Hon SIMON POWER (Minister of Commerce) Link to this
I move, That the Financial Markets Authority Bill, the Securities Amendment Bill (No 3), the Securities Markets Amendment Bill (No 2), the KiwiSaver Amendment Bill, the Financial Advisers Amendment Bill (No 3), and the Securities Trustees and Statutory Supervisors Bill be now read a third time. The passing of these bills marks the completion of a significant part of the Government’s programme of reform of New Zealand’s financial markets, and I would like to take the opportunity to comment on the most important changes made by these bills.
The Financial Markets Authority Bill establishes the new Financial Markets Authority, which will replace the Securities Commission and take on responsibilities of the Government Actuary and some of the regulatory roles of the Registrar of Companies. The main objective of the Financial Markets Authority is to promote and facilitate the development of fair, efficient, and transparent financial markets. The Financial Markets Authority will act as the single market conduct regulator for New Zealand’s financial markets, introducing a culture of visible, proactive, and timely enforcement. An important regulatory tool that the authority will have is the power to exercise a person’s right of action where this is in the public interest.
Amongst other things, this will enable the Financial Markets Authority to take action in order to pursue directors for breaches of their duties under the Companies Act 1993. I look forward to working with the authority’s inaugural board, whose members I announced earlier this week. They bring exactly the right mix of expertise and governance experience to the authority.
The Securities Trustees and Statutory Supervisors Bill implements a licensing regime for trustees and statutory supervisors of issuers and, importantly, retirement villages. The new regime will require trustees and statutory supervisors to be capable and to perform their functions effectively. It will also enable the authority to hold them accountable for any failure to act in accordance with their obligations. During the Committee stage, specific commencement dates were inserted into the bills to the effect that the Financial Markets Authority will be established on 1 May 2011, and the new trustees and statutory supervisors regime will come into force on 1 October 2011. I am pleased that these urgent pieces of work will be in force in a timely manner.
I would like to take this opportunity to thank the members of the Financial Markets Authority establishment board—in particular, the chairman, Simon Botherway, and also Paula Rebstock, Bruce Sheppard, Shelley Cave, Andrew Harmos, Frank McLaughlin, Scott St John, Mariette van Ryn, and Neville Harris, who have been working on the operational establishment of the authority. They have done an outstanding job and have ensured that the new authority will be up and running nearly a year to the day after I publically announced that the Government was going to set up a new financial market conduct regulator.
I would also like to thank officials for their extremely hard work in what could be considered short time frames, and, of course, the Parliamentary Counsel Office for its hard work on these bills. I would also like to acknowledge the contributions of financial markets participants who provided comments on the bills. These bills constitute essential steps in restoring investor confidence in New Zealand’s financial markets. A major focus of this Government has been to ensure we are putting in place a regulatory framework that will give investors confidence in our markets. These bills represent significant achievements in that regard. I am very proud to commend these bills to the House.
Hon DAVID PARKER (Labour) Link to this
The Labour Party supports these bills. I accept what the Minister of Commerce says, which is that this suite of bills is probably the largest work programme that the Government has had running, and I congratulate the Minister on that.
It causes me to reflect, though, that at a time when New Zealand is in an economic malaise, and when the promises on which the Government was elected—closing the wage gap with Australia, causing a step change in the New Zealand economy, and leading us towards a bright future—are not being met, the largest work programme that the Government can show after 2½ years, going on 3 years, relates to the regulation of financial markets. I think it perhaps highlights the fact that the Government has lacked an overall credible plan for the development of the New Zealand economy.
I am not denying the importance of financial markets, and I am not denying the need to tidy up the regulation of financial markets, particularly given the failures of finance companies. Those finance companies were, effectively, allowed to get away with poor practice for too long, and they caused innocent investors to make unwise investment decisions, in part because investors were not properly informed about the risks they were taking, and in part because there was insufficient regulatory oversight of poor practice and of related party transactions for the benefit of some of the owners of those finance companies. There were a number of other misdeeds, including, I am sad to say, those by people who had prior form in earlier incarnations. The regulators should have had an eye on them. So there is no denying that there was a need for regulatory reform, but the more pressing issues that face the economy are how to grow it.
Although I am happy with most of the detail of these particular instruments to improve the regulation of our financial market, I have no confidence that they will make a material difference to the growth in the New Zealand economy. It does not make much difference to the growth in new exports that our country so desperately needs. It does not produce many more jobs. There might be the occasional extra job in the Government service, but that is hardly the sort of outcome that the Government has said it wanted to be judged upon.
I think the fact that we are considering this large suite of bills, described by the Minister as being one of the largest work programmes of the Government, just highlights the fact that the Government has not really had a credible plan in respect of the problems that the economy faces more generally.
I know that the Government has had some problems as a consequence of the Christchurch earthquake, and those problems are not the Government’s fault. But it is not right to say that those problems arising from the Christchurch earthquake are the underlying source of most of the problems that the Government faces. Those problems are of the Government’s own making. The fact that those problems are not getting better in the way that was promised and are not getting better relative to how other countries, like the United States and the United Kingdom, are performing proves the point, I think, that the Opposition has been making: the Government does not have a credible plan.
While we are talking about major things the Government has done, the other big thing the Government says it has done, in its view, is to make changes to the tax system. Those changes to the tax system, stripped bare, have not really done much. The change to GST from income tax for low and middle income people is still effectively a tax upon their labour. They earn their money through their wages and salaries, and they have to spend it when they go to the grocery store, when they pay their mortgage or rent, or when they buy clothes. GST is effectively a tax upon their earnings—a tax upon their labour.
The only people for whom this switch from income tax to GST makes a substantial difference are the very high-income people, who received a big income tax cut and do not pay as much extra GST as they received in their income tax cuts. Rather than it being a tax switch across the board, it has been only a change from a tax upon income to a tax upon consumption for the very highest earners, in a material way. They, of course, received more in income tax cuts than they will incur in extra GST costs. Stripped bare, the effect of the tax changes by the National Government was to increase the proportion of tax paid by low and middle income people, and decrease the proportion of total tax paid by higher-income groups.
