KATRINA SHANKS (National) Link to this
It is my pleasure to take a call on the Financial Markets (Regulators and KiwiSaver) Bill and the Securities Trustees and Statutory Supervisors Bill. I am continuing my speech from Tuesday night when I was, unfortunately, the last speaker before the bell, so I am the first one up this afternoon.
I have to say it has been an honour to be in the House today to witness the passing of the Marine and Coastal Area (Takutai Moana) Bill. We have seen history happen today.
Just to recap on what we are doing with this legislation, it is about focusing on improving the integrity of our financial systems. The Government’s overriding focus in the commerce portfolio is to restore the confidence of mum and dad investors in our capital markets, especially after the global financial crisis and the collapse of finance companies.
This Government is focused on boosting growth and creating jobs. In fact, these bills are just two in a series of bills that will try to boost confidence in our markets. We are serious about growing this economy. The issue is about getting some capital into New Zealand and allowing businesses to grow. It is much better to get New Zealanders to invest in New Zealand than invest overseas. It has been a slow, gradual process, because there is a lot of change. Change has come over the time of both Governments, I have to say. Lianne Dalziel, who now chairs the Commerce Committee, was previously the Minister of Commerce. She started the process of reform. Under the current Minister of Commerce, Simon Power, that reform is continuing. This Government is now leaps and bounds ahead in getting that investor confidence back.
I am taking just a short call to finish off my speech from Tuesday night. Thank you.
CHARLES CHAUVEL (Labour) Link to this
I will follow my friend and colleague Katrina Shanks by repeating her acknowledgment of the work that a number of people have done on this legislation. The Minister of Commerce, Simon Power, has carried on the reform agenda in this area that was begun by Lianne Dalziel when Labour was in office. That there has been widespread support across the House for this level of reform is a matter the House can take some pleasure in, and I think it is appropriate to acknowledge both Ms Dalziel and Mr Power in my opening remarks.
I hope, given the announcement that Mr Power will be departing from this place, that we will not see a slackening off in this agenda, because there is a lot more work to be done. A lot of reforms in the financial markets area need to be completed. I have tried to bring one of those necessary reforms to the House with the bill to regulate the activities of loan sharks, the Credit Reforms (Responsible Lending) Bill.
I will say just a few words about that bill at the outset, because if we are to take the previous speaker at her word, which we must do, then everybody in the House should be serious about comprehensive financial markets reform. What we have achieved so far is to get some way along reforming, if you like, the middle band of the market—the finance companies. I see that Mr Boscawen is in the House. When he was on the Commerce Committee he said some fine words about the need for reform in this area, and I hope that he will follow those words through now that he holds the warrant as Minister of Consumer Affairs.
One of the areas that still badly needs reform, particularly in these straitened economic times, is the position of those at the lowest end of the market, who have to go to fringe or holiday lenders in order to get credit from week to week because they just cannot make ends meet. This House had an opportunity last year to try to complete the suite of reforms at the lower end of the market, but it did not do so. Members of the ACT Party and National chose not to regulate loan sharks, fringe lenders, and holiday lenders.
Hon Steve ChadwickThat matter brings some shame on this House. If we are to see comprehensive reform in this area and look after all New Zealanders, not just the so-called mum and dad investors—the middle-class investors who have not been well treated by the market and need to see proper protections—but also those at the lower end of the market, then we urgently need to revisit the issue of fringe lenders. Both my colleagues and friends Carol Beaumont and Carmel Sepuloni will be bringing up measures by submitting them to the members’ bills ballot on a regular basis in order to ensure that this House does not forget the urgent need to also deal with that end of the market. If we are to legislate for all New Zealanders, then we must do that.
Previous speakers have said that the Labour Party supports both of these bills. I will make a couple of comments about the Securities Trustees and Statutory Supervisors Bill. I acknowledge the work that the Commerce Committee has done, and also compliment the officials on their work. I know from my time on the Commerce Committee that the committee is advised by very competent officials, and it is appropriate to acknowledge the assistance they have given.
