Second Reading
Hon SIMON POWER (Minister of Commerce)
: I move,
That the Securities Disclosure and Financial Advisers Amendment Bill be now read a second time. From the outset I would like to thank the Commerce Committee, and in particular the chair,
the Hon Lianne Dalziel, for seeing this bill move through the committee at a pace that equates with the urgency that surrounds legislation of this nature.
The objective of the bill, of course, is to respond to the global financial crisis by removing unnecessary impediments to the raising of capital in New Zealand, while continuing to ensure the timely disclosure of relevant information to prospective investors. I thank the various parties in the House for their support, both of the legislation and of the select committee process. The financial crisis has highlighted the need to act decisively to address credit rationing, which has restricted access to capital for New Zealand firms. However, the crisis has also taught us that companies cannot ignore the interests of investors—an important point. This means that any action the Government takes in response to the crisis should not serve to undermine investor confidence in the financial sector, particularly when it is already frail.
This bill addresses a number of the recommendations made by the Capital Market Development Taskforce in its interim report of November last year. The bill amends the Securities Act 1978 to provide for a simplified disclosure prospectus that may be used by listed issuers who are already subject to continuous disclosure requirements and would otherwise be required to produce a separate disclosure document for each offering. Listed issuers would therefore be required to produce only one disclosure document for a securities offering, instead of producing both a full prospectus and an investment statement. The intention of the simplified disclosure prospectus is not to reduce the amount of information provided to investors but to reduce duplication between forms of disclosure.
In addition, the bill proposes other relatively technical changes to the categories of persons who are exempt from the disclosure requirements for offers of securities under the Securities Act, which will make it easier for all businesses, whether they are listed or unlisted, to raise capital. The bill also amends the Financial Advisers Act 2008 through the correction of a minor error in the final version of the Act, and through other minor tidying-up amendments.
Since the first reading of this bill, the Commerce Committee has recommended a number of amendments to strengthen the bill so that it may meet the objectives I have outlined so far. Overall, submitters welcomed the introduction of the simplified disclosure regime. They were also supportive of the proposed amendments that relate to categories of persons who are exempt from the disclosure requirements for offers of securities under the Securities Act.
It is important to note that I am aware that other issues were raised by submitters, and that some people in the industry consider we have not gone far enough with the bill. Let me remind the House that this bill has been swiftly prepared in response to the need to address the current credit crisis, and that I have already asked my officials to carry out a more thorough, comprehensive review of the Securities Act. The committee considered the additional proposals that were raised by submitters, and concluded that they were either outside the scope of the bill or better dealt with in a more fundamental review of the Act. No substantive changes are proposed to the part of the bill that relates to simplified disclosure prospectuses.
The intention of the simplified disclosure prospectus is not to reduce the amount of information provided to investors, but, as I have said, to simply reduce the duplication between the forms of disclosure. Any relevant announcements made through continuous disclosure will need to be referenced in the simplified disclosure proposal, and to be made freely available to investors by, for example, publication on the issuer’s website. Liabilities, penalties, and remedies for the disclosure of false or misleading information will continue to apply to a simplified disclosure prospectus, as they do to a full prospectus.
However, the committee recommended three changes to the provisions in Part 1 that deal with categories of persons who are exempt from the disclosure requirements. Where subsequent offers are exempted from the standard disclosure requirements, the committee recommended that exemptions from standard disclosure requirements for subsequent offers by persons who have made subscriptions of $500,000 be allowed to include offers for different types of securities, rather than being limited to securities where the rights, privileges, limitations, and conditions attached are identical to those attached to the initial securities. The committee concluded that it is unnecessary to restrict the securities to those that are identical to the initial securities, and the proposed amendment recognises that an investor who has previously invested half a million dollars in one transaction prior to allotment does not need, necessarily, the protection of the Act. I agree that limiting the securities to those that are identical to the original offer would needlessly restrict a company’s ability to use a range of investment vehicles to raise further capital from its initial investors.
The committee also recommended, in relation to clause 5, that section 3(2)(a) of the Securities Act be extended to allow offers subsequent to an initial half a million dollars to be made within 18 months of the first allotment, rather than 12 months. The committee thought it appropriate that the half a million dollar initial investment should be made within a reasonably small window, but did not consider that 12 months would allow the issuer enough time to complete a full annual reporting cycle, and to decide whether additional capital needed to be raised. I think this is a pretty sensible move.
The committee has also suggested that the Securities Act be amended so that people who are experienced in investing money will be required to acknowledge that as experienced investors, they will not receive the disclosures that are typically required in relation to a public offering. The committee thought it was important that those investors acknowledge that they are not to receive any of the information usually provided by an issuer who is offering securities to the public. I consider this to be another useful amendment.
The committee also considered further amendments to the Financial Advisers Act, designed to remedy errors that have come to light since the bill was introduced. These issues are all of a minor, technical nature, but are important to ensure the legislation works as intended. The committee also recommended changes, firstly, to remedy an oversight in the Financial Service Providers (Registration and Dispute Resolution) Act that potentially exempts some financial advisers from registration, secondly, to clarify that information contained in the disclosure statement that is required to be produced under the Retirement Villages Act 2003 is not financial advice—and you will be interested in that, Mr Deputy Speaker—and, thirdly, to clarify the disclosure obligations and potential liability that applies to financial advisers operating as part of a qualifying financial entity.
Hon Maurice Williamson: Excellent, excellent.
Hon SIMON POWER: These amendments are consistent with the policy decisions on the Financial Advisers Act, so I, too, support their inclusion in this bill. I am confident that the amendments made by the committee will help the bill to achieve its objective of facilitating access to capital for New Zealand businesses.
I conclude where I began, the Hon Maurice Williamson will be pleased to know. I conclude by thanking members of the select committee, and, in particular, the Hon Lianne Dalziel for her cooperative approach to working on this bill. Having been the Minister who put in place the Capital Market Development Taskforce, she understood just how important this legislation was when we introduced it in recent weeks. I acknowledge the members of that committee for their swift consideration of the bill, and, in fact, for their helpful suggestions for amendments. I acknowledge the
contributions of those who provided submissions on the bill. I commend the bill to the House.
Hon DAVID PARKER (Labour)
: I rise to indicate the Labour Party’s support for the second reading of the Securities Disclosure and Financial Advisers Amendment Bill. We will support the second reading of the bill. As has been indicated, this bill is the outcome of work that was commenced by the previous Government and led by the Hon Lianne Dalziel, who would ordinarily be speaking first on behalf of the Labour Party in this debate, but is unable to be here today to do so.
The Capital Market Development Taskforce was established by the previous Government in July 2008, and it included members from Government departments and the private sector. Its objectives were to identify constraints on, and opportunities for, the development of New Zealand’s financial system. It wanted to identify and debate the different options that were available to improve the performance of our financial system, and to develop a blueprint to enable its proper development. Originally, when the task force was set up, it was envisaged that we had the luxury of more time than has turned out to be the case. When the task force was set up, the global financial crisis was not as serious as it had become by the end of last year. So although it was originally intended that the task force would take a year to produce specific recommendations that would then be implemented, because of the seriousness of world events it decided to produce an interim report in November of last year.
In simple terms, the world financial crisis has done two things: it has put pressure on the ability of institutions and companies to raise the money they need to go about their business—that is a pressure that they are already facing—and, in addition, it has created suspicion on the part of some investors, particularly smaller investors, as to where they should put their money, what information they should rely on, and how they can have confidence that risks are being properly assessed. This bill tries to grease the wheels of commerce. It tries to put in place improved rules so that it is possible for institutions and companies that need to raise capital to be able to do so, whilst at the same time giving investors greater confidence to place their money in those investments.
