Financial Markets (Regulators and KiwiSaver) Bill Auditor Regulation and External Reporting Bill — First Reading 
Financial Markets (Regulators and KiwiSaver) Bill Auditor Regulation and External Reporting Bill — First Reading 
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Financial Markets (Regulators and KiwiSaver) Bill 
Auditor Regulation and External Reporting Bill 
First Reading 
Debate resumed from 21 September. 
Hon DAVID CUNLIFFE (Labour—New Lynn) 
: 
 The Labour Party will be supporting this legislation to the select committee but it will do so with only the most intense scrutiny being applied at that stage. Many issues are raised by this very complex set of legislation but high in the minds of New Zealanders who are listening to this debate particularly those in the South Island will be the appointment of Mr Simon Botherway as chair of the establishment board of the new Financial Markets Authority which is set up under this legislation. That appointment has been called into question by the apparent failure of Mr Botherway to make a timely declaration of a possible perceived conflict of interest around his recommendation as chairperson of a Securities Commission committee to place Allan and Jean Hubbard into statutory management along with Aorangi Securities. 
It has further been a matter of surprise to the Opposition that the chairperson of the Securities Commission Jane Diplock for whom we have high regard excused that late declaration—and in our view partial declaration—on the grounds that Mr Hubbard’s association with South Canterbury Finance which had earlier put Mr Botherway’s brother into receivership was “ancient history”. Well how ancient was that history? 
Mr Hubbard tipped all his remaining assets in Southbury Group into South Canterbury Finance to ensure that equity holders did not lose their shirts. He tipped all his assets in and I understand that a matter of only a few days later a single anonymous letter of complaint was received by the Securities Commission. On the basis of that single anonymous complaint they took the unprecedented step of placing Mr and Mrs Hubbard and Aorangi Securities into statutory management thereby causing a collapse in the inflow of funds into South Canterbury Finance. 
The Securities Commission said they were not related parties because a legal opinion noted that at the time Mr Hubbard was no longer a director of South Canterbury Finance. Well technically speaking that is true but by a very short margin of time. But in practical terms the impact was the same: funds into South Canterbury Finance dried up; it received a credit-rating downgrade days later and the fate of that company was sealed. 
The Opposition believes that two things must now occur: first given the news earlier in the week that the Ombudsman is investigating Mr Botherway’s so-called declaration of interest we believe that Mr Botherway must immediately stand aside from the chair of the establishment board and should reconsider any availability should he not be completely exonerated from his suitability to chair the Financial Markets Authority. This is the senior regulator in the New Zealand markets. This is the position that must be beyond reproach upon which the reputation for the integrity and transparency of the entire market rests. If New Zealand does not maintain that reputation all New Zealanders will suffer. 
I regret to hear from a major broker of international investment into New Zealand that he will not allow offshore clients to invest in New Zealand registered vehicles; he insists they must invest only through Australian-based Australian Securities and Investments Commission regulated vehicles because he said: “New Zealand is the coldest banana republic in the world.” If that is the reputation of our markets in the ears of foreign investors how important is it that the chair-designate of the establishment board should have his name cleared— 
Jo Goodhew 
: 9 years of Labour’s stewardship. That’s how you left it. 
Hon DAVID CUNLIFFE 
: The soon-to-be former member for Timaru and Rangitata should listen up. I have had more emails from her constituents in the last week than she has had hot dinners. They are all saying the same thing—that they will never vote for her or her party again after the actions that this uncaring improper non-transparent National Government has taken in regard to South Canterbury Finance. 
Dr RUSSEL NORMAN (Co-Leader—Green) 
: 
 I rise to speak on the Financial Markets (Regulators and KiwiSaver) Bill and the Auditor Regulation and External Reporting Bill. 