The Securities Trustees and Statutory Supervisors Bill tries to address a number of weaknesses that have been identified in our supervision regime for trustees and statutory supervisors. A licensing regime will be brought into place for those who supervise the issue of securities, and for the statutory supervisors of those who are in charge of another vulnerable sector in our community: people who live in retirement villages. There will be amendments to a number of Acts, such as the Retirement Villages Act, the Securities Act, and the Unit Trusts Act. This new regime will be administered by the Securities Commission. I see that under the provisions of the bill there is an intention that this supervisory role be taken over by the Financial Markets Authority once it is established.
The bill follows on from the conclusions of both the International Monetary Fund and the World Bank, which reported in 2004 on this general area, and consultations that were subsequently undertaken by the Ministry of Economic Development in the Review of Financial Products and Providers in 2006. The fundamental finding at that time was that New Zealand places too much reliance on private supervision—basically, the corporate trustees—and that there is no great accountability regime in our law for those people.
The bill would remove the automatic right for the six appointed and approved trustees under statute to supervise debt issuers and some investment schemes, and introduce a licensing regime for trustees as well. It will make it an offence to act as a trustee or a statutory supervisor without a licence, so that a person who commits an offence will be liable on summary conviction to a fine not exceeding $300,000. It is a serious penalty regime. A number of provisions are designed to ensure that trustees, statutory supervisors, and unit trustees comply with their obligations, and the enforcement mechanism, be it the commission or the Financial Markets Authority, can seek penalties and compensatory orders against anyone who fails to comply. Clearly, a better accountability regime will be brought into place by this legislation.
I refer to a speech that was given by Lianne Dalziel in August last year. She spoke about the improvements that we hoped to see across the market, both by the enactment of this legislation and by bringing into being this comprehensive new regulator of the sector, the Financial Markets Authority. This authority is to absorb the functions currently performed by the Securities Commission, the Ministry of Economic Development’s national enforcement unit, the Government Actuary, and even the New Zealand Exchange, as far as its market discipline functions are concerned.
Lianne Dalziel said: “The Minister has said it”—the authority—“will have ‘grunt’ and I welcome that. We need a single-minded approach that says that the risk of getting caught is high and the consequences of conviction are severe.” She went on to say: “I am constantly affronted at the discount our criminal justice system appears to afford the white collar criminal over all other criminals, even though the wealth they have destroyed makes the proceeds of house burglaries pale into insignificance by comparison. I think we should allow our courts to impose what I now call the Madoff sentence for the most egregious cases. And there are some people who should never be allowed to fundraise from the public ever again or to claim the protection of limited liability against creditors—and those are the people against whom fraud has been proven. There should be no second chances under these circumstances.”
The select committee, as I said, did comprehensive work on this bill. It received and considered 18 submissions and heard eight oral submissions. It dealt with the issue of the inclusion of retirement village statutory supervisors. Obviously that recommendation met with some approval because the House is dealing with the two pieces of legislation in tandem.
To conclude my short contribution, I say that this is necessary regulation of a sector. That is why it is receiving support from across the House. It is not comprehensive regulation. There is still much work to do, as I said, particularly at the bottom end of the market, where our most vulnerable people still are not properly protected. The previous speaker claimed that this legislation was part of some comprehensive economic plan. Frankly, that is a risible claim. There is no such plan. This is sensible regulation that goes some of the way towards what is needed in our markets. For that reason, and that reason alone, it is supported by the Labour Party.
Hon JOHN BOSCAWEN (Deputy Leader—ACT) Link to this
I intend to take only a very brief call, to say two things. First of all, the ACT Party will be supporting the Financial Markets (Regulators and KiwiSaver) Bill and the Securities Trustees and Statutory Supervisors Bill. As Mr Chauvel said, this legislation has support across the House, so the ACT Party will be voting for it.