I do not think anyone in this Parliament pretends that we can legislate away risk; I certainly do not hold that view. There are risks inherent in investing. This Parliament ought not to try to avoid risk, because plainly we cannot, but what we can do is make sure that investors have the confidence to make investment decisions by ensuring they have the appropriate level of information.
The current regime is imperfect, and this bill is being passed to improve it. One of the problems with the current regime is that alternative sources of information are available to investors: the investment statement, which can be relied upon, and the prospectus. Both of those documents are available but, in practice, most investors are given an investment statement rather than a prospectus. I think it is the experience of many more knowledgable investors that the level of information provided in an investment statement is inferior to the more detailed provisions in a prospectus, and perhaps is not enough information for an investor. So although, in theory, investors have access to a prospectus if they want it, the reality is that normally they get only an investment statement with an inferior set of information, which is not enough to give them confidence that all of the risks and benefits have been properly outlined to them before they make their investment decision. This legislation says that certain public issuers must revert to a prospectus.
There is an additional improvement. At the moment the prospectus requirements require the repetition of information that has already been made publicly available pursuant to the continuous disclosure obligations of certain public issuers, certain companies on the stock exchange, etc. At the moment the rules require that much
information that has already been made available to the public is included in the prospectus. That information may be relevant, but it certainly does not need to be repeated every time. This amendment enables the prospectus to focus on items that are more important to the investor, so that the investor has a higher level of information than might be provided in an investment statement, but, none the less, is not overwhelmed with copious quantities of documents that have already been disclosed by the public issuer. If that sort of overly prescriptive level of detail is required to be disclosed, then the poor old investor, unless he or she is full-time in the business of interpreting those things, is so overwhelmed with information that it is sometimes hard for the investor to see the wood for the trees. Hopefully through this legislation we are getting to a better balance.
Hon Maurice Williamson: Keep the trees you cut down.
Hon DAVID PARKER: Well, trees are at risk of being cut down at the moment because of the Government’s suspension of the emissions trading scheme, but that is nothing to do with this bill.
Another change made by the Commerce Committee, which I endorse as the Minister did, amends the strange situation where investors who are wealthy enough to afford to subscribe $500,000 in a single investment in a public issuer seem to need to be protected against making other investments in that same issuer, albeit in a different class of security. This bill remedies that situation by saying that if an investor had $500,000 to invest and did so, then presumably he or she could afford to take the risk inherent in investing in other securities in that same entity. Certainly, if an investor was able to afford a $500,000 investment, he or she could afford to seek advice as to whether a different class of security would be a better investment than one from that same public issuer. That change is a sensible improvement.
I address also one other change that has been made. Another feature of the bill changes the central supervision of financial advisers to be by the Securities Commission rather than, as was originally proposed, via a co-regulatory model with the industry. The bill establishes a Commissioner for Financial Advisers, who will be a member of the Securities Commission, and will have a code committee and a disciplinary committee. Both of those committees will include advisers with industry experience in order to make use of their expertise, but will come under the ambit of the Securities Commission rather than, as was originally proposed, using a separate co-regulatory model with the industry. That, again, is appropriate.
There is less, rather than more, public confidence these days in self-regulation of the financial sector. One of the outcomes of the crisis internationally has been to show that there is a very proper role for centralised, Government-controlled regulation of the financial sector. Against that background it is very appropriate that the regulatory model that is now proposed is effectively under control of an arm of the Government, albeit independent of the Government in its decisions. The appointments to the Securities Commission are controlled by the Government; the commission then acts independently of Government and industry. Although the regulator has the ability to avail itself of members who have experience in those industries, the regulator is not a co-regulator with the industry; it is separate from the industry. That is important, and should give investors confidence that they are making wise decisions when they take risks and invest. That maintenance of investor confidence should make it easier for financiers to raise the funds they need in order for them to go about their business and for our economy to prosper. I recommend this bill to the House.
PESETA SAM LOTU-IIGA (National—Maungakiekie)
: I rise to speak to the second reading of the Securities Disclosure and Financial Advisers Amendment Bill. Like the two previous speakers, I fully endorse and support the recommendations made
within the bill, and the changes to the Securities Act that have been recommended through this new bill. Before doing that, may I acknowledge, firstly, the Minister of Commerce, the Hon Simon Power, for his leadership and his guidance in bringing this bill to the House, and the cooperative manner in which all parties on the Commerce Committee have worked towards refining and debating the various points of the bill. I also acknowledge the previous Minister of Commerce, the Hon Lianne Dalziel, who, sadly, is not in the Chamber at the moment, for her work on the bill, her chairmanship of the select committee, and her experience as Minister in initially bringing this legislation to the House.
As has already been described this afternoon, the Securities Disclosure and Financial Advisers Amendment Bill was developed in response to the interim report of the Capital Market Development Taskforce, which was released last year in November. That report was in response to the current financial crisis, and its report focused primarily on increasing the availability of capital to New Zealand firms and reducing the costs of raising that capital. This bill goes some way to addressing some of the difficulties that we are currently experiencing in the international financial crisis. It is related to the financial sector, due to the breakdown in credit rationing and credit market access for small to medium sized enterprises. The bill really goes to removing some of the barriers to raising capital whilst maintaining, importantly, the relevant information that is required by investors to be informed and to make rational decisions on their investments in companies.
So it is a balance: it is a balance between requiring disclosure of financial as well as company information to investors, whilst also recognising that over-regulation of the finance sector will only lead to less desirable outcomes for our investments. Across the OECD, Governments are working with financial regulators to shore up some of the financial institutions. We have seen recent reductions by the Reserve Bank of New Zealand to the official cash rate so that businesses are able to access capital more cheaply.
The bill really looks at the simplified disclosure prospectus, and it is to be used by listed issuers, who are already subject to what we call the continuous disclosure requirements. Those issuers would otherwise be required to produce a separate disclosure document for each offering. But this new type of prospectus, the simplified disclosure prospectus, really aims to reduce the red tape. The committee had the benefit of assessing one such document, which came to 22 pages in length, compared with the documents in excess of 100 pages that are regularly produced in terms of prospectuses for large companies raising capital. So the Securities Disclosure and Financial Advisers Amendment Bill aims to bring about a reduction in red tape.
Many of the submitters noted that the devil will be in the detail, and that the short-form prospectuses that I have referred to need to be made available. The regulations that will dictate the type of information to be disclosed within those particular documents will need to be readily available for market participants to fully understand and be informed as to the requirements going forward.
As the Hon David Parker has referred to, the Securities Commission will monitor and enforce compliance of the simplified disclosure prospectus—or SDP—regime, once it is introduced. However, a submission from various parties did say that a dual role for regulatory supervision was desirable. The role of the Securities Commission will be particularly important going forward.
A number of firms made submissions to our select committee. They ranged through legal firms, financial advisers firms, and various governing professional bodies that are particularly interested in this bill. The three areas that the bill addresses relate to the simplified disclosure prospectus; the Securities Act 1978, in relation to categories of
persons who are exempt from those particular disclosure requirements for offers of securities under the relevant Act; and the Financial Advisers Act 2008, through the correction to minor errors that were made during that process. The primary objective is to enable firms to have cost-effective access to capital whilst ensuring that investors continue to receive accurate and timely information.
Let us look at those three particular changes that the honourable Minister referred to. The first change is to omit from the bill new section 3(2)(c)(i), in order to allow offers of subsequent securities to the initial $500,000 to be for different types of security, rather than limiting it to securities where “the rights, privileges, limitations, and conditions attached … are identical to those attached to the initial securities;”. A number of submissions were made in this area. Concerns were expressed by various parties that a debt security, for example, that differed markedly from an initial public offering of equity securities could be deemed to be sufficiently different that the terms and conditions of that subsequent security would require a full new prospectus.