Again, this brings us back to the theme that I was developing earlier. In terms of economic plans, the Government’s plan has been too narrow. It has a focus on income tax cuts, rather than on a broader suite of measures that are needed to grow the economy. That is one of the things that the Labour Party says is different about our polices compared with National’s policies. We see that economic policy is broader than tax policy.
There has been a real failure of leadership in respect of savings. I can see Sir Roger Douglas in the House. He was a leader on New Zealand’s savings policy, going back to the Kirk years. He knows that New Zealand needs deeper capital markets to improve the productivity of our output. Financial markets actually touch upon that, so I concede to the Minister that these instruments, to the extent that they improve public confidence in capital markets, make a small difference to the depth of our capital markets. But it is not nearly as big a change to the depth of capital markets as a decent savings policy would make.
Of course, the Government criticises the previous Labour Government for overseeing an increase in private debt. At a time when private debt was rising around the Western World, New Zealand was not immune from that affliction. Labour, when in Government, pushed against that increase in three ways: we contributed to long-term public savings, through what is colloquially called the Cullen fund, to save for future superannuation and to make that sustainable; we ran surpluses, every one of which was opposed by National, now in Government, which said that we should have had tax cuts, but that would have further fuelled property bubbles and private debt levels; and we introduced KiwiSaver, which, of course, National undermined as soon as it came into office.
I find it surprising that in respect of this absence of adequate political leadership on economic matters, the Government is now saying the focus of this year’s Budget will be to improve savings and investment in New Zealand, when for the first 2 years the Government virtually ignored it. It belatedly set up an advisory group, despite the fact that National had 9 years in Opposition to plan decent policy around savings. After 2 years in Government it found that it was being criticised for its absence of vision when it came to adequacy of capital markets in New Zealand and thin savings, compared with Australia, and belatedly set up an advisory group to tell it some of the things it might consider.
The Government took a lot of the things that needed to be considered off the agenda and effectively forced the committee to work with one hand tied behind its back, so it is not as fulsome or as balanced a report as it might have been. Again it shows that the Government has been bereft of an adequate vision; we see this reflected in the fact that the unemployment rate is vastly higher than what it inherited, the gap with Australian wages continues to grow ever larger, and the promised step change in the economy has yet to occur. In fact, if we were not in a double-dip recession now, we would be close to that reality, particularly given that some of the more negative records were in an office in Christchurch that Statistics New Zealand could not access.
Although these bills will be favoured by Labour, we said yesterday that, in respect of some of the securities changes, we would have preferred to see the legislation’s third reading delayed. We think there is an argument that we need to wait on one of the other documents that the ministry is working on, upon which we expect public comment. Although it was necessary to improve the regulation of finance companies and the like, we are at risk of over-regulating private capital raising by small corporates that are trying to raise money for expansion. For example, an innovative firm that wants to embark upon exports ought not to be prevented from effectively accessing retail equity markets for equity investments into their companies by rules and regulations that are overly prescriptive and overly expensive to comply with, relating to prospectuses and the accounting rules that apply under them.
In terms of further work that needs to be done, I have a view that the financial accounting standards and reporting standards have become far too complex in New Zealand. They have become so complex that most people, even if they are experienced business people, cannot understand them. They need professional advice to properly read them, or need an hour or two to read what ought to be digested in half an hour. That needs to be fixed.
Well, that is good, because I am a little tired of some of the accounting fraternity saying that we must have lower compliance costs, when they are the cause of a greater increase in compliance costs in respect of accounting standards and audit rules than is the case for many other sectors of compliance costs.
I would like to see some progress made in that area because it is absolutely fundamental to the growth of those new export sectors. I am not talking so much about the expansion of existing sectors like the agricultural sector, important though those are; I am worried that New Zealand has an unnecessary hindrance upon the ability of small innovative businesses to grow, as they try to expand into export markets, through the compliance costs and impediments put upon their capital raisings when they are trying to raise funds for their next stage of expansion.
I think most New Zealanders would rather go back to a period where we had some rather simple descriptions of the risks that they were facing when they made those sorts of investments. The most they can lose is the amount of their investment, obviously. They need a fair description of the risks that are set out for them; more often than not, the financial projections of those high-risk early venture companies are effectively bereft of detail anyway because they are so high-risk that investors do not really know what they will be able to achieve. If people are willing to invest upon that basis—and I know that people are, on occasions, willing to support those nascent enterprises—then we should be helping that happen rather than putting too many roadblocks in the way. We cannot avoid all risk for people; as long as risk is appropriately described, we ought not to overlay that with lots of mumbo-jumbo, as we currently do.
I was shown recently by a mentor of mine a prospectus for the floating of Radio Otago, which eventually became a very big public company. It was effectively a 5-page document that described what was proposed and what the risks were. The financial projections were very, very simple and could be understood by people. We know that the complexity of some of the rules relating to financial disclosures were both incomprehensible for people and did not protect us from the greed and the poor behaviour of the big financial institutions, who were the cause of most of the problems anyway. The little person trying to raise half a million dollars to expand a small company has not been the cause of the big losses in the international arena; it has actually been complex derivative transactions that have been promulgated by the biggest banks and insurance companies in the world.
Although these bills are supported by the Opposition in respect of some of the securities changes, as we said, we would have preferred them to be put on the back-burner for a little while in order to wait for this other discussion document to be commented upon. But we congratulate the Minister on a lot of hard work. I know that the members of the Commerce Committee—I was in it only at the end so I am not claiming credit for this—put in a lot of work. Submitters included the professional societies of the accountants and the Law Society. They put a lot of work into their submissions to help the country have better legislation. I think in the end we have got to a reasonable result, for which everyone can take a bit of credit. Labour supports these bills.
PESETA SAM LOTU-IIGA (National—Maungakiekie) Link to this
I also rise to support these amendment bills and, in particular, the Financial Markets Authority Bill, the KiwiSaver Amendment Bill, and the Securities Trustees and Statutory Supervisors Bill. Unlike the previous speaker, my learned colleague Mr Parker, I believe these bills will make a difference. They will make a difference to the confidence and trust in our financial markets and in our capital markets. This is about restoring some of the confidence in our capital markets that has been knocked out of investors—both mum and dad investors, as well as institutional investors—because of the finance company failures that we have seen in recent years.
