want to promote it.
The other key amendment put forward by the Māori Trustee is to exempt the Māori Trustee in line with its previously accepted statutory functions. These include obligations under the Maori Trustee Act 1953 and Te Ture Whenua Maori Act 1993 in respect of interests in Māori land and the holding and investing of money on behalf of the beneficial owners of such land. The reason put forward by the Māori Trustee is that there is already significant transparency, control, and oversight of the operations of the Māori Trustee. This is by virtue of the Māori Trustee being a Crown entity for the purposes of reporting. It is also demonstrated through the Māori Land Court’s oversight
role in respect of the various trusts for which the Māori Trustee is responsible. Another means of ensuring that there is sufficient transparency, control, and oversight is through the funding arrangements and reporting requirements with the Crown. I am not an expert on the Māori Trustee by any means, but I believe that the issues raised in these submissions are worthy of further consideration by the House.
Finally, I note the concerns that have been raised about some of the changes in the legislation in terms of the impact they will have on consumer protection. Some key stakeholders have been concerned about the flexibility that has crept in through the exemption of financial advice. This would have the effect of excluding a large number of organisations in which financial advice can be justified as incidental rather than core to their business; this could mean anything from a car rental company to a retail firm discussing hire purchase requirements. I think the hub of their concerns rest around what the term “incidental” means and how it is interpreted. In a worst-case scenario, that might mean that people can have a tutu with financial advice and get away with shoddy advice on the flawed basis that it is not a central component of their business, meaning they do not have to comply with the registration or authorisation process. The last thing we want to see is the very people we are seeking to protect unwittingly being exposed to yet another level of risk, without the protection we envisaged would be possible in the legislation.
Finally, I remind the House that Māori-generated economic development will play a significant role in the future of our nation. The last thing any Māori shareholder or businessperson wants to see is another Blue Chip disaster blighting our financial horizons. The Māori Party supports this bill, and encourages further debate on, and consideration of, the range of issues that clearly still require further thought.
DAVID CLENDON (Green)
: Kia ora koutou. Comments have already been made this morning that these bills indicate the value of regulation, and there was reference made to the fact that the financial advice sector is an industry that was under-regulated. Unfortunately, we cannot rely on the goodwill or integrity of a minority of those within the industry, and it is necessary to apply some regulation. The market, left to its own devices, clearly will not protect the well-being or serve the interests of all players in that market; it never has, and a completely unregulated market never will. There is simply too much at stake here. We are talking about people who may well be investing all of their life savings or the assets they have managed to accumulate over many years of work and effort, and we have a responsibility as legislators to ensure we put the best possible policy settings in place to ensure those people some reasonable protection—again, notwithstanding the fact that investment always carries a measure of risk. In order to asses risk intelligently and accurately, one needs access to information, honest and open disclosure, and a high level of transparency about exactly what it is one is investing in. Clearly, that was not the case with many of the companies that have now failed and that have left a great deal of not only financial or economic loss but also significant human cost in their wake. That includes ill health, the break-up of relationships, and even, at the extreme end, the suicides of people who have lost everything they had and could not see any way forward other than that very unfortunate and tragic end.
It is appropriate and a good thing that these bills have come to the House and are passing through it. I think it is important to acknowledge that this legislation on its own will not solve all of the problems that can be associated with the industry. There are other issues. One of those is that we—like many on the committee and outside it—have not found it entirely straightforward to penetrate some of the language that is commonplace to the financial sector. It is important that we continue the constant drive to get plain English documents. When people are confronted with legalese or jargon,
they are at a disadvantage. There was mention this morning of an asymmetry of information, understanding, and knowledge. Clear, plain English documents would be a significant step towards ensuring that people are well informed and that they can make reasonable assessments of the risk of the investment they are proposing to make.
There was some significant discussion through the select committee process about the value or the integrity of self-certification programmes. I think there is certainly a place for that, for people who might otherwise be in a grey area, when it is not clear whether they could be reasonably expected to take care of themselves in that place. On the flip side of that, international experience shows that some self-certification programmes have been abused and misused, and have left people vulnerable. The resolution of that debate was to put a significant onus of responsibility on whoever accepts a statement of certification. If I make a claim that I am able to look after myself, then the person accepting that claim needs to have reasonable cause to make a fair and reasoned judgment that I am in that position. I think that was a good example of a negotiated outcome for some of what could have been sticking points within this quite substantive and complex legislation.