Many on the committee understood these concerns and accepted the concerns of the various parties, but we deemed that in order to fast track some of the raising of security, the continuous disclosure provisions of the regime would be sufficient to cover a lot of the disclosure of information.
Secondly, we deemed that extending the provision in section 3(2) of the Securities Act to allow offers of subsequent securities to an initial $500,000 to be made within 18 months of that first allotment was particularly critical because the reporting cycle of companies is typically 12 months. If that period were shorter, there would be deemed to be compliance costs, and interim accounts would have to be produced for the company raising those securities.
Finally, there were a number of technical amendments to Part 2 of the Act, which the honourable Minister referred to in his presentation. In conclusion, I say that this legislation is part of our response to the global financial crisis. This is just one step in a range of measures being taken by our Government. The bill is really to balance the investor confidence in the market by allowing for companies to raise capital effectively and efficiently, whilst accepting that individual investors as well as sophisticated investors need to access timely and relevant information in that process.
CHARLES CHAUVEL (Labour)
: It is a pleasure to follow the previous speakers, including the deputy chair of the Commerce Committee. I am a member of the committee, but have not had a chance to attend it yet because of the Emissions Trading Scheme Review Committee meetings conflicting with the meeting dates of that particular committee. I must say that, for all sorts of reasons, I am looking forward to the conclusion of that process and rejoining the Commerce Committee.
As my colleague David Parker indicated, Labour supports this bill. Its purpose is to amend both the Securities Act 1978 and the Financial Advisers Act 2008. Right up front I will say just a word about the amendments to the Financial Advisers Act. I see that there are members of the Finance and Expenditure Committee from the last Parliament in the House this evening. They will remember that the Financial Advisers Act 2008 was a piece of legislation on which submissions were heard by that committee last year, and Parliament managed to pass it through all its stages prior to the last election. I think it is fair to say there was broad support for that Act, as well as for the suite of measures of which it formed part. There will be members in the House who remember also the Financial Service Providers (Registration and Dispute Resolution) Act and the Reserve Bank of New Zealand Amendment Act 2008, which extended the prudential supervision regime of the Reserve Bank to non-bank deposit takers.
Listeners might be wondering why legislation passed so recently by this Parliament requires amendment. A couple of technical amendments are required to be made to the
Financial Advisers Act. As the report of the committee records, the amendments were of a minor, technical nature that really does not cause any difficulties. I think, probably, the first thing to say is that there should not be a concern about amending those minor technical errors. It is pleasing to see that the House is addressing them in a good-natured way.
Overall, the bill responds to the international financial crisis, which we are all currently doing our best to cope with, by removing unnecessary impediments to capital raising but, at the same time, ensuring the timely disclosure of relevant information to prospective investors. It also makes a number of minor tidying-up changes, as I have said, to the Financial Advisers Act. As I have indicated, the bill is to be seen in the context of the Financial Advisers Act, the Financial Service Providers (Registration and Dispute Resolution) Act, and the Reserve Bank of New Zealand Amendment Act. All of this legislation is designed to tighten the oversight regime for financial institutions in New Zealand, which for far too long was a Wild West regime, and which for far too long did not do good things for this country’s reputation as a safe place in which to invest money.
It is intended that the bill will be divided into two separate pieces of legislation at the Committee of the whole House: the Securities Disclosure Amendment Bill and the Financial Advisers Amendment Bill. Part 1 will amend the Securities Act by providing three main things. First, simplified disclosure prospectuses instead of investment statements will be sent to investors. We heard David Parker speaking on this earlier. That will be a good way to reduce the legislative burden and the duplication of requirements that currently exist. It will also provide for all prospectus amendments to be sent to investors before subscription, and it will provide for additional Securities Commission powers to ensure that these prospectuses are used only by appropriate advisers, and that potential investors will have sufficient time to consider advisers’ information before subscribing. I have said before that members on this side of the House support the legislation, because, basically, the proposals arise out of the outcome of recommendations made by the Capital Market Development Taskforce in November 2008. The taskforce was set up by my colleague Lianne Dalziel in July 2008.
Labour launched that task force to identify ways to improve access to capital. Probably all members in this House know that the need to be able to access capital in appropriate ways that are not at a ruinous cost is a perennial problem for New Zealand business. That is one of the major motivating features, of course, behind the setting up of the KiwiSaver scheme, which was an attempt to broaden and deepen the amount of capital that is available onshore. It is one of the reasons why it is essential to retain in public ownership the State-owned enterprises and the great capital accounts of the Government. The task force provided some other ideas on that matter.
The main proposal in the bill is to provide for the use and regulation of a simplified disclosure prospectus by stock exchange - listed issuers offering certain debt and equity securities. The proposed requirements do not reduce the amount of information required to be disclosed in total. They simply remove the duplication requirements of information already provided under the continuous disclosure requirements that apply particularly to listed companies. Similar recommendations were consulted on in the review of financial products and providers, and this is included in the current review of the Securities Act. It also tidies up the rules for exempt persons and people deemed by the Act not to be members of the public for the purposes of disclosure. As I said, there are some minor amendments to the Financial Advisers Act that are purely technical.
I would just like to speak for a moment or two on the Capital Market Development Taskforce, because, as I have said, adequate amounts of capital is one of the continual bugbears of New Zealand businesses that need to access capital at reasonable cost. I
have mentioned some strategies that were put in place by the previous Government to try to address that problem. Let us remember another one, and thank goodness for the decision to support the existence of an independent New Zealand stock exchange. I think if we look back now at the prospects for this country had there been a merger of the Australian Stock Exchange and the New Zealand Exchange, we would see a much less vibrant and much less interesting business community onshore.
The Capital Market Development Taskforce had some other ideas about how to deal with that perennial problem of cost and shortage of capital in New Zealand. The task force was set up to identify some of the key constraints and key opportunities for the development of New Zealand’s financial system, to identify and debate options to improve the performance of the financial system, and to develop a blueprint for the development of New Zealand’s financial system. Originally a year was given to the task force to produce its specific outputs, but because of the global financial situation it produced an interim report in November 2008. That report outlined a package of proposals designed to boost access to capital for New Zealand businesses and reduce the cost of raising capital. Rob Cameron, who was the chairperson of the task force, noted in the interim report that in response to the financial crisis, access to capital would be a key issue in the survival of many businesses. Indeed, a number of members of Parliament who met with Mark Weldon on Thursday night had the truth of that observation, made back in November last year, confirmed to them, with the experience of the past 6 months of weathering this crisis, as to how far-sighted the recommendations of the task force were. In the time available I will not seek to run through the recommendations of the task force. I simply note that many of them are embodied in the provisions of the legislation.
As I have said, this bill furthers the strengthening of the New Zealand financial system, a task that was taken up in earnest by the Hon Michael Cullen and the Hon Lianne Dalziel in the term of the last Government. It is pleasing to see this legislation being carried forward. It is a good bill. Labour will support it, and I commend it to the House.
JO GOODHEW (National—Rangitata)
: I rise today to speak in the second reading of the Securities Disclosure and Financial Advisers Amendment Bill. I do so with the benefit of having sat on the Commerce Committee as the bill was examined. The Securities Disclosure and Financial Advisers Amendment Bill responds to the current international financial crisis by removing unnecessary impediments to raising capital while ensuring the timely disclosure of relevant information to prospective investors. We—that is, New Zealand—are a capital-deficient nation. Therefore, it is particularly important that bills such as this are both safely and speedily progressed through the House.
