Clark David: Financial Markets Conduct Bill — In CommitteeText is incorporated into the Bound VolumeClark David: Financial Markets Conduct Bill — In Committee[Sitting date: 27 August 2013. Volume:693;Page:12988. Text is incorporated into the Bound Volume.]Dr DAVID CLARK (Labour—Dunedin North): It is a pleasure to rise to speak on this bill the Financial Markets Conduct Bill. Labour will be supporting this bill. It is a bipartisan approach that has been taken and that is important because it is actually about the security and stability of our markets. It is a process that has played out over time as other members have alluded to. I want to start with the main purposes of the bill because I think it is important that we start at the beginning for those who are at home who may not have yet had a chance to familiarise themselves with this document. The bill is a 700-page document. It is a weighty tome. This is double-sided for those at home who have not had a chance to have a copy in their hands.Hon Ruth Dyson: Printed on each page.Dr DAVID CLARK: And printed on each side indeed Ms Dyson—double-sided.Hon Maryan Street: Thank goodness.Dr DAVID CLARK: The environment spokesperson next to me says “My goodness.”Hon Maryan Street: Thank goodness.Dr DAVID CLARK: Thankfully—a smart move printing it on both sides. I am sure it is available electronically as well for those who are that way inclined.The purposes of the bill are to “promote the confident and informed participation of businesses investors and consumers in the financial markets;”—that is (a)—and “(b) promote and facilitate the development of fair efficient and transparent financial markets.” Those two short sentences explain these 700 pages. That is what this bill is trying to achieve and it is good to boil it down to that because those are then the criteria by which we judge the success of the bill over time to see whether it really plays out in terms of its own purposes.Of course those of us who accept and believe that markets can work well—I personally believe that markets that are well regulated make excellent servants; they find efficient outcomes. But I have a deep concern when I see poorly regulated markets or markets that are not regulated at all because more often than not they produce terrible outcomes and they make terrible masters. So this is an attempt to make sure that our financial markets are properly regulated. It is the proper business of this House to make sure that they are working in the interests of all of our economy so that it grows over time and we can support the kinds of social services health services and education services that we want for New Zealanders.There are many other aspects of this Government’s economic performance that I could comment on that I am less satisfied with but this is one where there has been a bipartisan approach where common solutions and agreements have been found in order to ensure that we have a solid foundation for our markets to exchange information to provide confidence to investors and to ensure that capital flows toward its best use. Ultimately that is what markets are all about. They are all about signalling to investors where capital is most efficiently used for the best returns if markets are functioning properly and in the interests of consumers and society as a whole.I have not had much to do with the early stages of this bill but as it has gone on I have engaged with the Supplementary Order Papers that have been put forward and have been very pleased with the way in which as far as I am concerned that process has played out. Supplementary Order Paper 220 which has been put forward to increase the investment threshold for deeming an investor to be a wholesale investor from $500000 to $750000 is there along with a number of other amendments intended toensure that the protections of the bill are extended appropriately. That is something that we commend on this side of the Committee and will be supporting.I do also want to commend the efforts of Lianne Dalziel who set up the Capital Market Development Taskforce in 2008 from which this bill is ultimately derived. That was set up to develop a blueprint and an action plan for the development of New Zealand’s financial system. We are pleased the Government is starting to act on the recommendations in the task force’s report one of which was a single market regulator. The Labour Government of course 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.I want to speak briefly to the Crown Retail Deposit Guarantee Scheme because that was one of the things that really triggered a hurry-up of work in this area. There was an extreme failure of monitoring in that case and possibly $100 million—we do not know exactly because it has never been properly investigated—of taxpayer money went astray effectively due to poor monitoring by the incoming Minister of Finance Bill English. We know that the Crown Retail Deposit Guarantee Scheme was kicked off by the Labour Government in response to the global financial crisis. It was put in place with 24 hours’ notice from our Australian counterparts in order to ensure that there was not capital flight from banks. The scheme itself was fundamentally sound in its initial stage. There was incredibly quick movement by officials to cover off that risk and to act in the interests of greater New Zealand. The Ministers at the time with great wisdom put that into place very quickly so that the banking system did not fall over which would have seen no doubt some terrible social consequences for New Zealand.So it was put in place well but unfortunately we now know that the Minister of Finance did not follow up adequately and demand the reports necessary to show just how wrong that scheme was going. The unintended consequences of that piece of legislation playing out over time without adequate monitoring are well known to New Zealanders. If I just cite some of them though the South Canterbury Finance collapse has taken the tally of depositors’ money at risk to over $8 billion. That alone was worth $1.6 billion of taxpayer funds. There were 61 finance companies that failed and the guarantee of taxpayer money that followed has been a kind of corporate bailout the likes of which we seldom see in this country. There was a failure of monitoring. The risks grew and grew and grew because the Minister of Finance did not keep a lid on it. The high rate of return attracted investors and the guarantee of the Crown meant that the deposits were safe for those who put the money in.Hon Trevor Mallard: Outrageous.Dr DAVID CLARK: It is an absolute outrage as my colleague the Hon Trevor Mallard says. Now there are a host of other things the Government cannot afford—or claims it cannot afford. If we had saved those billions through effective monitoring—or at least the several hundred million that could have been avoided through effective monitoring—by the Minister of Finance and if he had been across his portfolio properly at the time there are many things that we could have afforded now without getting the country into debt at the rate that this Government has been getting it into debt. So that particular example is another example of why it is important to have really good financial markets regulation.This bill in its attempt to make sure that we have clear and transparent reporting requirements will mean that ma and pa investors see the changes through offer documents. That is the kind of thing that they will see. Prospectuses and investment statements will change. We will have things that are much easier to read much more accessible and there will be things kept in the online register. All of this will make it a market that functions more clearly and where retail investors are protected but theCrown is not putting taxpayer money at risk in the same way and not having to bail out companies for the failures either of the Government to regulate properly or of lending that was not signalled appropriately in terms of its risk.It is a substantial bill. As I said at the outset it has 700 pages. It is aptly described I think as a new one-stop shop for securities law. It is designed to provide a more coherent structure. The Ministry of Economic Development says that it will bring us closer to Australian law in some places and that is in this case no bad thing. As I said the process has been good and the engagement has been good. The changes that have come through to raise that threshold for retail investors were first put forward by the Hon Clayton Cosgrove and were in substance adapted by the Minister of Commerce and added to. The result is a bill that can be accepted across the Committee. It is a bill that takes us forward and that updates Acts that were sorely in need of updating.Unfortunately here we are in urgency passing something that has been on the books for 5 years and it was the same with the last bill that we had go through the Patents Bill. I was out running during the meal break with a friend of mine who is involved in patent law who saw it as somewhat ironic that this had all been rushed through under the cover of urgency when it had been in the system for 5 years. Again here we are rushing a bill through under the cover of urgency—albeit a worthy bill and worthy of support but it shows poor management of the House I think. That is sad and requires parliamentarians—