When we talk to businesses in the electorates, particularly in my electorate of Maungakiekie, we hear that it is about accessing capital. It is about the exchange rate and the costs of production. This legislation, with its focus on bringing together the powers of regulating capital markets and financial markets, will make a difference to our capital markets. It will boost economic growth and create jobs, and it will provide for a stronger economy through strong and robust financial markets.
As has already been stated by the Minister of Commerce, the bill makes changes to the functions, duties, and powers of the regulating body. I want to acknowledge at this point the work of my colleagues on the Commerce Committee. There was quite a bit of work. We seem to have worked on securities legislation over the whole 2½ years we have been in Parliament. But it has been rewarding. With the work of the stakeholders of the industry, particularly the professional bodies that came in to submit, and with the hard work put in by the officials, I think we now have pretty good legislation here.
This legislation is about ensuring that the new Financial Markets Authority has the right tools. One tool I want to talk about in particular, just briefly, is the power for the Financial Markets Authority to exercise the person’s right of action. We have seen, through the finance company failures, that the rights of individuals to take on companies that have failed, the directors of those companies, and the promoters of those companies has been quite limited. Investing in the regulatory body the power to exercise not just the right of the individual but the rights of companies to take actions in these instances is a positive move, and is one that has been embraced by a number of bodies throughout the industry.
I will also touch on the part of the legislation dealing with securities trustees and statutory supervisors. It is about granting licence applications and receiving mandatory reports from licensed trustees and statutory supervisors. There is a degree of accountability and a degree of transparency from those who have been given the responsibility of oversight of the issuance of securities, through the securities legislation. This is positive legislation, and it has received widespread support throughout this Parliament. On that note I commend it to the House.
CHARLES CHAUVEL (Labour) Link to this
I will say a few words on the third readings of these bills. First of all, really, I echo the comments made by my friend and colleague David Parker, who found it somewhat ironic that, notwithstanding the difficult economic conditions the country finds itself in, we are now, in the words of the Minister of Commerce, nearing the conclusion of the Government’s largest package of economic measures to be passed in this Parliament. It is telling that those measures relate to the regulation of financial markets rather than to the stimulation of the economy—a real missed opportunity, as far as current circumstances are concerned, by this Government.
Notwithstanding those words, it is worthwhile recounting the history of these measures. The programme of reform that the Minister is now starting to bring to a close was begun, obviously, under the previous Government, and I think it is important that people understand that this series of reforms, which is supported on this side of the House, is supported because it does represent important institutional reform that we began.
When the last Government was in office there was a recognition of the need to strengthen regulation in this area. A number of the measures that were taken at that time included making regulations that gave trustee companies robust powers to supervise finance companies on behalf of investors; allowing criminal prosecutions against finance companies that had misled investors to be funded from the Securities Commission’s litigation fund; making the Reserve Bank the prudential regulator for non-bank deposit takers, and finance companies are the classic example of those sorts of entities; regulating financial advisers and financial service providers; commencing in 2004-05 reviews of financial products and providers and financial intermediaries to improve the regulation of non-bank financial institutions, financial products, and financial advisers; amending the Securities Act to strengthen rules on insider trading and market manipulation; and passing securities markets legislation, which introduced a co-regulatory framework for supervising registered exchanges. That was the beginning of much of this work. The Minister deserves credit, as I said earlier, for bringing a significant part of the continuation of that work through the House and to a conclusion. As I said, that is why those measures will be supported by members on this side.
I was amused to hear Sam Lotu-Iiga, the deputy chairperson of the Commerce Committee, talk about how hard that committee had had to work. That is a natural consequence of having to deal with levels of reform of this magnitude and detail. Similar experiences would be reported by the chairs of the Finance and Expenditure Committee and the Commerce Committee in the last term of Parliament. That is as it should be; these measures require careful scrutiny. They are of wide-ranging importance, and if they are to work and to be fit for purpose, then they need that level of scrutiny. That is the job of committees and of this House. I acknowledge the work that has been done in the Commerce Committee by all the members of that committee, including its chair, Lianne Dalziel. I think she feels some level of satisfaction that she is able, for that side of the ledger, as it were, to watch the current Minister complete a series of important institutional reforms begun on her watch. I pay tribute to both of them for that.
But the truth is, as David Parker put it, that the real job of broadening and deepening financial markets in New Zealand will be only partly accomplished by having good housekeeping on the regulatory front. Of course we do not want to see the sort of nonsense that has gone on in relation to finance company failures and the other sorts of, frankly, predatory behaviours that we have seen directed towards what are classically referred to as mum and dad investors. There should be an environment that stops that sort of thing from happening, but there also need to be markets. The New Zealand Superannuation Fund, which the previous Government set up, and which, sadly, has been diminished by the current administration as far as ongoing contributions are concerned, and the KiwiSaver scheme—again, something that was cut by the incoming National Government at a time when actually some stimulus would have been a useful thing—are two very, very good examples of substantive policy initiatives of the type we need to see in this country if we are to get out of recession and start growing the economy again. Those are the sorts of policies that we need, in addition to this sort of good housekeeping.
I have a couple of words on the housekeeping itself. As has been said in speeches during the passage of this legislation, this is good legislation but there are some areas where it could be improved. I heard the Minister yesterday in the House, during the Committee stage, talk about how important it was to have the Financial Markets Authority in place as a comprehensive regulator across the sector, and I agree with him on that point. But we should not mislead ourselves that—for example, in the case of criminal behaviour or fraud—the Financial Markets Authority will be able to call all the shots. Obviously, the Serious Fraud Office, in particular, will have an overlapping jurisdiction in certain cases. When the Serious Fraud Office decides to investigate, then, frankly, the Financial Markets Authority and other bodies will just have to stand aside. In criminal investigations, that is the way it works. It is important to observe that this seems to be a general problem we have in a country as small as New Zealand; we often have overlapping regulatory and criminal oversight responsibilities divided between different bodies. It might well have been a good idea to extend the Financial Markets Authority’s powers into the criminal sphere so that when there is a case of suspected serious fraud, the authority has the power to deal with that matter to the exclusion of the Serious Fraud Office. As it is, there are still overlapping jurisdictions, and we will still see in future cases investors being burnt through unfair and fraudulent behaviour where the Financial Markets Authority is unable to act because the Serious Fraud Office has stepped in and there is a criminal investigation for a period. There will be frustrations and annoyance—justifiably—as a result of that overlap. We ought to have fixed that up by now.