We bring this bill to the House in the knowledge that there were 19 submissions to the select committee. We heard from six interested parties who wanted to discuss further with the committee aspects of the bill. I can say that the recommendations for amendments that we bring to the House show that the select committee process was a robust one, and also a necessary one, because the bill is in a better state now than it was when it came to the committee. I note that we gave quite a short period of time for submissions to come to the committee, and we acknowledge those who did submit, and the fact that they had to do so with quite short notice.
To begin with, I would like to reiterate the principal objectives of the bill. Firstly, the bill provides for the use and regulation of a simplified disclosure prospectus. Members of the select committee were interested in what a simplified disclosure prospectus might look like, and we were given an example that was some 50 pages long. At that stage we wondered just how simplified “simplified” was, but, in reality, when we compared it
with an ordinary prospectus, which in that case would have been 300 pages long, we could see that there was significant simplification of what would be offered to the potential investor. This new type of prospectus would, in connection with regulations to be made under existing regulation-making powers, allow stock exchange - listed issuers to offer certain debt and equity securities, but without duplicating information they had already publicly disclosed under their continuous disclosure obligations.
It would be fair to say that New Zealanders who have suffered losses through finance companies and through loss of property value, and those who are relying on Government guarantees, are often lost in the technical terms and minefield of the finance sector. What we want to achieve with this bill is a balancing act between giving investors the opportunity to have the information they need without additional cost arising from considerable amounts of information being duplicated.
Part 2 amends the Financial Advisers Act 2008 to correct an error in the Royal assent version of the Act, and to make a number of other, but very minor, amendments.
Again, what we see tonight, as we go through the second reading of this bill, is an example of a National-led Government’s dedication to the principle of helping businesses to do business. It would be fair to say that we have drawn on work that was undertaken by the previous Government, but this National-led Government is totally committed to putting through this Parliament initiatives that will help businesses to do business. A key objective, as I have already said, was the balance between the cost of doing business versus security and adequacy of information for the investor.
Finance company failures have undermined confidence in the finance sector, and this, added to the current international finance crisis, has resulted in quite understandable unease amongst investors. Each and every week members of this Parliament have representations from business people who come to their offices. They are experiencing difficulties in accessing capital. In my own electorate, those businesses are often the young—in other words, still largely in development mode—businesses. They are hardest hit by this credit tightening.
This bill was spawned by the Capital Market Development Taskforce interim report, which was released in November last year. I again acknowledge the work of the previous Government, and, in particular, the current select committee chair, the Hon Lianne Dalziel. Recommendations made in that report included how securities law could be improved to increase the availability of capital and to reduce the compliance costs of raising capital. This bill is about responding to the global financial crisis and the need to raise capital in New Zealand, and ensuring not only disclosure of relevant information to prospective investors but also timely disclosure of that information.
The committee recommended that exemptions from standard disclosure requirements for subsequent offers by persons who have made subscriptions of $500,000 be allowed to include offers for different types of security, rather than being limited to securities where the rights, privileges, limitations, and conditions attached are identical to those attached to the initial securities. Our committee concluded that it is unnecessary to restrict the securities to those identical to the initial securities. The proposed amendment recognises that an investor who has previously invested that much money—$500,000—in one transaction prior to allotment does not need the protection of the Act.
We also recommended amending clause 5 to extend section 3(2)(a) of the Securities Act in order to allow offers subsequent to the initial $500,000 to be made within 18 months of the first allotment. There was debate around whether 12 months or 18 months was an appropriate period of time. The decision made by the committee was that 18 months was a better time because in reality it would allow the issuer enough time to complete a full annual reporting cycle and to decide whether additional capital needed to be raised.
The committee also suggested that the Securities Act be amended so that a person who is experienced in investing money will be required to acknowledge that, as an experienced investor, he or she will not receive disclosures typically required in relation to a public offering. The way I understood this during the committee deliberations was that it was something akin to—in terms of my own experience—informed consent; in other words, those investors knew exactly what they needed to know, they acknowledged that they did not need any more information, and they signed off, so to speak. In making the recommendation, the committee said that those investors had to acknowledge that they were not going to receive the information usually offered by the issuer.
The committee also considered and recommended further amendments to the Financial Advisers Act that are designed to remedy errors that have come to light since the bill was introduced. Those issues were, as I have said, of a minor, technical nature, but they were important to ensure that that legislation works as intended.
We recommended changes to remedy an oversight in the Financial Service Providers (Registration and Dispute Resolution) Act 2008 that potentially exempted some financial advisers from registration. We also recommended changes to clarify—and this was rather interesting for me with my interest in the aged-care sector—that information contained in a disclosure statement required to be produced under the Retirement Villages Act 2003 is not financial advice. We also recommended that there was a need to clarify the disclosure obligations and potential liability that apply to financial advisers operating as part of a qualifying financial entity. These amendments are consistent with policy decisions on the Financial Advisers Act, so their inclusion in the bill will be supported.
Overall, as I have mentioned, there were 19 submissions on this bill—given at short notice, I might add. In the main, they were in favour of the simplified disclosure regime. We had the opportunity to discuss the bill with six of the submitters. Some submitters stated that they did not think the Government had gone far enough with regard to the bill, but the bill has been swiftly prepared in response to the current credit crisis, and it should be considered in the context of a more comprehensive review of the Securities Act. The select committee often discussed that, because there was concern about the bill not going far enough. But the Minister of Commerce has instructed officials to carry out that comprehensive review of the Securities Act.
Indeed, this bill is yet more evidence of the Government’s commitment to helping New Zealand through the recession. The amendments made by the Commerce Committee will help the bill achieve its objective of facilitating access to capital for New Zealand. This bill is part of the Government’s commitment, and the Government acknowledges that, as well as bringing this important bill to the House, this work must be ongoing.
CLARE CURRAN (Labour—Dunedin South)
: I rise in support of the Securities Disclosure and Financial Advisers Amendment Bill in its second reading. Labour will be supporting this bill. As mentioned, the bill will amend the Securities Act 1978 and the Financial Advisers Act 2008, and was considered by the Commerce Committee.
The main proposal of the bill is to provide for the use and regulation of a simplified disclosure prospectus by stock exchange - listed issuers offering certain debt and equity securities. The bill is intended to respond to the current international financial crisis by removing unnecessary obstacles to raising capital, while ensuring the disclosure of relevant information to investors—both very important aims. It is intended that this bill be divided into two parts at the Committee stage. The bill provides for simplified disclosure prospectuses to be sent to investors instead of an investment statement, for all prospectus amendments to be sent to investors before subscription, and for additional
Securities Commission powers to ensure these prospectuses are used only by appropriate issuers. Part 2 will amend the Financial Advisers Act by correcting an error in the assent version and making other minor amendments.
The bill was dealt with at the Commerce Committee, of which I am a member. I thank members for the time devoted to this bill, and I particularly thank and acknowledge my colleague the Hon Lianne Dalziel, who is the chair of that committee and whose expertise and knowledge has helped steer this bill to the House in a timely fashion.
I thank the people who gave their time to make submissions on this bill. In total, 19 submissions were received and six of them were heard by the Commerce Committee: I acknowledge Kensington Swan, NZX, the Capital Market Development Taskforce, the Institute of Chartered Accountants of New Zealand, the Property Council of New Zealand, and Lazelle for appearing before the committee.