It is an interesting day in the House when we have bills before us that seek to reintroduce some degree of regulation to the financial markets. It is paradoxical that at a time when the ACT Party is collapsing internally the ideology that sat behind ACT requires overturning after the catastrophic effect that that ideology has had on the New Zealand economy. These bills in some respects try to address some of the huge problems that were left by the embrace by the right wing of National and of Labour through the 1980s and 1990s of the ideology of laissez-faire and a low level of regulation. It seems to me that we are having to clean up after two decades of disaster as a result of that embracing of the ideology of laissez-faire—of letting the market decide everything and believing that we do not need proper regulators. After maybe two decades of catastrophe as a result of that embracing of the ideology that underpins ACT which underpinned part of the National Government and the Labour Government in the 1980s and 1990s we are having to try to fix it up here today. 
The Financial Markets (Regulators and KiwiSaver) Bill seeks to restore investor confidence and to promote fair efficient and transparent markets. It pulls together functions and roles currently dispersed amongst several agencies and takes a more integrated approach. It is important that KiwiSaver schemes in particular are monitored and risks minimised as so many people rely on these for their long-term financial security. Many are still under the misapprehension that the schemes are Government-guaranteed. 
It is clear that the deregulation of the 1980s and 1990s was a failed experiment. It has done serious harm. Very few people would not have a war story whether personal or of a family member or friend of being caught up in the financial collapses that resulted from the deregulation of the late 1980s and 1990s. Deregulation opened up the way for greed. It was an opportunity for some people to exploit and gain from the less well-informed trusting people—who often were persuaded by celebrity endorsements—and sheer financial stupidity. The Greens will support this bill as it is a useful mechanism to give some comfort to investors and potential investors. 
The bigger picture is that in New Zealand and globally investor confidence and indeed the confidence of those not directly participating in the financial markets have been seriously undermined and that confidence is unlikely to return as people realise that more is broken here than inadequate regulation poor oversight and sharp or often outright corrupt practice. There is a much more profound flaw at the base of our economic system and that is not a problem that is amenable to mending by any single bill as important as it is that we amend some of it. 
Tim Jackson the Economics Commissioner for the UK Sustainable Development Commission has outlined the deeper-seated problem in his report  
Prosperity without Growth 
. The report highlights the inherent structural flaws of the economic system predicated as it is on the assumption of continued and unending economic growth. He says: “The market was not undone by rogue individuals or the turning of a blind eye by incompetent regulators. It was undone by growth itself.” He demonstrates that the dominant economic model was always ecologically unsustainable and has now proven to be economically unsustainable as well. He also on a more positive note makes the point that the economic crisis and its ongoing effects also present us with a unique opportunity to invest in change to put aside the short-term and limited thinking and to look for means and practices whereby we can still survive and flourish but also reduce our material impact on the planet. 
The Greens will be hosting an economic seminar later this year—and we look forward to the participation of members from other parties in the House—where some of the possibilities for positive change can be proposed and debated. A debate starting from first principles on the purpose and form of our economy and the base assumptions underpinning it needs to occur as a matter of urgency if we are not to soon discover that remedial measures like those proposed in this bill while necessary and useful in the interim are far from sufficient. 
I will speak now on the second of the two bills before us tonight the Auditor Regulation and External Reporting Bill. In similar fashion to the Financial Markets (Regulators and KiwiSaver) Bill this bill has a worthwhile purpose and as such we will support it but it also shines some light on an industry that needs to come to terms with the realities of international and increasingly local expectations about the profession’s scope and the potential for it to make a more holistic contribution to a successful and sustainable economy. 
The bill to some extent acknowledges the age-old dilemma of who will guard the guardians. A great deal of trust has been placed in auditors and this bill sets out to strengthen the regulatory regime within the Financial Markets Authority or FMA with the authority charged with overseeing a new licensing system for auditors and being responsible for monitoring the adequacy and effectiveness of the industry’s regulatory systems and processes for overseeing auditors. This response to the financial crisis will also contribute a degree of investor confidence in our financial markets. 
It is interesting to read in the bill’s explanatory note the comment that “self-regulation is no longer within the range of international acceptability.” Yet self-regulation of course has been the ideology of New Zealand Governments since 1984 through to 1999. It is incredible what a failure that ridiculous experiment in self-regulation has been. It has resulted in catastrophe and suffering for tens of thousands of New Zealanders who have lost their savings because the ACT Party ideology became the official ideology of the National and Labour sides of the New Zealand Parliament for so many years. Despite regulation being somewhat antithetical to the National Government’s core philosophical position it is bowing to international pressure to better and more actively regulate in this area and let us hope it does it well. 