The other concerns about the way in which we have set up the regulatory oversight regime were pointed out by Lianne Dalziel in one of her speeches in the Committee stage. She tabled a Supplementary Order Paper that would have seen the Financial Markets Authority enabled to issue statements of principle in broad-brush terms, along the lines of the Financial Services Authority’s powers in the UK. Market participants would have to comply with those principles. Instead, we have gone for a much more compliance-based approach—to the delight, I am sure, of those in my former profession and in the accounting profession. We will have to see which approach, in practice, works out best for participants in the market.
There are two others things that I want to say by way of foreshadowing the watching brief that I think needs to be kept on the legislation. The first thing is that we still do not have in this country a single body that is responsible for promoting financial literacy. I am pleased to see the Minister Simon Power nodding, because I think it is something that across the House we could agree on and try to deal with on a priority basis. We can have all the regulation and enforcement in the world, and we can even have the best-functioning capital markets in the world—which we are still a way from, I am afraid—but until we have the ability of people to invest on a confident basis because they understand the products they are investing in, there will be a problem.
The final word is that it is great that we have regulated comprehensively the upper and middle ends of the market. We have not yet dealt comprehensively with those payday lenders—those loan sharks—that are preying on people in a particularly distressing way. Another part of the watching brief we will be keeping will be in respect of how Parliament reacts to the problem that those lenders present to the market. They are not yet sufficiently dealt with in the reforms, and they need to be.
SUE KEDGLEY (Green) Link to this
The Green Party is also very pleased to support these bills. We too congratulate Minister Simon Power on steering them through Parliament. Although they will not solve all the problems and challenges confronting financial markets, they will give more protection to investors, they will establish a higher degree of transparency in the markets, and they will establish a more appropriate regulatory environment, which will be beneficial to both investors, who provide capital, and those who utilise it, the shareholders.
It must be noted—and others have noted—that deregulation of the financial sector has been an abject failure in New Zealand. It has cost our economy dearly and has been devastating for many small investors, with ongoing effects that are cascading through our economy. We hear a lot about the wonders of deregulation, but it is not often that we consider the incredible failure of deregulation in many of our sectors—for example, the building sector. The National Government of the day deregulated the building industry, which has cost the New Zealand economy a huge amount—around $10 billion in leaky homes. It has also been utterly devastating for thousands and thousands of ordinary New Zealanders. That is an example of the way in which deregulation and the laissez-faire approach of leaving it to the market have been an abject failure, over and over again. So we are pleased we are at last beginning to regulate the financial sector.
There is obviously no risk-free investment. On occasion investors will inevitably suffer losses, but we believe that mum and dad investors and potential investors need to have protection. They need to be able to assess the level of acceptable risk in the context of a robust regulatory framework that mitigates against incompetence, against unethical behaviour most of all, and against outright dishonesty in particular. These bills provide a step along the road to achieving those objectives, which is why the Green Party is pleased to support them.
The bills we are debating today are quite complex and indeed far-reaching. The Commerce Committee was fortunate to be guided by a chair, Lianne Dalziel, who had considerable experience and a strong personal commitment to the purpose of the bill. But we were disappointed that an amendment that she proposed at the Committee stage of the bill—namely, to insert a set of enforceable principles to guide market participants, principles that are similar to those that apply to financial market businesses in the United Kingdom—was not supported by the Government. We cannot understand why that very, very sensible amendment did not get cross-party support in the Committee.
The select committee in its report proposed that as well as the legislation pursuing the overall objective of promoting fair, efficient, and transparent financial markets, it should also facilitate the development of those markets. In New Zealand our business and industry have long been hampered by the difficulties of acquiring capital, and one of the reasons for this is the inappropriate tax and other advantages given to investment and real estate in New Zealand. We, of course, are one of the only countries that do not have a capital gains tax on other than the family home, so that gives a huge incentive to invest in real estate and a disincentive to invest in other businesses.
The Greens consider that the transition to a smart, green economy will require investment—and substantial investment—in cleantech and greentech industries, which would make a huge contribution to the economic resilience and future well-being of New Zealand. Such investments will be made only if investors are confident of the integrity of markets, and we believe that this legislation makes a useful contribution to that goal.
We hope that once this legislation has been passed we will be spared the series of fiascos we have witnessed in recent years as a result of financial deregulation. We are pleased to support this legislation, and we congratulate the Minister on taking the initiative and driving it through the House. We know there is a very tight agenda of legislation, and we are pleased that this Minister obviously has the political capital to get his legislation through the House. We congratulate him on that. Thank you.
HILARY CALVERT (ACT) Link to this
I rise in support of the legislation arising from the Financial Markets (Regulators and KiwiSaver) Bill. I sat on the Commerce Committee, which considered that bill, and I would like to commend the officers and everyone else involved, who conducted the whole process excellently. New Zealand has the dubious distinction of being the first Western country to go into recession, several months before the global financial crisis started. A big part of the reason was the collapse of dozens of finance companies since 2007, costing investors many millions of dollars. It was my colleague John Boscawen who led the campaign for an inquiry into finance company failures. He has heard many stories of mum and dad investors losing large portions of their savings due to actions that although not illegal were certainly unethical. The bills before us are in part a reflection of these stories, as well as, of course, the recommendations of the Capital Market Development Taskforce. They are a recognition that the current fragmented regime did not have the ability or power to hold trustees to account for their often dubious actions.