The select committee considered and recommended amendments to the bill relating to offers of further securities to investors who have made subscriptions of $500,000 or more, and it recommended allowing subsequent offers, after an initial subscription of $500,000, to cover different types of security rather than limiting this to securities carrying identical rights, privileges, limitations, and conditions to the initial securities. It recommended amending clause 5 to allow offers subsequent to an initial $500,000 to be made within 18 months of the first allotment, rather than 12 months, as is currently the case. Importantly, this bill amends the Securities Act because it is unnecessary to restrict the securities offered to those identical to the initial securities, as the proposed amendment recognises that an investor who has previously invested $500,000 in one transaction prior to allotment does not need the protection of the Act. The bill, as it was, allowed people who had invested $500,000 in the past 12 months, where the rights, privileges, limitations, and conditions attached to the further securities are identical to those attached to the initial securities, to make incremental investments without the protection of the Act.
Experienced investors were also considered and amendments were recommended. We recommended amendments to clause 7 of the bill to allow a new subclause requiring experienced investors who are made an offer of a security to additionally sign written acknowledgment that they will not receive information usually provided by an issuer, particularly in investment statements and registered prospectuses.
- Sitting suspended from 6 p.m. to 7.30 p.m.
CLARE CURRAN: Wealthy investors were also considered in this bill, and, although members of the select committee did not oppose the specific amendment, some were concerned that changes were being made to the wealthy investor exemption when that exemption may be repealed as part of the review of the Securities Act, noting that the relevant Review of Financial Products and Providers discussion document described it as “the least principled of all of the exemptions.”
During the submission process the Commerce Committee noted some other issues where there were no amendments; it is important to touch on some of these. Streamlining the disclosure regime was one issue raised. No amendments were put forward in relation to this, but it is important to comment on it. The cornerstone of the disclosure regime for listed issuers is the obligation of continuous disclosure imposed by the Securities Markets Act 1988, in combination with stock exchange listing rules. This bill will not reduce the amount of information available to investors, but rather the duplication between two forms of disclosure. Weight was also given in the committee to the potential gap between all information that is material to new securities being issued, and that which is “material information”. Information that may be material to the issued
securities, but not to the securities already listed, could include information about the terms of the new securities, such as interest rates, conversion rights, reset rates, and pricing.
The select committee amendments to Part 2 of the bill, which amends the Financial Advisers Act 2008, were of a minor, technical nature. The committee recommended the insertion of clause 16A in the bill, which clarifies that the disclosure statements retirement villages must make under the Retirement Villages Act 2003 do not constitute financial advice for the purposes of the Financial Advisers Act. The Commerce Committee also recommended the insertion of new clause 16D and 16E in the bill to clarify liability and disclosure obligations. These obligations would apply to an employee of a qualifying entity when he or she provides advice about the products issued by that entity. The amendment corrects an oversight and aligns the liability and disclosure obligations that apply to an employee of a qualifying financial entity when advising on different financial products. The committee also recommended that these new clauses confirm that disclosure and conduct obligations of authorised financial advisers apply whether or not they are employed by, or are agents of, a qualifying financial entity.
Clause 19A was also inserted into the bill to remove an unintended conflict between the registration requirements under the Financial Advisers Act and the Financial Service Providers (Registration and Dispute Resolution) Act 2008. The result of the amendment is that employees of financial services providers would not be required to register and belong to a dispute resolution scheme unless the individual were required to register under the Financial Advisers Act. The proposed amendment preserves the status quo and aligns the two Acts.
As mentioned at the beginning, Labour will be supporting this bill. The bill responds to the current international financial crisis by removing unnecessary impediments to raising capital, while ensuring the timely disclosure of relevant information to prospective investors. The proposed requirements do not reduce the information required to be disclosed, but, rather, remove the duplication of information already provided under continuous disclosure. This bill tidies up the rules for exempt persons, and people deemed by the Act not to be members of the public for the purposes of disclosure. As a member of the Commerce Committee I support the amendments it has put forward, and I look forward to participating in the Committee of the whole House.
KEVIN HAGUE (Green)
: Some months ago the New Zealand public was treated to the image of a rolling maul—a rolling maul of initiatives from the Government to tackle the financial crisis that faced New Zealand, and, indeed, the world. It seems to me that it has been some months since we have heard that analogy being used. I guess that perhaps that is because it called to mind the suggestion that there was some kind of plan of attack. I think events have shown that that seems to be not the case, and that on the Government benches we are faced with a team that is out of ideas. Certainly in my speech notes I have written “All Blacks—Rugby World Cup 2003”, because that seems to be the kind of situation we are facing.
I think that a more apt analogy would perhaps be the idea of speed to the breakdown, because if we think about it, we realise that it requires a team to show an overall understanding of the game situation, and it requires capabilities of strength, speed, and vision in order to see the opportunity to score from the breakdown. The Government’s response to the crises that are besetting New Zealand suggests, instead, the lumbering loose forwards of yesteryear: not understanding the dimensions of the problem, lacking the strength to be able to respond to the problems with sufficient vigour, hopelessly off the pace, and lacking the vision to see this as an opportunity to make the big changes required to transform our economy.
It is possible to think about money and debt in the same picture. Most of the money supply is created by banks, and at the same time that they create money they create debt, so money and debt get transferred to a person. Of course, that creates an even balance sheet—it is double entry bookkeeping. In order for people to become wealthy from this situation, money and debt need to become de-linked. The speculative economy can be viewed as a mechanism for this de-linking. The money is siphoned away from ordinary New Zealanders and productive New Zealand businesses into the hands of a wealthy few, while the debt goes nowhere—it stays with those ordinary New Zealanders and decent businesses.
Some of the individual investment schemes we have seen in New Zealand over the past several years can be viewed as channels for exactly that mechanism. The process that we have witnessed in New Zealand, and indeed in other countries—and we think of Madoff and his Ponzi scheme—has involved a fundamental betrayal of trust. But from the point of view of the luminaries who ran some of the many finance companies and investment schemes, I guess they would say that one cannot make an omelette without breaking some eggs—or perhaps they might more honestly say that one cannot rort people out of their life savings without losing a bit of trust.
In the first reading debate on this bill I highlighted three issues. I said that the aims of the bill were indeed laudable—to secure easier access to capital for good businesses—but in order to rebuild trust and confidence, and thus enable good businesses to gain access to capital, we needed greater transparency and greater disclosure, not less, as this bill proposes. The second point that I raised in the first reading debate referred to the provisions for special, habitual investors, where even less disclosure is proposed. I said that the history of the past several years showed that these special, habitual investors in fact showed exactly the same mix of gullibility and greed as did anyone else. Indeed, poor decisions on the part of precisely that group of people have profoundly negative consequences for our economy and for all of us. The third main point I made in the first reading debate was that it was woefully inadequate for the Government to rely on research and consultation undertaken by the Ministry of Economic Development in 2006, as this bill does. In my notes today I have one word written next to this point, and that word is “Iceland”. In 2006, just to remind the House, I note that Iceland was considered by the IMF to be one of the wealthiest nations in the world.
Since the first reading debate on this bill, some greater detail has emerged around some of the practices of the finance companies that have failed. I will mention just a couple of them. First of all, there is the widespread rolling of defaulting loans into new loans. It is a win-win situation for lenders who want their books to look good for potential investors, and for those borrowers who are defaulting. But it is a losing one for the public and for potential investors, because the effect of that practice is to obscure the financial health of those companies and institutions. Sunlight is the best disinfectant.
I referred in that first reading speech to the example of Enron. Those of us who followed the debacle of Enron will have a sense of déjà vu when reading in the newspapers about the practice pursued by some of New Zealand’s finance companies of taking the defaulting loans on their balance sheet, selling them to another company days before balance date, and repurchasing them several days later. Precisely those kinds of shenanigans were indulged in by Enron, and there are many other shonky practices that these New Zealand companies engaged in. My point is that these companies were not just light or hazy on the disclosure of their financial health and the risks that were being taken by investors. They actively set out to deceive potential investors and to deceive the New Zealand public.