It is interesting to see that just a day or so ago, Mark Weldon, the chair of NZX, made a call for local initiative, local institutions, and local policies that will reduce this country’s reliance on foreign capital. Indeed, putting this bill in place and giving people more confidence that they will receive fair, honest, and open advice is one step, albeit a small step, towards us becoming somewhat more self-sufficient in capital. It gives people confidence to invest their hard-earned money. It will also have a positive spin-off, as I mentioned earlier, in potentially making more capital available to business people and innovators who want to build and develop a local industry in whatever the context might be.
I think there is more work to be done around financial investment more generally. We need to create policy settings that encourage and improve the landscape for so-called angel investors, those people who have funds and are willing to put them into sometimes unproven investments—people who offer venture capital on reasonable terms. Clearly, in the New Zealand market place that is a gap that needs filling. We have too little access for many in our creative design sector, our innovators, who can actually build a sustainable economy in New Zealand. By facilitating the entry into the market of angel investors, we would go a long way to resolving that.
We in the Greens believe there is a significant opening to create policy settings for ethical investment companies, the likes of Prometheus Finance, which is probably the best known in New Zealand. Those are companies that will guarantee and undertake to their investors that they will invest only in products and services that are deemed ethical. There are obvious things like tobacco, arms, and various forms of nuclear energy, but they actively pursue ethical, sustainable investment. Having evened the playing field a bit, which we have done with this bill, the next steps might be towards facilitating the growth and expansion of that ethical investment community. The Government investing more and putting some of its own funds into these programmes, and actively pursuing and supporting these programmes, would send a very good signal to the market that this is the way forward. Investing in ethical companies, investing in sustainable development, and investing in local industry innovation initiatives is definitely the way to forward for this country, its economy, and, indeed, the people living within it.
Finally, I simply reiterate what has been said. This has been a very positive process in negotiating a good outcome for these bills, despite some initial differences based on ideology or experience or whatever it might be. It has been a very positive process, and
it has taken us a step closer to assuring New Zealand investors that they can have a degree of confidence and safety in their investments. Kia ora koutou.
JONATHAN YOUNG (National—New Plymouth)
: I am very pleased to stand to speak in the third readings of the bills arising from the Financial Service Providers (Pre-Implementation Adjustments) Bill. It is critical that we get our regulatory framework right, and this has been quite a process. It is a very complex bill, and we have appreciated the input from many quarters—particularly from the stakeholders, who have been very much part of this whole process of developing the legislation. I think that today there will be people out there in the market place celebrating the passing of this bill.
One of the balances we had to find was where to regulate and where not to. Whenever we create regulations to protect consumers, the consequence is that we constrain providers. We have worked hard, listening to consumers and financial service providers to get the balance right between consumer protection and professional efficiency. However, it needs to be said that the confidence this legislation will bring to consumers is important. Many, many submitters welcomed the compliance this legislation will bring, because it will attest to, and support their aspiration of, professional soundness as an industry.
In respect of finding this balance between flexibility and constraint, we know that both the Financial Advisers Act and the Financial Service Providers (Registration and Dispute Resolution) Act have been made more flexible by adding a number of regulation-making powers. That sounds slightly oxymoronic, does it not? The Securities Commission can now provide limited exemptions from financial adviser obligations. The commission is not expected to consider exemptions for every individual adviser who does not consider him or herself to be the true target of the regime. The commission is expected to focus on exemptions for classes of persons for whom the cost of compliance with certain obligations would be unreasonable or unjustified. Those mechanisms are important to ensure that the regime can adapt with the market and impose obligations that are proportionate to the risk created by different services.
Mr Chauvel talked about the single economic market, and as I close I say that a lot of work is being done by our Minister of Commerce, Simon Power, with his Australian counterparts to make progress on 27 regulatory outcomes identified by the two leaders, Prime Minister John Key and Prime Minister Kevin Rudd, in a joint statement in August last year. The Trans-Tasman Outcomes Implementation Group, co-chaired by a senior official in the Australian Treasury and our Ministry of Economic Development, has been working to advance the outcomes identified by the two Prime Ministers.
I believe this is good watershed legislation, which will make a difference to the financial adviser sector and a huge difference to confidence among investors and savers in our country. It is a pleasure to be able to support this bill. Thank you.