These bills also recognise that to have a growing economy we must have financial and capital markets that encourage people and institutions to invest. The establishment of the Financial Markets Authority will help foster such investment. The authority will not only replace the Securities Commission but also incorporate several other functions previously delegated to various other agencies. It makes perfect sense to bring these related responsibilities under the control of one organisation.
The mission statement of the Financial Markets Authority particularly resonates with the ACT Party. Clause 8 of the Financial Markets Authority Bill requires the new Financial Markets Authority “to promote and facilitate the development of fair, efficient, and transparent financial markets.” As a defender of the free market, ACT is definitely in favour of this. In order to thrive, participants in the market place require confidence to invest. To have this confidence they need information and accountability—more than they are getting at present. If the Financial Markets Authority succeeds in its objectives we will hit hard those trustees who play loose with the rules. As a result we will have financial markets that mum and dad investors will want to invest in.
We also welcome the crackdowns on unsolicited securities offers. In case we needed reminding of the importance of this, a couple of weeks ago one such person, a Mr Bernard Whimp, made a timely reappearance with his latest lowball offer. Mr Whimp has made over $1 million by sucking in the unsuspecting. As business commentator Liam Dann said in the New Zealand Herald on 12 February: “The unsatisfactory part of the Whimp transactions is that, despite being legal, the imbalance of knowledge between the buyer and the seller seems too large and the degree of unfairness too great to stomach.”
This legislation redresses this imbalance by requiring that warnings of a lowball offer be published on offer documents and on the website of the person making the offer. There will also be a minimum cooling-off period during which such investors can see the light. The select committee also recommended the disclosing of the market price of the securities. If investors after all these red lights forge ahead, then so be it. The problem becomes theirs. That is fair. These bills, after all, will not make us immune to future individual and institutional failures, nor should they. There is always a degree of risk, and without risk there is no prosperity.
I was alerted to a Breakfast interview from a fortnight ago with Fair Go’s Gordon Harcourt—a man who has, no doubt, seen a few dubious business practices in his time. When asked about the problems of company failure he replied: “Company failure is not a crime and that is a good thing because allowing failure encourages success. If we wanted to live somewhere where company failure was a crime we could all go and live in Cuba or Venezuela where capitalism is illegal.”
These bills represent big improvements on the current regulatory environment. Let us be clear. They take a dim view of costly regulations and red tape. As Minister for Regulatory Reform, Rodney Hide has a bill coming before Parliament to prevent such follies before they happen. If passed, the Regulatory Standards Bill will play a huge part in increasing the efficiency and transparency of the lawmaking process, and will, in turn, make our economy more productive and prosperous.
As the party of those opposed to pointless and costly red tape, ACT does not accept new regulations lightly, but it was ACT that led the drive to sort out our finance companies, and although there is no such thing as the perfect law, anything that increases the efficiency and transparency of our capital and financial markets is to be applauded. Such steps will help our fragile economy to attract the investments it needs badly to recover. Accordingly, we support these bills.
KATRINA SHANKS (National) Link to this
It is my pleasure to take a call this afternoon on the third reading of the bills arising from the Financial Markets (Regulators and KiwiSaver) Bill. I would like to thank the officials who were present during the process of getting this legislation back into the House, and also the submitters to the Commerce Committee. The securities legislation is very complex legislation, and it took those of us on the select committee a fair period of time to actually get our minds round where we were going with it, and some of the consequences that might have come out of it. So we went slowly and very thoroughly through this legislation. I would like to thank the officials for the patience they showed, because they had a fair bit of patience as we kept going back to them for more explanations and more explanations, because we really wanted to get a good understanding of what we were doing with this legislation.
The programme of reforms this Government is going through with its securities legislation is to get confidence back into the market. Confidence in our markets has been hit for a number of reasons and over a prolonged period of time. The previous speaker, Hilary Calvert, was correct: New Zealand hit a recession before everybody else in the world, and our finance companies were struck down for a number of reasons. I know that in the electorate of Ōhāriu, where I represent this Government, I had a number of mum and dad investors coming in and talking to me about their losses in finance companies, and they did not know where to go. These people do not have a lot of money; they have a little bit put aside. These are the people who invested in 1987 in the sharemarket and it crashed. They then left the sharemarket, after they got burnt, and they went to managed funds. We all know that managed funds took a massive dive in 2000, and people lost a huge amount of money. These people thought their next best bet to get a bit more of a return off their money, after the banks, was to go to finance companies. So they invested in finance companies, not really understanding the risk involved or the way they were advertised. In many cases the advertising was misleading. They put their money in the finance companies, only to find, once again, for the third time, they had lost their investment. We are talking about mums and dads who are on fixed wages and salaries, and it is really hard for them to recover when an investment goes south on them. They wonder where to invest that is safe.
This legislation is about putting a framework in place so our mums and dads can invest in New Zealand and invest in our capital markets. We need them to have confidence that although there is always risk with investment, they understand better that risk, and we have processes in place, through this reform programme, which protects them better. Part of this is the Financial Markets Authority to be set up to make sure they have the correct tools. One of the really important tools, I think, coming out of this is the right of individuals and companies to take action to try to get results. Hopefully, we will see some of that coming through in the future. We cannot reverse a lot of the harm that was done and a lot of the losses that happened, because the reforms were not fast enough and did not come in fast enough to help those people. Hopefully, now that we have these tools in place for the financial markets, this will not happen again to many of the people who lost their money.
The other area I would like to touch on is in the Securities Trustees and Statutory Supervisors Bill, which will help significantly the confidence of the mum and dad investors in our markets, because the people they thought were looking after their money—the trustees or statutory supervisors—whom they were trusting to keep an eye on these finance companies, actually could not do anything. We have beefed up the requirements significantly. They now have to be capable trustees or statutory supervisors. They have to perform their functions effectively, and they have to be accountable to the Securities Commission for any failure to act to expected standards. That is a significantly higher bar. This legislation is positive and with the reforms in our markets will give confidence to our mums and dads to invest. I commend this legislation to the House.