I am aware that there are still some miles go to in investigating what has occurred in the New Zealand financial sector, and I look forward to the further disclosure of that
history with some trepidation. In my first reading speech I indicated the Green Party’s commitment to hearing from New Zealanders who have been victims of this extraordinary scandal, and, of course, the people who stood behind those finance companies, owned them, and reaped the profits in the first place do not typically stand amongst those victims. I will offer in this House today the Green Party’s support for John Boscawen’s call for a proper inquiry into the collapse of these companies.
The select committee’s report on this bill calls, effectively, for a form of written consent from some of the special investors in relation to the fact that they will receive a lower level of disclosure than other investors. The obvious parallel is with the health care setting—a situation that I know well. Even in health care, we know that informed consent does not always occur. That is a situation where, typically, the health care provider or health care professional does not have an enormous incentive to secure the consent of the patient. The health care professions also have a long history of professional standards and, indeed, of ethics. That history and culture seems to be sadly lacking in the financial sector.
We have spoken many times of a Green New Deal. Although we have mainly concentrated on the need to tackle the financial crisis simultaneously with the environmental crisis, other aspects of the original New Deal also apply. The New Deal re-established and redefined the social contract between State and citizens. One of its tenets was the reform of the banking and financial sector. That is an aspect we require of the new Green New Deal. The Green Party, in this case, will continue to oppose this bill.
JOHN BOSCAWEN (ACT)
: It is a great privilege to speak in support of the Securities Disclosure and Financial Advisers Amendment Bill. Before I go further I will acknowledge the huge amount of work that has gone into this bill by colleagues on the Commerce Committee from Labour, National, and the Māori Party. I say that because I have not been involved in a great deal of the detail. The Commerce Committee meets on a Thursday morning from 9.30 a.m. to 1 p.m. During the course of starting deliberations on this bill, I was seconded by my leader to the Emissions Trading Scheme Review Committee, which meets at the same time. So I have not been able to spend nearly as much time at the Commerce Committee as I would like, and I am very conscious that we have heard speeches in the House this afternoon from people who have been more intimately involved in hearing submissions and debating. Nevertheless, I do want to speak on this bill.
The bill is designed to respond to the current international financial crisis by removing the unnecessary impediments to capital raising, while, at the same time, disclosing all relevant financial information. This bill was initiated by the previous Labour Government, and it comes out of the recommendations of the Capital Market Development Taskforce. One of the things this bill gives rise to is a simplified disclosure prospectus.
There have been a number of speeches on this bill during the course of the day, setting out in detail the provisions of the bill. I do not want to go into the details, other than to say that our economy—our future prosperity—depends on investment, on saving, and on raising our living standards. If we are to raise living standards, we need to have investment, savings, and a very efficient economy. We also need risk taking. It is very important to have a strong financial sector that rewards risk taking but acknowledges the risks associated with that.
A strong economy depends on investment in infrastructure, and I was very pleased to read that the National Government had announced today that it intends to proceed with the Mt Roskill to Waterview option—an option that it costed at $1 billion to $1.4 billion. It is infrastructure that will lead to a more productive and more efficient
economy with higher living standards. But it concerns me greatly that National still talks about the loss of some 400 homes; I have a scheme that would involve a surface route through that area, and it would involve the loss of fewer than 50 homes. I find it quite fascinating to hear Labour and National debating this issue in the media when there is a much simpler option. I call on Labour members to support my option. If they are truly concerned about the people of Mt Albert, they will support my option, which would provide an efficient connection from Mt Roskill through to Waterview.
One of the most important things we need to do to lift our economy is to raise confidence in our financial markets. We need to restore confidence. That is the No. 1 challenge our country faces if we are to get people to invest, and save money. Although a huge amount of money has been lost in finance companies over the last 2 to 3 years—in fact, some $5 billion to $6 billion is estimated to be tied up in moratoriums or losses—there is a need for a thriving financial sector. There is a need for successful and well-run finance companies, because they help fund the economy.
It was interesting to hear Kevin Hague acknowledge my call for an inquiry into finance company failures. I have been calling for this for the last 3 months. It has been frustrating, because wheels move very slowly in this place. The affairs and the discussions of the Commerce Committee are held in confidence, and as a member of that committee I am not able, as members will be well aware, to talk about some of the things we are discussing. However, I think it is safe to say—I think it is on record—that Lianne Dalziel has acknowledged that the select committee is considering an inquiry. I think I can say that, but I cannot go any further.
When I first raised the issue of an inquiry I was very concerned about what I thought was fraud or near fraud in a number of cases. I wanted to know how I could address that. I was repeatedly told that we have the Serious Fraud Office to deal with cases of fraud and that it is not the job of a politician. I was told by my leader, Rodney Hide, that if we are to have an inquiry, it has to have a parliamentary purpose. It has to look at lawmaking. I was not sure what would come out of that inquiry, but I was aware that some $5 million to $6 million had been lost, mainly by the elderly and, in large instances, by elderly people who had been misled.
I needed to try to help them. I did not know how I was going to help them, but I needed to try. In the last week it dawned on me how I can help them and how Parliament can help provide some support to those people who have lost so much money. It dawned on me that a number of finance companies have gone into moratoriums. A number of finance companies went to their shareholders, investors, and bondholders last year and said “Look, we have lost a lot of money, but we have a scheme of arrangement. We want you to support us, but we need you to agree to varied terms of repayment. You have an entitlement to appoint a receiver, but we do not want you to appoint a receiver; we want you to back us and the management that has previously lost so much money for you.” I think virtually every one of those moratoriums that were put to bondholders passed. It is a sad reflection on human psychology and behaviour that when faced with realising a loss and acknowledging that we have made a mistake and that our money is lost, we do not want to do it. In most cases those moratoriums were overwhelmingly supported.
I am very cynical about a number of the finance company managers. I say that, because I know some finance company managers. In fact, I know two people who have intimate knowledge of how one particular finance company was run, because they were associated with the borrowers. They were aware that when the directors of this particular finance company—I will not mention its name—took a moratorium proposal to its bondholders last year, the directors knew they could not meet the obligations they were making. In fact, that was part of their plan. Their plan was to go and get the
bondholders to take what they would call a “haircut”—to acknowledge the write-off of some of their money, and then to go back to those same bondholders a year later and say to them “I am sorry. Times are tough. Things have worked out a lot poorer than we thought they would. We have another proposal for you and we want you to write off some more of your money.” That was part of their plan.
Over the last week it has occurred to me that the one thing this Parliament can do to help these people is to pass a law that would require any company that wishes to vary the terms of its moratorium to first of all go to the court—to an independent officer, a judge—and to say to the judge “This is what has happened. This is our plan.”, and for that judge to order an independent inquiry. I say that, because I have here the moratorium document for one Hanover Finance. This moratorium was supported by some 93 percent of the bondholders by value, as I understand it. I will read sections to members. The document states: “Under the plans … Hanover Finance is aiming to fully repay …” That is very generous, is it not? I am aware that there were, I believe, two expert opinions on this report, and neither of those expert opinions was as optimistic as the directors.