It is unfortunate that the Government seems unable or unwilling to go further and to take the opportunity to encourage or even over time oblige the practitioners the chartered accountants to adopt what is emerging as best practice internationally: to bring together not only financial but also environmental and social information into accounting standards and practice. After all what does it matter if we have great accounting standards if they lead us to destroying the planet on which we depend for our very survival? 
The profession has always measured and reported upon the flow of money through a business an organisation or indeed an economy. The New Zealand Institute of Chartered Accountants among others has over time looked at the various mechanisms and models for extending accounting and auditing practices to measure the whole of a business’s activity and the effect of that activity—measuring and reporting the environmental and social costs and benefits of business and so giving a much clearer and more complete picture of its real value and its real influence. A genuinely integrated transparent form of accounting is becoming commonplace in many countries and sustainability reporting has been adopted by some of our largest and most successful companies locally as part of their regular cycle of reporting. Not only does this make a positive contribution to brand value; it gives our exporters a means to protect themselves against claims from other producers closer to the market that we are not able to compete in terms of the sustainability of our products and services. The present Government’s distaste for the word “sustainability” is well documented but in this instance it would do well to acknowledge and accept the inevitable; to be at least a follower of the international trend to whole cost accounting and to facilitate the development of expertise and acceptance of the new models within the profession. This is after all the 21st century not the 19th century. 
These bills are useful in terms of repairing some of the shortcomings of our current approach to finance and economy. The challenge now is for the Government to display some courage and willingness to recognise that some things cannot be fixed and to adapt to new realities and new demands on a finite planet. Substantive and fundamental change in our economy is inevitable. We can choose to lead and work to manage the transition and seek to achieve the most positive outcomes socially environmentally and economically or we can passively wait for change to roll over us. 
RAHUI KATENE (Maori Party—Te Tai Tonga) 
: 
 I am pleased to stand to talk on the Financial Markets (Regulators and KiwiSaver) Bill and the Auditor Regulation and External Reporting Bill. I say from the outset that although I am naturally suspicious whenever leave is sought for bills to be brought together under one umbrella—so-called cognate bills—in this case I am prepared to grant an exemption. These bills are truly what we might call companion bills. The Auditor Regulation and External Reporting Bill is absolutely linked to the establishment of the Financial Markets Authority an initiative in the Financial Markets (Regulators and KiwiSaver) Bill. The Financial Markets Authority once it is up and running will be the Government regulator of the audit profession so the two bills are virtually one and the same. It is in the philosophical intent that the linkages are most explicit with both bills designed to foster confidence in our finance industry and in doing so to strengthen the base for our markets. 
I have come straight from Otautahi and I have been immersed in the situation of our people there since the earthquake on the morning of Saturday 4 September. The perilous situation of some of our families as they consider their capacity to provide for the basics of life—food shelter a place to sleep and a roof over their heads—has been truly hard to bear. I have seen our elders weep in despair as they wonder how they will manage. I have sat with families who are struggling to cope and it reminded me of just how important it is to ensure our financial viability is secure. On a different scale but essentially driven by the same hopes and fears the financial confidence of our markets is a critical factor in establishing a secure foundation for our economy. The last few years have seen many analysts expressing concerns about the viability of our regulator agencies and in particular whether there are sufficient checks and balances in the system to ensure that providers act with integrity and honesty. 
Such concerns have sparked off an enormous legislative agenda around financial advisers securities capital market development prudential regulation governance of financial service provides and the like. I cannot help but think that if only the Government could put such effort into addressing the situations of abject poverty that so many New Zealand families find themselves in we could make a difference overnight. I am thinking of aspirations to create confidence in our communities such as setting a deadline to eliminate child poverty by 2020 or initiatives to address the basic levers such as raising core benefit levels including superannuation and the veterans pension and increasing the minimum wage to at least $15 an hour—of course not to mention removing GST from healthy food. 