STUART NASH (Labour) Link to this
I stand to speak on the third readings of these bills. I have spoken in the first and second readings and in the Committee stage on this legislation. I think everyone knows that this legislation has cross-party support. It is most important legislation. This is quite an unusual reading, because the Financial Markets (Regulators and KiwiSaver) Bill has been divided into five separate bills. We have the Financial Markets Authority Bill, the Securities Amendment Bill (No 3), the Securities Markets Amendment Bill (No 2), the KiwiSaver Amendment Bill, and the Financial Advisers Amendment Bill (No 3). There is a reason for this: the bills are quite similar in their intent and it makes a lot of sense to clump all of these together, basically for the integrity of the legislation. The legislation establishes the Financial Markets Authority and sets out the wider enforcement and surveillance powers that are currently available to regulators. It also makes changes to the regulation of registered exchanges and improves the regulation of KiwiSaver schemes.
Other members have spoken on the absolute importance of enhancing the confidence of our financial markets. A single market regulator should contribute towards this end. Labour launched the Capital Markets Development Taskforce, and we are pleased that this Government is acting on its recommendations. We are concerned about the lack of transparency around the current security commissioners, though.
One thing I would say is that this legislation is from the Hon Simon Power. It is good legislation and, as highlighted by Simon Bridges about 2 weeks ago, I think 40 percent of the legislation that this Government has passed through the House has been brought in by the Hon Simon Power. It is a real shame that he is leaving Parliament, because he appears to be the only Minister in this Government who is doing any work. There has been a lot of conjecture as to why the Hon Simon Power is leaving. I suspect that he is leaving because he is sick and tired of carrying the workload for the rest of the National Government. If one Minister is putting 40 percent of the legislation through the House, then I ask what the other Ministers are doing. In fact, when I looked through the Order Paper, I thought it was more like 50 percent of the legislation that Mr Power is handling. So whether he is rushing stuff through to get it done before he leaves, or whether the other Ministers are just so lazy and do not have a plan for anything, Simon Power is doing everything.
Having said that, I note that Mr Power was the Minister who put forward the plan for selling off State assets. That is a real shame, but, fortunately for New Zealand, that legislation will not be passing through this House. But I do congratulate the honourable member. He has done a good job with this legislation, and he has taken on board a lot of the recommendations from the Capital Market Development Taskforce. He consulted widely, I believe, with the Hon Lianne Dalziel, and it is very much good legislation and necessary legislation. Members can tell Mr Power is such a hard-working Minister; he is the only one who is in the House. I do not know where all the other National Ministers are—
The ASSISTANT SPEAKERI apologise. But I offer my congratulations to Simon Power. He is a good, hard-working Minister. I am sure that the National Government will be sad to see him go, because he is the only one who is carrying the can and the only one who seems to have a plan for certain areas.
Labour supports this legislation. As mentioned, it establishes the Financial Markets Authority, and in principle we support the idea of consolidating all the different regulatory bodies into a single agency. The concentration of power in the hands of the Financial Markets Authority—the FMA—means that all its officers must be beyond reproach and its processes must be fully transparent. I think that is something the people of New Zealand have really demanded: a much higher level of transparency. The integrity of the markets depends upon the integrity of the Financial Markets Authority and its personnel. This is especially true and most important, as I believe our financial markets are still struggling under the perception that cowboys and crooks run the show. Hopefully this is no longer true, and I think a lot of those people have been weeded out, but it is up to the Financial Markets Authority to act in a way that totally dispels that perception over time. I know it is a cliché, but the proof of the pudding is in the eating, as they say. The Financial Markets Authority has the very important task of letting the confidence return to our financial markets if we are to grow as a country and deepen our capital markets.
Labour started the financial markets reform process and we are pleased that the Government is continuing this work. As mentioned, Lianne Dalziel set up the Capital Markets Development Taskforce in 2008 in order to develop a blueprint and an action plan for the development of our financial system. We are pleased the Government is starting to act on the recommendations in the task force’s report, one of which was to create a single market regulator.
I could go through a number of measures that the previous Labour Government recommended that this legislation picks up, but the whole process was accelerated by the global financial crisis and the spate of finance company collapses. I think that there have been up to 61 collapses now. It is quite astounding to think that there are even 61 finance companies in the country, but 61 finance companies have collapsed. I have spoken about the consequences of the collapse of those finance companies in this House many times, and certainly of the consequences that has had on a number of New Zealanders who have lost their life-savings. Some of the stories are diabolical; some of them are incredibly sad. In fact, we are still dealing with the fall-out from South Canterbury Finance, which looks like it might end up costing taxpayers well over $1 billion—some say up to $1.6 billion. There is a widely held belief that if the Government had managed this process properly, then the cost would not have needed to be so high, at all. But South Canterbury Finance will end up costing taxpayers about $1.6 billion.
Labour’s view on the Financial Markets Authority is that enforceable principles such as integrity, skill, reasonable care, and financial prudence are needed. Principles are flexible. Unlike rigid rules, which are made to be broken, it is important that the ethics that underpin the new regime will help rebuild the trust and the confidence in the financial sector that is so important in terms of developing our capital markets and our financial markets, as well.
This legislation gives the Financial Markets Authority new powers that were never available under the Securities Commission, including the ability to take action against those directors it believes have acted illegally, when to do that is in the public interest. That is the most important point. It is about what is in the public interest. As well, the authority has the power to seek search warrants and to raid offices and seize documents. This is not about an ambulance at the bottom of the cliff; this is getting to the nub of the issue and solving problems before they become another South Canterbury Finance incident and cost us about $1 billion or more.
The removal of the New Zealand Exchange’s regulatory role is sensible. Although there may never have been an actual conflict of interest, the NZX’s dual commercial and regulatory roles have created the appearance of a conflict of interest, and, as mentioned, this legislation is a lot about perception and appearances. We need to create an environment where the people of New Zealand actually have trust in the people who are controlling and regulating these markets.
