Dalziel Lianne: Financial Service Providers (Pre-Implementation Adjustments) Bill — First Reading 
Dalziel Lianne: Financial Service Providers (Pre-Implementation Adjustments) Bill — First Reading 
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Hon LIANNE DALZIEL (Labour—Christchurch East) 
: 
 Labour will be supporting the first reading of the Financial Service Providers (Pre-Implementation Adjustments) Bill. I thank the Minister for advising me prior to this evening of the shortened report-back period. Unfortunately he did not mention the extension of the hours of business but we will see what we need in terms of the select committee and of meeting the report-back date that has been set. I am quite comfortable with the underlying reason behind asking for this report-back period and that is the stated commitment to implementing the underlying policy framework as introduced by the previous Government and as agreed in a relatively non-partisan way across the House. 
I say also to the Minister that I feel very strongly that that principle of collaboration is very important in this area. There are other areas where I think it is important as well but I think this is an area where we need certainty. This is about confidence in our capital markets and it is vital that we can work closely together on getting a good outcome. Certainly I think the objectives on both sides of the House are the same. 
I want to pick up on one of the last phrases that the Minister used in his comments and that was the question of proportionality in response to the risk that is faced. I have always been very determined in my approach to regulation in this area to look at that question of proportionality. There are several layers of proportionality that I think we need to take into account. One is that there is a risk that when something bad has happened there is a tendency to over-compensate for that situation and over-regulate thereby creating a disproportionate response to the actual level of risk. Therefore I think it is important to assess what that risk is right from the outset. A good regulatory impact approach to regulation is one that will always define the mischief that one is intending to remedy and then looking at the variety of options that are available to remedy that fault and looking at what the costs and opportunities the risks and benefits might be in any particular case. 
One of the concerns I have heard expressed is that passing quite complex legislation in quite a tight period in the lead up to a general election is not ideal in terms of getting the detail absolutely right. I am very comfortable with the idea that we will be looking at the detail rather than at some of the fundamental policy drivers that lay behind the framework we introduced. 
The qualifying financial entity framework was designed with the concept of proportionality in mind because it was not the same as an individual financial adviser who is essentially accountable to no one other than by voluntary membership of an organisation that ultimately ended up showing that it had no teeth if the individual withdrew from that organisation prior to the complaint being lodged by a disgruntled client. For the banks and other institutions that would be very tightly monitored it enabled the Government to look at a different framework for those large organisations that could take on the responsibility for ensuring that the right people were providing the right advice in an appropriate manner and that consequences would fall back on the whole of the institution if those standards were not met. 
Labour introduced legislation with the qualifying financial entity framework in it prior to the disclosure of the appalling example of ING and ANZ. That particular case made me think very carefully about the detail of the legislation that we passed. If anyone had asked me at the time we were introducing the legislation whether I thought that a registered bank in New Zealand would be responsible for allowing individual advisers working within that bank to provide recommendations—not just advice but also recommendations—to ordinary Kiwis that they should move their money out of their bank accounts and into this new diversified yield fund or the—I cannot remember the name of the other one— 
John Boscawen 
: Regular income fund. 
Hon LIANNE DALZIEL 
: —I thank the member; I know John Boscawen knows the names off by heart. I think they are etched on his forehead. 
The point I am making is that if anyone had asked me whether a bank adviser would make the recommendation to shift funds from one account to the other without having the knowledge the experience and the back-up of the independent analysis for those products I would have said that it could not happen in New Zealand; I really would have said that. That was coming off the back of finance company failure after failure. I would have stood by the banks and said that there is no way that a New Zealand - registered bank would have allowed that to happen; and it happened. The consequences have been far-reaching because they certainly have undermined confidence in what would otherwise be a very very strong sector. It has proven to be a very strong sector in New Zealand and Australia say compared with the international experience over the credit crunch and the complete loss of confidence in the banking system internationally. 
This position has made me relook at some of the stuff around qualifying financial entities. I heard the Minister say that the Securities Commission has already provided some advice that it will be looking for regulatory neutrality in terms of how it will be approaching the question of advisers—whether they are working for qualified financial entities. That possibly is giving me a positive steer that the Securities Commission will not allow a bank to get away with the sort of thing we saw that bank get away with on that particular occasion. I am sure there will be more opportunities to debate that particular matter. I have drafted a member’s bill that I will be introducing into the House when hopefully it is drawn from the ballot. [ 
Interruption 
] Yes I have good luck with ballots so maybe I will be in for some good luck here too. The bill is designed to add a provision within the Illegal Contracts Act to prevent people from being put into a position where essentially they kneecap the role of the regulator in determining whether there has been a breach of the regulatory framework which was the case for those who signed the settlement offer from ING. I am very hopeful that my bill will be drawn from the ballot and that there will be another opportunity to debate what has happened. Hopefully it will provide some comfort in the future to those investing in any sort of financial product that the Commerce Commission the Securities Commission and the dispute resolution services which will be established under the prior legislation will not have their jurisdiction ousted or limited in any way. 
I agree with the Minister’s comments on financial advisers that they must be competent and ethical individuals. I think there is still an issue with the distinction around the client base and whether the client base is more sophisticated on one level. I think there is a difference so we would like to work on that. I noted the recommendations of the Capital Market Development Taskforce on this which I think are very relevant to that particular issue. 
The final comment I want to make is that I hope the Minister will ensure that officials are able to continue to dialogue with stakeholders over the period that the bill is before the select committee. I am very comfortable for that to happen and I know that as Minister I liked that to happen. It means that we have up-to-the-minute advice as we consider very complex issues and that will assist the process. On that note I certainly commend the bill to the House.