These bills do not do that but they do look after the interests of some people who are cash rich and are able to invest in our financial markets primarily through the creation and establishment of a new Financial Markets Authority. This is being promoted as a super-regulator for our financial markets bringing together functions that have been spread across the Securities Commission the Ministry of Economic Development the Government Actuary and NZX. This Government clearly likes the super-size concept—the super-regulator the super-city—but only to a degree and we have to remember that the “Supersize my pay!” campaign is a message that this Government is yet to deliver on. The “Supersize my pay!” campaign was launched in late 2005. It revolved around three main planks: the minimum wage abolishment of the youth rate and secure hours. One would think they are all perfectly reasonable. However this bill does not deal with that. It aims to promote fair efficient and transparent financial markets. We know that the Government is anxious to fast-track this legislation to establish the authority as soon as possible in order to promote confidence in Aotearoa’s financial markets. However there is always the concern that fast-tracking the authority’s establishment might mean that the work carried out by the authority would be done under uncertainty as the finer details of the shape of the new regulator are still being sorted out and might not be completed by the time the authority is established. 
I want to turn my attention to the proposals in this bill to improve an oversight in KiwiSaver. We have been really pleased to be part of the developments around KiwiSaver that are focused on housing. I come back to the basic needs I talked about earlier as demonstrated in the last couple of weeks in Otautahi. Some members of this House might be familiar with Maslow’s hierarchy of needs. They include safety and security which are so fundamental to survival. One of the developments we are really proud of over the last 18 months since we have been in a confidence and supply arrangement with the Government is the KiwiSaver deposit subsidy and the KiwiSaver first home withdrawal option which helps people with the deposit for a home. In our analysis about 10 percent of current KiwiSaver members are Maori. With this new development the home deposit elements of the scheme can be coupled with a Kainga Whenua a Welcome Home Loan and the Welcome Home First Steps education course providing another pathway for Maori into homeownership. This is a significant advance to help create opportunities for Maori to enjoy homeownership along with other New Zealanders. 
We have had a particular interest in looking into the KiwiSaver changes to ensure that basic thresholds of fairness and justice apply to that scheme along with any others. The changes to the KiwiSaver regulatory regime include making fund managers more accountable to regulators and investors and requiring fund managers to disclose information about returns fees and assets in a consistent and comparable manner. In the current environment there is only limited regulation of fund managers within the KiwiSaver regulatory regime. These bills will move the KiwiSaver scheme closer to the legal structure of unit trusts and bring trustees closer to the licensing regime that will be established by the Securities Trustees and Statutory Supervisors Bill. We support all these measures as we believe they are being done in the spirit of accountability transparency and security. We are pleased to support this bill at its first reading. 
KATRINA SHANKS (National) 
: 
 It is my pleasure to take a call on the Financial Markets (Regulators and KiwiSaver) Bill and the Auditor Regulation and External Reporting Bill this afternoon. I cannot wait until this legislation comes to the Commerce Committee because I sit on it as does Sam Lotu-Iiga the deputy chairperson who I would like acknowledge had a baby girl this morning. He is now the father of a beautiful little girl called Hope Elizabeth. Hopefully he will be back in time for this legislation to come into the select committee as we kick off the deliberations. 
I am particularly interested in this legislation coming to the select committee for the reason that I am a chartered accountant. A lot of the things that this legislation deals with are in relation to improving auditor regulation. I first started off in accountancy as an auditor in Wellington so for me it is really relevant to see where this discussion goes. I know that the Institute of Chartered Accountants or NZICA is a supporter of this change. That is good to see because it put the regulation of auditors who audit public accounts underneath another regulator and takes it out of the family of the institute. 
So I take just a small call this afternoon to say that I look forward to seeing this legislation come into our select committee and to hearing what the submitters have to say. Thank you very much. 