Regulators have attracted some blame for recent troubles in our financial markets, and we believe it is necessary to reshape New Zealand’s regulatory environment. The Financial Markets Authority will have powers to require that warnings about financial products and providers be included in offer documents and be published by the people involved. This provides investors with the information required to make sound decisions. That is most important. I remember that legislation was passed within the first 6 months of this Government, I think, that stripped away a lot of the information that needed to be required in prospectuses in order to raise funds from the public. I had major reservations about that legislation, because I believe there needs to be as much information as possible in a prospectus that allows the general public to make an informed decision. This legislation contains many far-reaching powers, and this underscores the importance of its transparency and rigour.
This is very important legislation and Labour is backing it wholeheartedly, but there is one thing I would like to see. I would like to see more robust legislation in this House that shows the Government has a plan in areas outside the portfolios that the Hon Simon Power manages. I have not seen an economic plan that will allow the development of our capital markets. I have not seen any sort of plan whatsoever that will encourage the development of our financial sector. The only conclusion I can come to is that the Government has no plan. If mining national parks and selling State assets is its idea of a plan, then New Zealanders need to be very, very worried. That Government over there actually has no plan whatsoever for economic growth or job creation.
I commend this legislation to the House. Thank you very much.
JONATHAN YOUNG (National—New Plymouth) Link to this
The legislation arising from the Financial Markets (Regulators and KiwiSaver) Bill, as well as the raft of other legislation that we are looking at today, is sponsored by the Minister of Commerce, Simon Power, of whom the previous speaker, Stuart Nash, spoke so highly. It is very good to hear Labour members speak so highly of Government Ministers.
A tremendous work programme and a tremendous commitment have been undertaken by the Minister, and also by members of the Commerce Committee, who have the privilege, in essence, of reviewing the engine room of the New Zealand economy in so many different ways. The financial markets legislation establishes a new financial sector regulator, the Financial Markets Authority, and makes some very important changes to the governance of KiwiSaver schemes. The overriding focus in the commerce portfolio is to restore investor confidence in our capital markets after the global financial crisis. One of the first constituent inquiries that I had as the new MP, the MP for New Plymouth, was when a retired couple came to me surrounded by a disaster that had not only cost them in regard to where they had invested but also cost them their personal home. We have heard stories such as this one that have necessitated such an extensive review of the regulations surrounding the financial sector.
We often hear the classic phrase “the mum and dad investor”. Essentially, this is the investor who has a bit of spare cash, which has been saved for retirement by a person who does not see investment as something that he or she is necessarily highly specialised in. Coming out of the global financial crisis, it is important to have those improved protections for such investors, because they are imperative for their future confidence in their ability to invest in New Zealand. Notwithstanding that, one of the things we discovered through the select committee process of looking at this legislation was that investor education and awareness is very important. Last year Professor David Mayes, who is the recently appointed chair of finance at the University of Auckland business school—[Interruption]
Thank you, Mr Assistant Speaker. Professor Mayes recently said that New Zealanders are average. We do not like to hear that we are average, do we? But he was making a comment that we are average when it comes to financial literacy. It is a problem that is not unique to this country. He commented that a lot of the finance company collapses occurred before the global financial crisis, which shows that New Zealand was ahead of the curve on this one, but any company that indulges in risky finance gets into trouble when the economy turns downward.
We need to understand and acknowledge that this problem has been in existence for some time and that this country was in recession months, or even a year, before the global financial crisis happened around the world. We were ahead of the curve. That means our financial markets regulatory framework was somewhat fragile; some would even say that it was shonky in different parts and places. This all occurred under the watch of the previous Labour Government, even though some have made the comment that the situation was observed and that that Government wanted to improve it. Essentially, we were not fit for purpose to trade in the modern world, where opportunities are global but accountability is local. Investment in “New Zealand Inc.” needed to have some tremendous work done on it.
A substantial disincentive for people to shift from a borrowing-based way of thinking, which has dominated New Zealand in the last decade, to an investment-based way of thinking is a lack of confidence in a system that fails to ensure professional, effective, ethical, and accountable oversight of that system. When we try to convince New Zealanders not to invest simply in the housing market with money that has been borrowed from overseas but to save and invest in our economy, our industries, and our businesses, many people have asked whether they can trust that investment to be protected. It is important to acknowledge that following the introduction and passing of this legislation, we will have a framework and an environment that will encourage that level of confidence, and will see the capital base of our nation be released more for business. Even this morning, as the select committee heard the financial review of New Zealand Trade and Enterprise, its chief executive said that although we have enough market opportunity globally, we do not have enough companies of international scale that are able to face and conquer the known challenges of size and distance. So we need a stronger capital base that will enable our companies to internationalise and to grow in scale and capacity in order to take advantage of the commodity boom happening around the world, and to build the wealth of New Zealanders.
This raft of legislation, which has been sponsored by the Minister of Commerce, the Hon Simon Power, is leading us in that direction and is a great step forward for us, for our economy, and for the future success of all New Zealanders. I commend this legislation to the House. Thank you.
RAYMOND HUO (Labour) Link to this
Ni hao, Mr Assistant Speaker Robertson. It is a great pleasure to take a call on the third reading of this legislation, which has been divided into five bills. It is relevant, necessary, and timely for us to deliberate on these important issues.
Over the past 4 years 61 finance companies have failed, the latest of which was South Canterbury Finance, which was bailed out to the tune of $1.6 billion of taxpayers’ money. Labour’s finance spokesperson, the Hon David Cunliffe, has made some valid points on this matter. Bill English and the Government turned down recapitalisation offers that would have limited taxpayer costs for South Canterbury Finance to about $500 million. Instead, National insisted on throwing it into receivership. Losses have already reached $1.2 billion and are still climbing. The extra $700 million lost to the taxpayer is, in fact, roughly equivalent to all the new money John Key has just cut out of this year’s Budget.
It has been noted that shortcomings in New Zealand’s regulatory set-up are partly responsible for the finance company failures. No single entity took responsibility for any problems. Therefore, Labour welcomes any measures that would ensure, like the UK Financial Services Authority, market confidence, public awareness, financial stability, consumer protection, and reduction of financial crime.