The report talks about the shareholders of Hanover Finance agreeing to provide financial support of up to $96 million. A bondholder when faced with realising the loss of his or money might take some comfort from thinking that the shareholders were going to put up to another $96 million. When one reads the cold, hard print, one realises that that calculation is based on property valuations, and directors’ property values at that. The reality is that the directors of Hanover Finance could get away without putting in a single cent to that company. The first $10 million has to get paid into a solicitors’ trust company, and then that money is drawn down only if the bondholders do not get the first 8c in the dollar—a measly 8c in the dollar. When companies such as Hanover come back seeking to vary the moratorium—and it may not be Hanover but it will certainly be other companies, because it has already started—I would like to see this Government passing a law that states that we will make those companies go to the court, we will not allow the spin, we will not allow the company directors to employ a public relations company, and we will not allow them to produce documents that state “up to $96 million”. It would be far better off stating that the shareholders have received dividends of $84 million in the last 2 years. That would be a far more meaningful statement. Thank you.
RAYMOND HUO (Labour)
: I rise to support the Securities Disclosure Financial Advisers Amendment Bill at its second reading. The reasons for that can be summarised in one sentence. The introduction of a simplified disclosure regime is not to reduce the amount of information provided to investors but simply to reduce duplication between forms of disclosure. Therefore, the primary objective of the bill is to enable New Zealand businesses to have cost-effective access to capital while ensuring that investors continue to receive full, accurate, and timely disclosure of information. More accurately, the bill addresses three areas: firstly, the Securities Act 1978, to provide for a simplified disclosure prospectus that may be used by listed issuers who are subject to continuous disclosure requirements; secondly, the Securities Act 1978, in respect of the categories of persons who are exempt from the disclosure requirements for offers of securities under the Securities Act 1978; and, thirdly, the Financial Advisers Act 2008, through the correction of a minor error in the assented version of the Act, and a number of other minor, tidying-up amendments.
In the past weeks the Commerce Committee, of which I am a proud, temporary member, received 18 submissions from a variety of sectors. I am very grateful to our officials and parliamentary counsel for the great job they have done in putting together those valuable views. Generally, those submissions on the bill welcomed the
introduction of the simplified disclosure regime and supported the bill’s proposed amendments to the Securities Act that related to categories of persons who are exempt from the disclosure requirements for offers of securities under that Act.
Regarding the simplified disclosure prospectus, there is currently duplication of the information released by listed issuers under their continuous disclosure obligations, and the documents required at the time they make a securities offer. All public offerings, regardless of whether the issuer is listed on the registered securities exchange, such as the New Zealand Exchange, must comply with the disclosure and other requirements of the Securities Act 1978. In the case of an offering by an issuer who is already listed on a registered exchange, two disclosure regimes apply: the continuous disclosure requirements for listed companies, and the disclosure requirements for a public offering.
The proposal in this bill is for listed issuers to produce one disclosure document for a securities offering, instead of producing both a full prospectus and an investment statement. The intention of the simplified disclosure prospectus, as I mentioned at the very beginning of my speech, is not to reduce the amount of information provided to investors but simply to reduce duplication between forms of disclosure. In that respect, as many submitters rightly stated, the regime should and would promote effective disclosure to investors in a streamlined form.
At the committee meetings, members requested an example of what a simplified disclosure prospectus might look like. Consequently, an example of what it might look like for the recent bond issue for Auckland International Airport Ltd was prepared and presented. Although the simplified disclosure prospectus for an offer of fixed-rate bonds for the company was prepared purely for what the officials called illustrative purposes, I can say that it was very impressive. It was about 25 pages long—yes, only 25 pages long—compared with the 300-page length of the original investment statements and prospectus. This demonstrates the simplification that is possible through avoiding duplication of material, including material released under continuous disclosure. I agree with the officials that the effect could be even greater, as many other offers are likely to contain significantly more information than has been released under continuous disclosure.
The existing provisions for exemptions from standard disclosure requirements in the Securities Act will be amended in order to allow a single offer of securities to persons who are exempt from disclosure requirements under two different sections of the Securities Act, without requiring the issuer to prepare a full prospectus. This would correct the anomaly where issuers are able to take advantage of reduced disclosure requirements for an offer only to persons who qualified under one section but not to persons under both sections together.
My learned colleagues the Hon David Parker, Charles Chauvel, and Clare Curran covered this issue in detail in their speeches this afternoon and earlier this evening. I will follow the spirit of the bill and not repeat those points, to avoid, shall I say, duplication. But what is worth reiterating, and what I said in my speech during the bill’s first reading, is that this bill followed recommendations made by the Capital Market Development Taskforce in November 2008 for steps to respond to current financial conditions that are particularly relevant for listed issuers and also reflect the recommendations made by New Zealand Exchange. To introduce legislation such as this is very important, particularly at this time when New Zealand, along with the rest of the world, is in the midst of a financial crisis. The impact of the financial crisis on businesses and households will depend, in large part, on how we respond.
I conclude my contribution by asking the National Government where its real plan is. Thank you.
DAVID BENNETT (National—Hamilton East)
: It is my pleasure to follow that thrilling speech from Raymond Huo. We are talking about the Securities Disclosure and Financial Advisers Amendment Bill—
Darien Fenton: A great topic.
DAVID BENNETT: Yes, it is a great topic. Members of the Labour Party are sitting there, looking at us in awe of the ability of this National Government to deliver for the country and for business at a time when it is most needed. Those members had their opportunity and they failed to deliver. Now the National Government is actually delivering, and it is good to see.
It is important to think of this bill in the context of what is going on in the worldwide markets at the moment. We have something called a credit crunch, which means that basically there is a lack of credit out there for businesses. Businesses are finding it difficult to access the credit they need to keep their organisations and their enterprises going. That is the simple nub of what is happening out there. If we look at the business people who are coming to our constituency clinics, we see that their issue is availability of credit so that they can maintain their operations. It is a cyclical approach. Once credit is denied to one company, it is denied to the next company, and the next. Sales of products go down and down, because as one company shuts up shop, the next one shuts up shop, and the next one. That is the effect of the credit crunch.
The National Government has seen this and is delivering some solutions. This bill is one part of the solutions that can be made available to New Zealand businesses to help them get through the credit crunch. The overarching aim of the bill is to free up available capital for businesses in order to help businesses do business. That is what we are after. We want to see businesses continue to employ people, to produce products for New Zealand, and to build the GDP of this country. That is why we need legislation like this, which assists that process. We want to make sure that firms have cost-effective access to capital whilst ensuring that investors receive full, accurate, and timely disclosure of information.
New Zealand has grappled with the need for disclosure of information in a full, accurate, and timely manner for a number of years. New Zealand was seen as the Wild West of the financial markets in the late 1980s. That was basically in response to there not being the degree of control that operated in some other markets. I think that is partly why New Zealand felt the sharemarket crash of the mid-1980s a lot more than other countries did. We did not have the right system in place. The sharemarket was on such a big high that New Zealand was seen as the Wild West. A series of measures have been undertaken since that time to try to alleviate that problem and that perception, so that we are seen as a stronger market for investment, and also so that there is more protection through more information being made available to investors and businesses. That has been a long process, I guess, in the sense that we are still working on it now. This bill is part of that process in making sure that we have the best laws in operation to protect investors and businesses in a free market.
The recommendations in this bill were made by the Capital Market Development Taskforce. That task force looked at some of the issues involved in removing unnecessary impediments to raising capital while continuing to ensure that that relevant information was available to prospective investors. It had to deal with the double-edged sword of the financial markets in making sure that capital was available during a credit crunch, and also making sure that information was available to protect investors, so that we can move away from the Wild West perception. The two elements come together in this legislation, in the sense that we not only have to protect investors but also have to protect the market that those funds are being drawn from. This bill has a number of elements in it to do that.