Hon DAVID PARKER (Labour) 
: 
 I will begin by responding to the comment by Rahui Katene that she wished this House could do more to eliminate poverty in families. Rahui Katene sits with the Maori Party and she voted for a Budget this year that increased the gap between the rich and the poor by having income tax cuts of which 35 percent of the value will go to the top 5 percent of income earners. So I say to Ms Katene that she should please not preach to others in this House about those who are less well off and that she should not vote for a Budget that increases the gap between the rich and the poor. 
I agreed with some of the things that Russel Norman said in that we are dealing in this legislation with a reaction to some over-deregulation in different parts of the economy. He mentioned that there had been over-deregulation in a number of spheres. There are some obvious examples like the building industry. We over-deregulated the building industry and we caused billions of dollars of costs to ordinary New Zealanders through leaky homes. Those homes were in large part an outcome of the over-deregulation of the building industry. 
We also had over-deregulation of the electricity industry. I am reminded of the comments we heard from John Carter in respect of the Electricity Industry Bill. He had the temerity to assert that there had been under-investment in transmission because of what the last Government did. [ 
Interruption 
] Well I say to the Hon John Carter that I put on record that he got that exactly wrong. What happened was that Mr Bradford so deregulated electricity transmission that there was a written agreement between Transpower New Zealand which owned the national grid and the energy companies. The agreement said that Transpower could only ever invest in the grid and be paid for it if the people who were paying their bills agreed to the upgrade. That was contained in a written document prepared by Treasury under Max Bradford’s National Government. But what happened was that Contact Energy Meridian Energy and the other companies could never agree on any upgrades so none were done. By the end of the 1990s transmission expenditure had dropped to I think between $20 and $50 million per annum which was woefully inadequate. 
The Labour Government then came in and said that that was nonsense and that we needed to have a regulator that had some oversight of planned investment in transmission infrastructure. The amount in transmission spending following that change increased more than ten-fold to more than $500 million per annum under the Labour Government. That included approval for some massive projects like the upgrade of the Cook Strait cable the transmission upgrade through the Waikato some big upgrades in the northern South Island and some upgrades in Auckland. So I say to Mr Carter that far from that record being proof that a National Government does well and a Labour Government does poorly history shows the opposite. 
In terms of these bills which impose more regulation in respect of the finance sector I agree they are necessary. But I do not think that they absolve the need to have a good look at what has already gone wrong. I am told that 61 finance companies have gone broke in the last 4 years—61 finance companies. The biggest of the recent failures has been South Canterbury Finance. We heard the Hon Bill English a couple of weeks ago in the ministerial statement debate say that most of what had gone wrong in South Canterbury Finance was a consequence of lending prior to the date of the first Crown Retail Deposit Guarantee Scheme. He said that that was the case—and it may be the case—but we will not know until we look into it. I raise that because it seems to me that if there was shonky lending before the time of the grant of the first guarantee we need to know what was known by whom and when. The purpose of the Crown guarantee was not to prop up already insolvent institutions. The purpose of the Crown guarantee was to give investors confidence that already sound institutions would not fail as a consequence of a run on the fund. That is why we did that in favour of banks and also in favour of finance companies. 
If the Hon Bill English is correct in saying that at the time of the original guarantee South Canterbury Finance was effectively already broke then someone has gone wrong. I do not know who that somebody is which is why we need an inquiry. Was it the statutory trustee? There is a statutory trustee for every finance company who has a statutory duty to oversee the terms of the debenture trust deed and to make sure that the finance company is operating in terms of its legal mandate set out in the trust deed. I do not know. There may be some fault by the trustee and if there is the trustee should share the pain that is currently being borne totally by taxpayers who have bailed out the company to the amount of $1.6 billion. I ask Mr Cunliffe whether that is the figure. 
Hon David Cunliffe 
: The figure is $1.75 billion. 
Hon DAVID PARKER 
: That $1.75 billion has gone to depositors in South Canterbury Finance so maybe the trustee should be bearing some scrutiny about whether that trustee has some liability. 
Perhaps it was the auditors. Did the auditors do their job properly in respect of South Canterbury Finance? I am not sure. I find it hard to believe that if the Hon Bill English is right—and I have no reason to doubt his word—then the bad lending had already taken place and the state of South Canterbury Finance was already parlous effectively at the time of the original guarantee. Did the auditors do their job properly? 