CLARE CURRAN (Labour—Dunedin South)
: I rise to speak in the third readings of the Financial Advisers Amendment Bill and the Registration and Dispute Resolution Bill. As members know, Labour supports this legislation. It will simplify the implementation of the Financial Advisers Act and reduce costs, while encouraging public confidence in the industry. The amendments discussed this morning will strengthen the Financial Advisers Act 2008 and the Financial Service Providers (Registration and Dispute Resolution) Act 2008, both of which were brought in by the previous Labour Government, and ensure those Acts serve their purposes. Public confidence in this industry, and robust consumer protection, are vital today, and we must restore confidence and trust in the financial services sector.
I will comment on a couple of things that have been brought up this morning, by me and others, and underline their importance. The first is to do with promoting standards
and accountability in the profession. A number of other professions have been mentioned in the House this morning, such as the legal and medical professions, accountancy, and the police. Essentially those are the professions we expect, when we go to them to seek advice and information, to know that we will get quality, and that some sort of standard will be attached. Financial advice should be in that league, and hopefully with the passing of this legislation it will have that standing.
The other thing I would like to mention is the importance of financial literacy, which has been talked about as well. Unfortunately it has been talked about in terms of it being a problem, rather than our having solutions to that problem. As a country we owe it to the people of New Zealand to really grapple with this issue seriously and work out how people can become more financially literate, and what is needed to make them so.
While that discussion was happening this morning, I thought about the medical profession and the increasing trend for people to self-diagnose by accessing the internet and googling their symptoms and coming up with their own diagnoses. I am not being overly critical of people who do that, because in many cases it does produce some results and interesting discussions with general practitioners and other specialists. But the issue of people who think they know best on financial matters, the range of products out there, and how their investment will turn into a bigger investment is a big one because financial literacy is not something that people generally learn at school. Perhaps it should be learnt more at school. There are some serious issues about where we should intervene in society to enable people to have more information about how to best use their money. I certainly think that financial literacy is a major issue in our society right now, and we need to grapple with it.
The third issue is about the vulnerability of investors, particularly the people we have been talking about, who have been most affected by this issue. They are the mum and dad investors, the people who do not have a lot of money, and often it is their life-savings we are talking about. I want to draw attention, as a number of my colleagues have, to the member’s bill of my colleague Carol Beaumont, Labour’s spokesperson on consumer affairs, the Credit Reform (Responsible Lending) Bill, which is really addressing this issue and taking it a step further in relation to how to protect people from loan sharks. There is an extraordinary amount of ripping off by moneylenders going on in our society at the moment of the people who are being most affected but who can least afford to be affected.
When we take into account the extraordinary amount of cooperation and collaboration that has occurred with this legislation in the Commerce Committee and across this House, it would be a show of goodwill if the Government actually showed that it had some responsibility about this issue, and showed that it was prepared to consider the importance of the issue and take it a step further—and it would be good to note that some members across the House were actually listening to what I am saying, right now.
The Commerce Committee has focused on protecting retail consumers and on enhancing confidence. The select committee has done an extraordinary amount of work in that area, and I pay tribute to the committee and all the officials, as has been done a number of times in the House today. But it is really important to do that, and particularly to praise the chair, the Hon Lianne Dalziel. As I said, we were focused on protecting retail consumers and on enhancing confidence, and on encouraging participation in capital markets. We were conscious throughout the select committee process of remaining mindful of the harm that the legislation is intended to address, and the need for a regulatory response to be proportionate to that risk. I believe that that has been achieved, and been achieved after a lot of hard work by all involved.
So this legislation will ensure that the public are protected from people like Neville Cant, a Timaru investment adviser mentioned earlier, who just last week was jailed, and banned from being an investment broker, after offering and allotting securities to members of the public without a prospectus or an offer statement. Worst of all, he was convicted for stealing about $100,000 from clients.
As members have also heard, this legislation is about protecting ordinary investors like Tom and Ann Cawood, aged 78 and 75, who were forced to walk away from their home after losing everything in Blue Chip investments. This couple, as has been reported in the
New Zealand Herald, like so many were not foolish with their money but, rather, received misguided financial advice. Similarly, Colin and Bev Mossop, after the Blue Chip failure, found they were devastated after many years of hard, honest work, and said that their hopes for their future financial stability and enjoyment of life had been shattered. When Blue Chip collapsed in 2008 it was outside our regulatory system, and more than 2,000 investors were owed more than $84 million. Founder Mark Bryers has been sentenced on 34 charges, most of them relating to inadequate financial reporting such as failing to complete or sign off company accounts. His case has been well documented. He has been banned from being a director or manager of a company for 5 years, which is the longest period possible, and he is ineligible to run a company until May 2015.
