Chauvel Charles: Financial Markets (Regulators and KiwiSaver) Bill — In Committee 
Chauvel Charles: Financial Markets (Regulators and KiwiSaver) Bill — In Committee 
[Volume:671;Page:17691] 
CHARLES CHAUVEL (Labour) 
: 
 Thank you Mr Chairman Robertson and I congratulate you on your acting chairmanship in today’s debate. I want to say a couple of things in response to what the Minister just told the Committee. I think it would be very useful if what he has just said was right and we were going to see comprehensive regulation and enforcement from one body and one body only. But the problem with the system that is to be constituted by the Financial Markets (Regulators and KiwiSaver) Bill in Part 2 in particular which creates the Financial Markets Authority is that of course it does not quite go as far as that. 
When the markets are faced with situations of criminal behaviour and in particular with serious fraud then the serious fraud task force—or perhaps on occasion the police—will sometimes step in either on receiving a complaint or because it is investigating other conduct. Of course if the serious fraud task force or the police are investigating matters on a criminal basis we will simply find that the Financial Markets Authority is locked out of the process. It will have no option in most situations but to simply stand aside and wait until the criminal investigation usually conducted by the serious fraud task force has been completed. As we all know criminal investigations because of the safeguards that are necessarily in them given the penalties that can be suffered can take some time. That can have a significant chilling effect on any regulator’s inquiry into a particular course of conduct. So I am afraid the Minister oversold these reforms on at least one important aspect when he gave his contribution earlier. 
I think it is important to point out that unless and until we have some sort of regulatory and investigative principle in this country relating to the primacy of an investigator whereby investigators or regulatory or enforcement bodies—all of which have some sort of overlapping jurisdiction in respect of some particular matter—can by an overriding statutory authority simply agree that the matter will be within the jurisdiction of one of them and one of them only to go forward with the investigation then we will still have this kind of overlap. It will be a problem. We can see that problem arising in all sorts of areas. Transport accident investigations are one area that springs to mind but there are many many other areas where the existence of overlapping regulatory or enforcement bodies can prevent the speedy and expeditious conclusion of a particular inquiry. That will still happen in respect of the financial and securities markets when fraud and in particular serious fraud is alleged even after this bill is passed by the House if that is what the House decides to do. 
I will make a couple of other points. The Minister talked about the comprehensive nature of this reform and I think I have indicated one area where that is an overblown claim. The other area is one that I touched on in an earlier contribution and that is the failure of this Parliament to address the fringe lending sector of the market. This bill still does not go far enough in that respect. We need to have comprehensive regulation across the market. The sort of reform that my colleague Lianne Dalziel advocates for in her amendment to insert new clause 9A which she has now tabled would be very useful. If there was a set of principles that bound all participants in all financial markets and if it was up to the Financial Markets Authority to then fill in the meaning of those principles in any particular context we would have progress. But despite the advocacy of the Labour members on the Commerce Committee that is not the way that the Government has decided to proceed. 
In particular I think it would be useful to consider how the principles that are contained in Lianne Dalziel’s amendment would apply in respect of the fringe lending sector. The scheme of the amendment that she has put forward is based as she said on the English Financial Services and Markets Act 2007. I have a copy of the relevant section. Section 64 of that Act allows the Financial Services Authority as it is called in England to issue statements of principle and codes of practice. I think I said 2007; I should have said 2010. 
Hon Lianne Dalziel 
: 2000. 
CHARLES CHAUVEL 
: I beg your pardon; I cannot read Lianne Dalziel’s writing. The legislation in section 64 allows statements of principle and codes of practice to be issued. After that happens the authority fills in as I said before what those definitions mean in any particular case. 
In her amendment Lianne Dalziel refers to obligations to do with a particular provider’s communications with customers. The proposal that she has tabled is that “A firm must pay due regard to the information needs of its customers and communicate information to them in a way which is clear fair and not misleading.” My colleague said she felt that would deal with the issue of celebrity endorsements. That problem has to be faced. It is a shame that Cabinet has kicked it into touch and is waiting for yet another report which we hear from the Minister will not be ready until May. Meanwhile times are tough out there and those celebrity endorsements are influencing people. 
I think particularly of the fringe lending sector where we have Stacey Jones and others saying a certain finance company is a fantastic one. [ 
Interruption 
] The honourable member Peseta Sam Lotu-Iiga ought to listen to this contribution because he knows the demographic to which that endorsement appeals. This Parliament has failed to prevent those sorts of practices despite having had the opportunity time and time again to do so. What happens? People continue to get ripped off because they think: “Gee that sportsperson is a real icon—a real hero of mine. If he or she is endorsing a product it must be a really good one. It must be one that we can trust.” Therefore they invest their money without much further thought. That is a real shame. Unfortunately under the provisions of this bill such practices will be able to continue and we should not think that is desirable. 
It would be much better to go along with the sort of proposal that the Minister indicated the Government will be voting against but which Lianne Dalziel has put up. Her amendment states that there are principles to bind all participants in the financial markets. If people complied with those principles their conduct over time would elevate and the rip-offs would stop. 
The last point I will make in respect of Part 2 relates to the financial literacy point that arises out of the issues I have just been speaking to. In the end until we deal fairly and squarely in this country with the issue of financial literacy it does not matter what regulations or laws we pass because we will still have major problems in this area. That is particularly the case in respect of the fringe lending sector which I mentioned earlier. Again we see something of a disappointing result when this bill is looked at in the round on the financial literacy point. The Commerce Committee in reporting it back has acknowledged that some work is already being done by the Retirement Commissioner in that area. There is a subsidiary function for the Financial Markets Authority that is enhanced somewhat in this bill but still no one in New Zealand is fairly and squarely responsible on behalf of the Government for trying to improve people’s basic level of understanding about the financial products on offer in the market. Until somebody is tasked with that responsibility fairly and squarely and until there is a Minister responsible for that agency and accountable to this Parliament we will still have major problems in that area with people not being able to understand the basic types of products on offer. 
So I say the claims that the Minister has made about comprehensive reform are brave. Certainly no one could deny that this bill is a step forward—in particular in the provisions of Part 2. But in respect of the significant omissions that I have identified on financial literacy and the failure to really come up with a comprehensive code of conduct that ought to apply across the markets so that we can as the Commerce Committee stated in relation to the Financial Markets Authority facilitate “the confident and informed participation of businesses investors and consumers in financial markets” this Parliament will not have done its job.