Hon David Cunliffe 
: Why did Bill English sign it in? 
Hon DAVID PARKER 
: To be fair I tell Mr Cunliffe I do not think that the Hon Bill English would have signed it in if he had known that. Maybe there was some misrepresentation of the position by the auditors or of what the auditors were responsible for. 
What about the directors? Did the directors of South Canterbury Finance have knowledge about how parlous their loan book was? If they did have that knowledge it ought to have been disclosed to the Crown. It ought to have been disclosed to depositors too but it certainly ought to have been disclosed to the Crown at the time of the guarantee. A $1.75 billion loss is being suffered by taxpayers as a consequence of this bail-out and we need to find out what went wrong. We really need to find out what went wrong. 
One of the other problems in a lot of finance companies is that there have been far too many cosy deals between directors and the family interests of directors including their family trusts and their friends and there have been loans not appropriately secured. We have seen that in Hanover Finance and in a lot of other finance companies where there was related-party lending and where loans were given by companies under the control of directors to entities that were related to those directors. In my opinion this has been one of the greatest failures by regulators because in some of those transactions those directors had prior form from the 1980s cleanout. If regulators cannot keep an eye on the people who had prior form if the trustees cannot and if the auditors cannot why do we have those officials? If they cannot keep an eye on people who had prior form—criminal form sometimes—and who had come back as directors in a later incarnation there is something wrong with our systems. 
I suspect that some of the things that have gone wrong in South Canterbury Finance could include related-party loans—loans to organisations controlled by some of the directors in instances where they did not take appropriate guarantees from family trusts. In that case the benefit of the transaction accrued to some entity related to the director in order to improve the wealth of the number of companies or family trusts those people had an interest in yet the risk was not attached to those assets despite the fact that the directors of those companies knew where the assets were and knew where those guarantees should have been taken from. I am not convinced that there are not tens of millions if not hundreds of millions of dollars in that category—not just in the case of South Canterbury Finance but also in respect of some of those other finance companies. 
This bill is supported by the Labour Opposition but more than anything else we need an inquiry into these finance companies—in particular into South Canterbury Finance—in relation to what has gone wrong there. Why is there no willingness to have an inquiry when $1.75 billion of taxpayer money has been spent? If the inquiry cost $1 million it would be a tiny fraction of the loss. It is not 1 percent not a tenth of 1 percent of the loss; it is even less than that. We must get this in perspective. There has been a $1.75 billion cost to taxpayers; we need to find out what has gone wrong. I am not suggesting mala fide on the part of the Hon Bill English but something rotten has happened here and we need to find out the cause of the smell. 
JONATHAN YOUNG (National—New Plymouth) 
: 
 I am sure the Hon David Parker realises that there is going to be recovery of assets. I will not proceed to talk much further than that other than to say that the Financial Markets (Regulators and KiwiSaver) Bill and the Auditor Regulation and External Reporting Bill are strong and good legislation that will bring great robustness to our regulatory framework. When shocks and quakes come they reveal where weaknesses exist. Prior to the quake everything looks integral but when a shift and upheaval come vulnerabilities are exposed. That is exactly what happened when the global financial crisis hit. It was felt in nearly every sector of our economy and the economies of the world. But the fractures came where inherent weaknesses existed. This Government has undertaken the rebuilding of the regulatory infrastructure of the financial sector and in the case of this legislation now before the House the establishment of a Financial Markets Authority. 
Although a low Government debt compared with those of other advanced economies puts us in a stronger place according to the International Monetary Fund in order to withstand future financial shocks we need a robust regulatory infrastructure in place. I congratulate the Minister of Commerce the Hon Simon Power on his leadership and the hard work he has put into this rebuilding. As much as the Hon Gerry Brownlee is present and hardworking for the people of Canterbury in their quake the Minister of Commerce has put in an enormous effort to ensure that strength confidence and stability surrounds our financial markets sector. He said at the end of April 2010: “Over the past year it has become increasingly clear to me that one of the missing pieces in the regulatory landscape is a single regulator focused on proactively monitoring and enforcing securities law. On too many occasions in finance company collapses we heard of investors’ money falling to the floor through the cracks between regulators. This has damaged investor confidence and if we are to restore that confidence we need to make changes.” 