As Lianne Dalziel has said, this law will capture the Blue Chips of the future. This legislation will allow the Securities Commission to bring such companies into the system, and I hope that the legislation will today send a real message to financial advisers and the financial sector so that we can truly restore confidence in that sector. That plays an important role for businesses in raising capital, and this legislation is about protecting ordinary investors. The sector is supportive of the legislation today. It was apparent from the submissions heard before the select committee that the sector itself wants reform, and understands its importance.
Finally, I again thank Commerce Committee members for their hard work, particularly the chair. The select committee process was inclusive, and such an open and transparent process with stakeholders and officials makes this legislation what it is today. It will not solve all the problems in the financial sector, but it promises to make a difference. I want this legislation in order to protect people from the Blue Chips of the future, and to reinforce public confidence in the industry with robust consumer protection. We must restore confidence and trust to the financial services sector. I commend this legislation to the House.
MELISSA LEE (National)
: It is a pleasure to rise for the third readings of the financial services legislation. We have had quite a robust debate in the House, and it has been a tremendous pleasure for me to watch the whole House and to see all the different parties in agreement that we must protect ma and pa investors, who have had a bad time and have lost a lot of money. This bill is here to protect the consumers out there.
I begin by paying tribute to the House for allowing the Commerce Committee to pass official documents to stakeholders in order for them to make comments before we presented this bill. I think it was Lianne Dalziel who said that our select committee was the engine room of Parliament. I would like to add that we were really cooking with gas in that select committee. We were firing on all cylinders. Our deputy chair, Sam Lotu-Iiga, had a lot to contribute. In fact, all the members who participated in that select committee made valuable contributions.
I must say, as someone who did not really know much about the financial sector, that I have learnt a tremendous amount from the process. Recognising that we need to return confidence to the finance sector is important and it was one of the issues we worked on. We know it as members of Parliament working on this bill, and it seems that the
financial sector, the people who are in the business of financial advice, also knew that they had to work on it. They were not being protectionist when we were talking about wanting them to make submissions. It was not a case of them saying that they do not want regulation. It was about people in the industry and members of Parliament working together to find a balance whereby we can provide protection for consumers, yet allow business to get ahead.
Probably all of us in this House personally know someone who has suffered as a consequence of some 30 finance company failures in the last 4 years. I personally know of someone who has worked as a doctor and helped a lot of people in the community by voluntary work. Her entire retirement savings were lost as a result of a finance company failure. Earlier, one member said that some of these people who had lost their entire life-savings were so ashamed of the bad advice they had received, or the bad choices they had made, that they were too afraid to tell their families. This is what has actually happened.
One of the major important things that we must achieve is the financial literacy of the people, the public, so that we all know what we are going into. This Parliament cannot protect everyone. If there is a higher interest rate on an investment, then everyone must recognise that there is a higher risk and that the Government cannot protect that investment. This is great legislation, and it has been a pleasure to work through the select committee process. It is my pleasure to commend the legislation to the House.
STUART NASH (Labour)
: I stand to support the third reading of this legislation. I have given speeches on the first reading, second reading, and Committee stage of the Financial Service Providers (Pre-Implementation Adjustments) Bill, so there is not much that is new that I want to say. But I will sum up the points I have made because I think they are all very important.
I come back to something that Melissa Lee said; her colleague Sam Lotu-Iiga mentioned it as well. I fundamentally disagree with their point. They talked about the inability to legislate for risk. I do not agree with that. I think that this legislation is legislating for risk. I have talked about the fact that there is something called the risk-free rate of return. It is usually understood to mean US Treasury bills, because there is nothing safer to invest in than US Treasury bills. Anything with an interest rate that is higher than that carries an element of risk. But one risk that investors should not have to take into account is the risk of negligence, incompetence, or very poor form on behalf of financial advisers. When Melissa Lee said that people have to account for risk, she was right. But I say that savers, the people who go to financial advisers, expect advice on different risk types. They do not know how to assess risk properly, so they go to financial advisers to ask how to properly assess their risk and have a balanced portfolio. That is the role of the financial adviser. I talked about how the understanding of risk and the assessing of risk is one of the fundamental developments of the global economy.
This legislation is supported by the industry, and there are reasons for that. One of the fundamental reasons is that the reputation and good name of a lot of very good financial advisers have come under attack in the last few years because of the unscrupulous people operating in this industry carrying the name of financial adviser. We encourage the good people to remain in this industry. We want people to enter this industry, but only in the knowledge that they will be trained, and that they need to be registered. They need to have the education and the skills to be able to offer advice to people who want to invest—to tell them how to do it. People go to financial advisers for advice.