The bill provides for simplified disclosure prospectuses. The simplified disclosure regime applies only to those securities offered that rank equally, and is preferential to the issuer’s existing securities. Essentially, the work around prospectuses is very important when one is looking at investing in something. A number of pieces of legislation have been passed since the Wild West days to try to make sure that prospectuses are more certain for investors, and to make sure that investors who want to invest in a company find that the prospectus gives them the comfort and degree of reliance that they would expect. A lot of the time, when people are investing they do not know the detail of the organisation or company, and they are relying on a prospectus in many cases. In the past, those prospectuses have been quite flashy documents, but sometimes they have not given the detail required. That was tightened up a number of years ago, but this bill brings it all together, in a sense; it tidies up the total legal framework that those prospectuses deal with and undertake to be part of. It is about giving information to investors—not hiding it—so that they can make the right decisions on the basis of prospectuses and the information available to them. It is not just about having glossy pictures for investors; they need some hard-core information, and that is why there are some requirements as to what information needs to be held in prospectuses.
This is all part of allowing businesses to grow and develop, because if businesses can attract capital and if there is a mechanism whereby there is safety for investors in being part of the process of investing so that businesses can have that capital to grow and develop, then we avoid a lot of the complications that we have had when companies go under, and we reduce the problem of the compliance costs that businesses have to incur in order to provide those prospectuses and information to assist them in raising capital. It is actually there to help ensure that businesses are not disadvantaged by red tape and bureaucracy. You know, we want to make sure that businesses can give as much information as they can, in a way that does not restrict their activities. This Government is putting business ahead of bureaucracy; we are making sure that we set up the rules and systems so that businesses can flourish and take advantage of what capital is out there, and also giving certainty to those investors who are putting up that capital, so that they will put up more capital and we get the investment that we need at this point in time, with the credit crunch.
Removing some of the barriers and excessive duplication will not only help growth but create and keep more jobs in the economy, and that is crucial at this time, because we need businesses to perform. There is no quick-fix solution, I guess, to these issues. They have been something we have worked on for many years now. It would be nice to think, given that over a period of 20 to 30 years we have been working on capital raising, prospectuses, and confidence in the market, that we could have done all of it in one hit and at an earlier time, but it has not happened in that way; there has been a series of adjustments to our law in this area, and this bill is the next part of that.
The bill amends two separate pieces of legislation: the Securities Act 1978 and the Financial Advisers Act 2008. By amending those two Acts we set out to create a more simplified system that people can understand, and to give that support to businesses and investors that they need.
The Commerce Committee made a number of recommendations. Its members recommended that certain exemptions for subscriptions up to a certain value be allowed, rather than their being limited to securities where the rights, privileges, limitations, and conditions attached are identical to those attached to the initial securities. There was some work around some financial thresholds that were put in place through this legislation, which gave the select committee the ability to make certain recommendations. There were also some recommendations around time frames. The 18-month time frame that has been mentioned by other speakers was something that the select committee looked into. It is a practical matter of looking into the way that these securities are offered, and the way that investment is made in these organisations and companies.
The committee also recommended changes to remedy an oversight in the Financial Service Providers (Registration and Dispute Resolution) Act of 2008.
NATHAN GUY (National—Ōtaki)
:
I wish to make a contribution on the second reading of the Securities Disclosure and Financial Advisers Amendment Bill. This is an important bill; it is the Government getting on with its business. Indeed, this bill has two parts, and two clauses covering the title and commencement. The important point of this bill is that it will free up capital, which will be very important for business and, in particular, corporate business, but it will flow through to small and medium businesses, as well. The important thing is to get our economy moving in a forward direction, and I guess this bill also covers things like the collapse of financial companies, as occurred last year. We have heard other speakers speak about that, and about the hardship it has caused right across New Zealand. It has affected all sorts of Kiwis, and right now those who are lucky enough to have some money in the bank are concerned about interest rates. Of course, that helps young couples as well, but I guess it is to the demise of people who may be lucky enough to have some money in the bank.
The other thing that is really important with this bill is that it will make changes around the way shares are issued. Currently, there are a whole lot of double-ups around the information that is provided when shares are offered. This amendment bill aims to reduce the inefficiencies of the reporting processes, leading ultimately to less bureaucracy and less time and money spent on reporting. There are some key definitions that I think are worth traversing in this second reading, including that around the prospectus, which is the financial bill of health. The other important area is the investment statement, which allows banks and companies to confer on exactly what the investment statement should include. That is for non-export investors as well. There is also information about disclosure, which is the process by which companies and banks give financial information to investors or, indeed, to the public.
This is the second reading of an important bill this evening, and most speakers across the House have concurred with the current situation in relation to the financial slow-down across most of the world—the credit crunch—and the difficulty a whole lot of people have in accessing capital, and accessing debt as well. It is interesting that banks are placing on businesses quite a bit of stress and strain concerning debt levels, as the cash flow of some businesses tends to be slowing up. Yet other businesses we speak to when going around the streets, as I do in my Ōtaki electorate, say to us “What recession?”. So it is wide and varied across the whole of New Zealand.
This bill will reduce compliance costs. Investors at all levels will be given information that is easy to understand, which is imperative. The bill is part of the Government’s response to the current economic climate, in order to help ease the credit crunch we find ourselves in. The amendments also cover businesses listed on the stock market, and unlisted businesses as well. The Government supports the second reading of this bill, and I commend it to the House.
STUART NASH (Labour)
:
I have heard a lot of rubbish about the Securities Disclosure and Finance Advisers Amendment Bill. David Bennett’s speech was—
Hon Darren Hughes: Stock standard.
STUART NASH: Well, it was actually rubbish—absolute rubbish.
Hon Member: It was outstanding.
STUART NASH: Yeah, sure!
There is no doubt about the fact that in the 1980s the New Zealand Stock Exchange was made up of a bunch of cowboys operating in an unregulated environment, and we were viewed in a very, very poor light overseas. That was tidied up, but we must remember how it was. David Bennett talked about glossy pictures and prospectuses. The reason why a lot of those companies offered dodgy prospectuses was that they did not undertake to comply with securities regulations. Our securities regulations were actually very, very good. But this bill allows some companies, if they comply with a certain set of criteria under securities regulations, to issue prospectuses that do not require the level of detail that was required before. That is all I have to say on that.
I want to take a moment to make a statement about what happened in Napier. As a Napier-based member of Parliament, I would like to say that I endorse everything that every political leader and Mr Tremain have said about Senior Constable Len Snee. He was a police officer in Napier for 33 years. He was a community constable and a very highly regarded man, as a member of Napier’s community as well as a policeman. Our thoughts go out to his family, to his children, and to all the police in Napier, who do an absolutely fine job. I would also like to say that the civil defence organisation in Napier was absolutely first-class.
Another thing I would say is that Napier has been in the press recently for the wrong reasons. Napier is a fantastic place; it has wonderful citizens. Its wine is the best in the country. It has the highest sunshine hours of any place in the country. It has art deco. Napier is about the art deco festival in February, when people dress in 1930s livery, have fun, and enjoy the sunshine, each other’s company, and opportunities for tourism. Napier is not about the violence that we have seen in the paper and on the television screens. Once again, I pass on my condolences to Len Snee’s family. It is a dreadful circumstance, but it is not what Napier is about. Thank you very much.
A party vote was called for on the question,
That the Securities Disclosure and Financial Advisers Amendment Bill be now read a second time.
| Ayes
112 |
New Zealand National 58; New Zealand Labour 42; ACT New Zealand 5; Māori Party 5; Progressive 1; United Future 1. |
| Noes
9 |
Green Party 9. |
| Bill read a second time. |