National is focused on boosting growth and creating jobs. Only a strong economy can provide financial security for families real opportunities for young people safer communities and the high-quality education and health services that all New Zealanders need. This bill will go a long way towards providing the environment and framework for that to occur. Thank you. 
Hon SHANE JONES (Labour) 
: 
 Kia ora ano tatou. One hopes that members of the financial community up and down the country are taking note that legislation is wending its way through Parliament although the legislation really is a belated reaction in terms of the $6 billion - odd that has gone west associated with the failure of multiple finance companies. You see that was New Zealand’s episode of the subprime mortgage crisis. We are told that the derivatives market—opaque and complex; numbering trillions of dollars—actually lay beneath the collapse of much of the financial system in northern Europe and the United States of America. Although much of our financial apparatus was spared such pain we have lived through the loss of $6.5 billion worth of toilers’ and garden-variety Kiwis’ wealth; it has gone up in smoke. 
Those finance organisations actually had a very important role to fulfil. Mezzanine finance provided a level of financial support for investors and entrepreneurs beyond what a bank could prudentially allocate. It makes one wonder had those types of people been in charge of our major trading banks what the result might have been. One shudders to think about that. Other than Kiwibank we are stuck with Aussie-owned banks. Those banks remained stable during the recent financial imbroglio but many of the finance companies have turned to custard. This legislation unfortunately will not bring that money back in any manner or form. Let us not forget the size of the loss and the fact that an entire generation of savers have watched their wealth vanish. 
One of the most extraordinary examples concerned the protagonists behind the failed Hanover Finance investment. It is hard to imagine that the long arm of the law will ever catch up with them but who knows? Events like those show why legislation of this nature and extreme vigilance is needed. The original owners of Hanover Finance passed the spoiled goods over to Allied Farmers and what do we read about in the newspaper now? That company too is teetering on the point of absolute collapse. 
I preface my remarks on the bills with those comments because we did not move with enough pace to bring to justice the people in whom society had posited their trust. We will live to regret that because it is difficult now to get a range of projects up and going. Although capital may be there it is very chary and it is very frightened of falling again into the hands of the characters who have ruined people’s lives. As we have said earlier we support this legislation but we ask whether it will enhance the confidence of savers to bring money back into circulation so that it fulfils this mezzanine purpose. I hesitate to agree that it will other than to say that it is an important building block on a long road to recovery. 
My colleague Lianne Dalziel played a key role in launching the work related to the Capital Market Development Taskforce. I do not fully subscribe to the notion that New Zealand is short of capital. I prefer the approach that says New Zealand has capital but that it is both misallocated and at the moment very shy; it is staying in an area where it is unlikely to be squandered as a consequence of dodgy decision-makers. So this apparatus has to fulfil the purpose of causing a new source of capital to be made available to firms entrepreneurs and investors in our country because it is only through investment that we will create jobs and enhance the number of firms that will produce a greater level of goods and services—hopefully to generate foreign exchange earnings. 
Often a celebrated case is seized upon and the culprits in a given case are jumped upon from a great height. The style of compliance pursued by the Inland Revenue Department tends in my assessment to search out for egregious examples of wrongdoing smash them hard and then hope and trust that the severe punitive measures visited upon the culprits will send a message out to a wider group of people. Well that is really what needs to happen as a consequence of the passage of these bills. There is an enormous contrast. We can watch television and see the hapless individuals who have been fast and loose with the funds of American citizens being marched out of their offices surrounded by heavies—I dare not say “goons” but they are very frightening individuals—wearing FBI-emblazoned jackets. However in Aotearoa New Zealand those wrongdoers often go away for a holiday overseas then come back— 
Hon David Cunliffe 
: Hawaii. 