The second point I would like to make is to respond to the comments Mr Chauvel made. He referred to the fact that I had been a member of the Commerce Committee prior to being appointed Minister of Consumer Affairs, and I would like to say to Mr Chauvel and others that as Minister of Consumer Affairs I have recently announced a major review of consumer law. Once my officials have that under their belt, I will carry on and review the Credit Contracts and Consumer Finance Act. I can assure Mr Chauvel that the intention is to commence the review he referred to. The focus has been on the review of consumer law over the last 9 months, and that review will bring a lot of benefits to the House. I look forward to explaining to members of Parliament what those benefits are.
I say to Mr Chauvel that I am very conscious of the damage that some loan sharks do in the community and I can assure him personally that that is the second thing I will be focusing on, after the consumer law reform.
STUART NASH (Labour) Link to this
As my colleagues have alluded to, all parties are supporting this legislation through the House, for a number of reasons, but the main one is that it is common-sense legislation. This is very good work undertaken by the Minister of Justice, Simon Power, which is simply a continuation of the work that Lianne Dalziel started. I am slightly concerned, because, as Simon Power mentioned a couple of weeks ago, Simon Power has been the hardest-working National Cabinet Minister—in fact, he is responsible for over 40 percent of the bills before the House—and he has decided to leave. I am not sure why; I can only speculate. I suspect that the reason he has decided to leave is that he is the only one doing any work on that side of the House. He is the only one with a little bit of a plan. Mind you, Simon Power’s plan was to sell State assets. But when one takes away the man who brings 40 percent of the legislation to the House, one is left with a bit of a vacuum in the National Government. One is certainly not left with any sort of plan to drive economic growth.
I was interested to hear Katrina Shanks stand up and say that this bill is a part of an economic plan. I am sorry, but this is not part of an economic plan. This is good, common-sense legislation that we worked together on to help New Zealanders regain trust in the financial markets, but it is not a plan for economic growth.
We heard that the other reason why Mr Power is leaving is that Mr Joyce and Mr Power had an argument and Mr Joyce came out on top. It was about the leadership, and I understand that Mr Key is going to leave soon. I see Mr Joyce in the front row. It is only one more step to the leader’s chair and he is there. When Simon Power leaves, Mr Joyce comes in—but I digress.
We are debating two bills together. We are talking about the Financial Markets (Regulators and KiwiSaver) Bill, and we are also talking about the Securities Trustees and Statutory Supervisors Bill. Initially they were considered as single bills, but they were brought to the House together. I think we all agree with that, because the objective of these bills is similar. I will talk very briefly about each bill.
The Financial Markets (Regulators and KiwiSaver) Bill establishes a Financial Markets Authority—or the FMA—and sets out wider enforcement and surveillance powers than are currently available to regulators. It boosts their power, basically. It also makes changes to the regulation of registered exchanges and improves the regulation of KiwiSaver schemes. This is good for all New Zealanders. Well over a million New Zealanders are enrolled in KiwiSaver, and it is up to us to ensure that they are well protected. KiwiSaver, of course, was an exceptionally good Labour-led Government scheme that was put in place and taken up by the vast majority of New Zealanders. As I mentioned, Labour started the financial markets reform process, and we are pleased that the Government has decided to continue with Labour’s good work. As I mentioned, Lianne Dalziel set up the Capital Market Development Taskforce in 2008, and she did that so she could develop a blueprint and an action plan to develop New Zealand’s financial system. She saw what was going on and she knew something had to happen, so that is what she did.
As I mentioned, we are very pleased that Simon Power has decided to act on the recommendations of the task force’s report, one of which was to have a single market regulator. The Labour-led Government took a number of measures aimed at strengthening our financial markets, and this process was accelerated, of course, by the global financial crisis and a spate of finance company collapses.