The Financial Markets (Regulators and KiwiSaver) Bill had eight parts and it was divided into several bills at the Committee of the whole House. Parts 1 to 4 and schedules 1 and 4 deal with the Financial Markets Authority and they have become the Financial Markets Authority Bill. Part 5 amends the Securities Act 1978 and it has become the Securities Amendment Bill (No 3). Part 6 and schedule 5 are now the Securities Markets Amendment Bill (No 2). Part 7 and schedule 6 deal with the regulation of KiwiSaver and have become the KiwiSaver Amendment Bill. Part 8 and schedule 7 are now the Financial Advisers Amendment Bill (No 3).
It is crucial that we enhance confidence in our financial markets. A single market regulator should contribute towards this end. Labour launched the Capital Market Development Taskforce and it is pleased that the Government is acting on its recommendations. We are concerned about a lack of transparency around current security commissioners. We support the bills, and specifically the establishment of the Financial Markets Authority. In principle, we support the idea of consolidating all the different regulatory bodies into a single agency. In 2008 the Hon Lianne Dalziel set up the Capital Market Development Taskforce to develop a blueprint and an action plan for the development of New Zealand’s financial system. We are pleased that the Government is starting to act on the recommendations in the task force report, one of which was a single market regulator. The Labour-led Government took a number of measures aimed at strengthening our financial markets, and this process was accelerated by the global financial crisis and the spate of finance company collapses.
The bills are designed to deal with some important issues. Firstly, concerning the securities law, the reform of securities law is a crucial complement to this process. This bill provides for regulations to be made that will prevent products from being structured to avoid regulation. This happened in the case of the Blue Chip scenario. The investment scheme offered interests in land. It was therefore exempted from the Securities Act, to the significant detriment of its investors. However, the only concern I have at this stage is that the deadline for the review has been pushed back until 2012.
Secondly, in regard to KiwiSaver, calls for changes to KiwiSaver regulation were made earlier this year when former Huljich KiwiSaver managing director Peter Huljich admitted he used his own money to top up investors’ funds. There are 1.5 million Kiwis with a collective $6 billion in KiwiSaver. It is utterly critical that the regulation of its schemes is robust. Compulsory enrolment, even with an opt-out, and the absence of a Government guarantee mean that a higher level of assurance has to be offered to those investors who do not wish to choose their own scheme.
We support moves to tighten KiwiSaver’s regulation. This bill puts the onus on fund managers to act in the best interests of investors by making them primarily responsible for the accuracy of their prospectuses, investment statements, and advertisements. Currently, KiwiSaver trustees are technically the issuers of KiwiSaver schemes, under the Securities Act. This means that managers have few duties to investors and less liability for misleading statements than trustees.
Thirdly, in regard to the collapse of finance companies, I come back to what I said at the beginning of my contribution. This bill should ensure the Financial Markets Authority has broad oversight of the sector, ensuring that Kiwi investors do not face this kind of disaster again. As part of this reform of finance markets, the Government might also wish to look at the sentences for so-called white-collar criminals. Lianne Dalziel and Charles Chauvel have recently said that people convicted of offences like burglary tend to be treated much more harshly than those who destroy huge amounts of wealth through reckless and dishonest business practices.
Finally, I am pleased to see that through these bills the law is being changed to provide for a regime that supervises the supervisors. This legislation removes the automatic right for the six previously statutorily approved trustees to supervise issuers of securities in some investment schemes. It introduces a licensing regime for trustees that will be run, firstly, by the Securities Commission, then by the Financial Markets Authority when it is established. Under the new regime all trustees, statutory supervisors, and unit trustees must be body corporates, and the directors and senior managers must be of good character.
I agree with what the Minister responsible for this bill said, that New Zealand needs a single market regulator with a culture of visible, proactive, and timely enforcement. Recent finance company collapses illustrated gaps between regulators. The Financial Markets Authority is needed to rebuild investors’ confidence. In relation to KiwiSaver, the Government says it has fast tracked these measures due to apparent gaps in the regulation of some of the schemes. So they are all good initiatives, and I commend the bills to the House.
MELISSA LEE (National) Link to this
I feel like I am delivering my third reading speech on this legislation from Siberia, but perhaps that is because I was wishing I was in Siberia while the previous speaker, Raymond Huo, was speaking—he lost me after “ni hao”.
Mr Assistant Speaker Robertson, this is the first opportunity I have had to speak since your ascension to the Chair. I would like to congratulate you on your appointment. I would also like to take this opportunity to thank the Minister of Commerce, Simon Power, for the tremendous amount of work he has put into this raft of bills we are considering.
I do not really want to take too much time, and I do not want to repeat the comments that previous speakers have made, throughout the House—we are all in agreement, obviously. But I want to give a view from the ethnic communities. We have all heard far too many stories about investors losing a lot of money. Many Asian communities have lost money. Members of a lot of Asian communities, when they arrive in New Zealand, because initially they do not have jobs, want to invest their life savings into an investment portfolio, and many have lost their entire life savings as a result.
Only a strong economy can provide financial security for families, real opportunities for young people, safe communities, and the high-quality education and health services that all New Zealanders need. In respect of this raft of legislation that has gone through the Commerce Committee, I guess I was the layperson on the committee who did not really know very much about the financial sector or accounting. As my learned colleague Katrina Shanks, who happens to be an accountant, said, we thank the advisers, who have worked very, very hard to go through the options with us, and we praise the Parliamentary Counsel Office and everyone who helped us through the process.
With this legislation—and through an understanding of the basics of investment, advice people can trust, and informed decision-making—we know we will have regulators with the power to protect and boost public confidence, and with the ability to publicly enforce the duties of issuers, directors, auditors, trustees, and others involved in financial markets when it is in the public’s interest to do so. That has to be good. I believe that the much-needed confidence in the financial markets will return as a result of the work we have done in respect of the raft of legislation that is before us. I commend these bills to the House. Thank you.
Financial Markets Authority Bill read a third time.
Securities Amendment Bill (No 3) read a third time.
Securities Markets Amendment Bill (No 2) read a third time.
KiwiSaver Amendment Bill read a third time.
Financial Advisers Amendment Bill (No 3) read a third time.
Securities Trustees and Statutory Supervisors Bill read a third time.