I remember hearing a case where someone talked about a balanced portfolio being investment in five different finance companies. That is not a balanced portfolio; that is the sort of advice that was given out by those fly-by-night characters who had no
education, no grounding, and no experience in this game whatsoever. It was an absolute travesty for the good people of New Zealand that we allowed those people into the sector. Now with this legislation and the previous two bills that were put up by the Hon Lianne Dalziel, those sorts of people will no longer be able to operate in this industry.
We talked about financial literacy as well, and it is a very important point; it transcends way beyond the boundaries of this bill. It is incredibly important. Again I come back to something that Sam Lotu-Iiga mentioned. He said that a friend of his with financial qualifications finds it difficult to wade through a 75-page prospectus. I find that astounding and incredibly worrying. My point is that if someone with financial training has great difficulty wading through a 75-page prospectus, how is someone without any financial training supposed to understand the requirements? It is law to put out a prospectus. It must be done if one is offering securities to the public. The inclusion of everything in that prospectus has been deemed by Parliament to be absolutely necessary in order to make a sound financial decision. If people cannot understand a prospectus, they go to a financial adviser. A financial adviser is supposed to have read and understood the conditions within a prospectus, and therefore be able to offer advice around different risk profiles in different forms of investment. Sam’s point was very clear: friends of his with a legal or financial background have great difficulty understanding a prospectus. So how can ordinary New Zealanders understand? They simply cannot. That is why the financial services sector is a very important part of the New Zealand economy and it is why we need people who are suitably qualified to be operating in this sector. We have now got rid of people who have no qualifications and who have no intention of getting qualifications.
Financial literacy is a problem. My personal view, which is not Labour’s view necessarily, is that some form of economics and finance should be compulsory up to the fifth form. New Zealanders need to leave school understanding the basics of economics, accounting, and finance. It is not difficult, but it needs to be part of the prospectus. I wonder what Allan Peachey’s view on that is; I suspect he probably feels the same way. Coming out of school and not understanding a thing about economics or finance is a huge barrier to this country going forward, and that needs to be addressed. But, like I mentioned, it is outside the ambit of this bill. The parties will have to work through it.
Another point is that New Zealand quite simply cannot afford to have the millions of dollars disappear that have been shed from the balance sheets. Raising capital is vital to the depth and the breadth of business in New Zealand, and we absolutely must have a financial services sector that people can operate in, can invest in, and can raise money from with certainty and with confidence. It is very, very important. Our capital markets have taken a huge hit as a result of 30-plus finance companies going under, firstly, because people now have an inherent distrust of the capital markets, and, secondly, because people are going back to investing in houses. We understand that that is a major problem. It is not part of the productive economy. But New Zealanders have had money gouged out of their accounts by finance companies, so where do they turn? A lot of conservative Kiwis will go back to the housing sector. That is not something that we really want to encourage. We really need to encourage an environment in which people believe they can invest. They can assess the risk and can invest in that environment with a level of certainty that the advice they have been given is not negligent or incompetent.
Finally, this legislation is about ordinary New Zealanders. I talked about Mark Hotchin’s $30 million mansion. I will give members a quote from the
New Zealand Herald: “A half-finished $30 million mansion … is big enough to contain 13 average houses just on its floor space. … It will contain seven bedrooms, a 25m swimming pool and a garage for 12 cars. Its study, games room and home theatre alone are as big as the typical house—without counting any of its living spaces, including seven bedrooms.”
That house was built on a graveyard of the broken promises and shattered dreams of ordinary New Zealanders. Thousands of New Zealanders out there have lost everything, and Mark Hotchin’s mansion on Paritai Drive stands as a symbol of greed and all that was wrong with the finance company sector.
As I also mentioned, I am hoping that New Zealand icons like Colin Meads and Richard Long—their brands are irrevocably damaged at the moment—and other New Zealand icons will think twice before they lend their names to areas that they have no competence in.
This travesty of the finance companies has resulted in increased ill health and a decrease in the well-being of a huge cohort of New Zealanders. Last year I spoke about two people I know about—and no doubt there are a hell of a lot more—who committed suicide as a result of losing all their money in these schemes. That is why this bill is so important.
We must remember that not all who acted in an unscrupulous manner were operating out of the back of a tin shed. We need to pass this bill. I commend it to the House. The days of the Wild West are gone. This bill closes a lot of these loopholes. It is a fantastic bill, supported by both sides of the House, and certainly supported by me. Thank you.