I would not mind outlining some measures that the Labour-led Government took that led to this bill, or were the genesis of this bill. Let me give members a couple of examples. One example is regulations giving trustee companies robust powers to supervise finance companies on behalf of investors. That does not really need much explanation. As we know, about 40 finance companies collapsed, and that took about $4 billion out of the pockets of good, hard-working New Zealanders and set a hell of a lot of them backwards. In fact, I have talked in the House about four or five times already about the numerous cases where that situation cut to the core to the extent that people committed suicide. This was an insidious process where men and women who were in charge of monitoring the governance of finance companies did not carry out their roles, and the result was catastrophic.
In other measures we allowed criminal prosecutions against finance companies that had misled investors to be funded from the Security Commission’s litigation fund, and we are beginning to see this at the moment. Directors are in front of the courts now. Some of them have been tried and some of them have gone down. We cannot comment on that, but I do not think anything can make up for or replace the losses suffered by Kiwis who have worked incredibly hard. But we put in place processes to ensure that New Zealanders can have a degree of confidence in the financial markets.
We regulated financial advisers and financial service providers. Another point that is important is that before that legislation was brought in, anyone could call themselves a financial adviser. A person could have done anything but still tout himself or herself as a financial adviser, and if consumers did not know any better, then they were open to abuse. As we know, many were rorted, and it was incredibly sad.
A review of financial products and providers and financial intermediaries commenced in 2004-05, and this was done to improve the regulation of non-bank financial institutions, financial products, and financial advisers. We amended the Securities Act to strengthen rules around insider trading and market manipulation, and we passed securities markets legislation that introduced a co-regulatory framework for supervising registered exchanges. Some of this stuff can get quite complicated—of that there is no doubt—and I will try not to get too complicated. But I think it is important that New Zealanders know that all members of this House understand that work needed to be done. People also need to know that when this happened—and we wish it had not happened, of course—we all wished the regulations had been in place, but they were not. What we need to do now is say to New Zealanders that they can have confidence in the financial markets because we have introduced legislation and we are working really hard to rebuild that trust.
I will speak very briefly about the Securities Trustees and Statutory Supervisors Bill. The main aim of this bill is, again, to protect the interests of investors and enhance confidence in financial markets by requiring persons who wish to be appointed as trustees, statutory supervisors, and unit trustees to be capable of effectively performing the functions of trustees, statutory supervisors, and unit trustees. The aims of the bill are also to require trustees, statutory supervisors, and unit trustees to perform their functions effectively, and to enable trustees, statutory supervisors, and unit trustees to be held accountable for any failure to perform their functions effectively.
As members can see, there is a lot of crossover between the two bills, which is why the Minister suggested they be read together, and it is why Labour agreed with that. But it is important, because people need to know that we will ensure that anyone who acts outside the law, or in an unscrupulous manner, will be held to account. There is great concern still around the country that many who perpetrated the ills that resulted in finance company collapses have not been held to account—and I hope they will be. This bill also requires that the Securities Commission be notified by trustees or statutory supervisors when any issuer or supervisor gets into difficulty, and it gives the Securities Commission enhanced power to intervene in those circumstances.
So this is not the ambulance at the bottom of the cliff; hopefully, this is a safeguard, so that when someone does get into trouble they can hold up their hands and say there is an issue there. The experts can be brought in and they can save it. Again, that is just another step to ensure that good, hard-working New Zealanders who have saved for their retirement do not get rorted. This is all very important. The role of trustees and statutory supervisors is very important in ensuring that the interests of investors are properly protected from the unscrupulous, the incompetent, and the inept. The trustee’s role is basically to monitor the issuers of certain types of securities, to ensure that the issuer is complying with the terms of its offer to investors as stated in the issue document or prospectus.
I will make a couple of further points. Although this is very good legislation—as already mentioned, it had its genesis in Labour policy and Labour actions—it is not a plan for economic growth. There is no plan for economic growth there, yet that is what the people of New Zealand really want to see. They want to know when the Government is going to present something that they can grab hold of and say is a vision for the future. There is no vision. I commend this bill to the House. Thank you very much.
Financial Markets (Regulators and KiwiSaver) Bill read a second time.
Securities Trustees and Statutory Supervisors Bill read a second time.