Hon SHANE JONES 
: Yes. Well the man who is in Hawaii is a particularly unpleasant chap: Hotchin. 
Hon David Cunliffe 
: Oh Hotchin or Key? 
Hon SHANE JONES 
: Ha ha! Well Mr Key has enough explaining to do in terms of his role in relation to Mr Hubbard’s empire. But with the fullness of time no doubt information will continue to trickle to this side of the House in that regard. 
Hon David Cunliffe 
: It’s a torrent at the moment. 
Hon SHANE JONES 
: Yes. Well there we go—the quantity of the information although it may take a while to sieve through contains a number of nuggets; of that we can be sure. 
The point I will make though is that unless the regulators are able to visit significant criminal consequences on culprits then I fear that garden-variety Kiwis with their several hundreds of thousands - odd dollars etc. will be at risk again. 
Too much of the capital that we refer to as mezzanine capital ended up in the hands of people who fed an asset-price spike through commercial property investments residential property investments and land conversions. None of those are inherently wrong but when there is a significant misallocation and when the asset prices become decoupled from the cash-generating capacity of the actual asset then one is on a hiding to nothing in the event that capital prices do not keep rising. At one level it is important that we as savers show some due diligence. At another level it is important that the people whom we trust are aware that if they break that trust and if they act in a fashion that is reckless fast and loose then they personally will bear the consequences: they personally will lose their liberty and they personally will be ruined in terms of their reputations in that sector. The reason that Labour supports these two bills is that we feel that this legislation is an important step in that direction. 
As I finish my speech I will give an indication of how difficult it is to make those people aware of the trust they hold. I felt ill as I read the newspaper the other day and saw that the person representing the ratings agency that had looked at various aspects of the Hubbard empire said the agency may have been a little casual and it may have been insouciant in relation to the level of information that it asked for as if it had no responsibility whatsoever for what has occurred. So despite the loss of $6.5 billion the imbroglio around South Canterbury Finance is an example of how far we have to go. Hopefully this legislation will make a good contribution. 
MELISSA LEE (National) 
: 
 It is a pleasure to rise to make a very short contribution to the Financial Markets (Regulators and KiwiSaver) Bill together with the Auditor Regulation and External Reporting Bill which are obviously being read together. 
I will take a moment to talk about the Financial Markets Authority. This authority will consolidate functions that are currently fragmented across several departments such as the Securities Commission which is the current market conduct regulator; the Government Actuary which is the current market regulator of superannuation and KiwiSaver schemes; certain functions of the Ministry of Economic Development; and also some functions currently undertaken by the Minister of Commerce. The Financial Markets Authority will be the one authority that will look after all of those. 
Obviously the Financial Markets Authority will be focused on promoting fair efficient and transparent financial markets. A key focus will be on a visible proactive surveillance and enforcement role in relation to those markets. Speakers who have spoken before me have talked about the huge financial trouble that New Zealand and the world has had. Investment literacy in New Zealand is very poor and we need to improve the situation. 
I am a member of the Commerce Committee and I look forward to the submissions that will come to it and the work that will be done on this legislation. This is great legislation and I commend it to the House. 
Financial Markets (Regulators and KiwiSaver) Bill read a first time. 
Hon MAURICE WILLIAMSON (Minister for Building and Construction) 
: 
 on behalf of the  
Minister of Commerce 
: I move  
That the Commerce Committee 
 consider the  
Financial Markets (Regulators and KiwiSaver) Bill that the committee report finally to the House on or before 28 February 2011 and that the committee have authority to meet at any time while the House is sitting (except during oral questions) and during any evening on a day on which there has been a sitting of the House and on a Friday in a week in which there has been a sitting of the House despite Standing Orders 187 and 190(1)(b) and (c). 
A party vote was called for on the question  
That the motion be agreed to. 
Ayes 65 
New Zealand National 58; Maori Party 3; ACT New Zealand 3; United Future 1. 
Noes 51 
New Zealand Labour 41; Green Party 9; Progressive 1. 
Motion agreed to. 
Auditor Regulation and External Reporting Bill read a first time.  
Bill referred to the Commerce Committee.