Foss Craig: Financial Markets Conduct Bill — First Reading 
Foss Craig: Financial Markets Conduct Bill — First Reading 
[Volume:678;Page:872] 
Hon CRAIG FOSS (Minister of Commerce) 
: 
 I move  
That the Financial Markets Conduct Bill be now read a first time. 
 At the appropriate time I intend to move that the Financial Markets Conduct Bill be considered by the Commerce Committee. This bill is a significant piece of law reform in the commercial sector. Its main purposes are to promote the confident and informed participation of businesses investors and consumers in the financial markets and to promote and facilitate the development of fair efficient and transparent financial markets. These are crucial objectives that we must promote in order to achieve long-term growth in our economy. 
A number of events have informed the content of this bill. The global financial crisis and the collapse of finance companies have had a traumatic effect on the lives of many New Zealanders and impaired the confidence of investors in our financial markets. I note in this regard the recent report of the Commerce Committee in relation to its inquiry into finance company failures which highlights regulatory issues in this sector. This bill will play a key role in restoring investor confidence by improving the regulation of those who offer financial products to the public. 
It is essential that the regulation of financial markets operates in a way that facilitates the raising of capital by businesses. The Capital Market Development Taskforce which reported in December 2009 identified the central role that vibrant capital markets play in business development and economic growth. Local businesses will find it easier to develop expand and be internationally competitive if they have ready access to domestically sourced capital. For this reason reform in this sector is an integral part of the Government’s economic growth agenda. The task force provided a number of recommendations for legislative reform. I thank the task force for its work and am pleased that this bill implements many of its recommendations. 
This bill largely completes the comprehensive programme of reforms in the financial sector that this Government has implemented over the past few years. These reforms include the introduction of the financial advisers regime the licensing of trustees and statutory supervisors and the establishment of the Financial Markets Authority. Taken together the effect of these changes will be considerable and will provide a solid foundation for the efficient functioning of the financial markets for years to come. They will also ensure that New Zealand remains an attractive destination for international investment. 
The bill will replace a number of pieces of legislation including the Securities Act 1978 the Securities Markets Act 1988 the Unit Trusts Act 1960 the Superannuation Schemes Act 1989 and aspects of the KiwiSaver Act 2006. Some of these laws are over a generation old and there will be considerable benefits in having all of the law easily accessible in a single piece of legislation. 
 The bill improves on existing laws in many respects. One of its fundamental reforms is that it improves the definitions of different categories of financial products. It also gives the Financial Markets Authority the flexibility to reclassify products within these categories or to declare that products fall in or out of the bill’s regime. This flexibility is crucial to ensure that the regulator has the ability to keep up with the challenges of market innovation. Another key feature of the bill is its definition of the offers of financial products that will be exempt from disclosure requirements. These are generally offers that are not aimed at retail investors. The bill provides improved guidance for businesses and investors through brightline tests for assessing who is exempt. Defining who is in and who is out is an important issue and I will be interested in the submissions that the select committee receives on this matter. 
Part 3 of the bill introduces a new regime for the disclosure that those raising capital must provide to investors who are not exempt. The current requirement for issuers to prepare a prospectus and investment statement will be replaced with a requirement to prepare a single product disclosure statement and include additional information on an internet-based register. The detailed content requirements for product disclosure statements will be set out in regulations but the bill makes it clear that they must be tailored to the needs of retail investors. These changes will make disclosure of more use to investors when they make investment decisions while reducing compliance costs for business. 
Another significant change in the bill is the regulation of managed investment schemes which include KiwiSaver schemes. Currently the requirements for managed investment schemes vary depending on their legal form and the type of scheme that they are. Part 4 of the bill provides consistency in the legal requirements for these schemes and enhances the standards of governance expected of them. For example managers of these schemes will have to be licensed by the Financial Markets Authority and comply with general duties including acting in the best interests of scheme participants. This will provide greater confidence for investors by ensuring that those who manage their hard-earned money are up to the task. 
The bill makes an important change to the regulation of financial product markets. It picks up one of the recommendations of the Capital Market Development Taskforce by providing for the establishment of stepping stone markets. The task force noted that one way to provide opportunities for smaller companies to raise capital and enable them to attract the governance capability they need is to create tiered markets to pull firms through different stages of their growth. It can be a big step to list straight away on the NZX for small companies due to the extra disclosure requirements and other rules that come with listing. The bill allows the creation of markets that can have rules tailored to the nature of the issuers that list on them and investors. 
One final issue that I wish to touch on is the liability regime in the bill. This is a matter of great importance as it provides incentives for the kind of behaviour that we expect from financial markets participants. It also dictates the punishments for contraventions and the remedies that affected people may claim. The regime in this bill places an increased emphasis on civil liability for contraventions of the law including the ability for the Financial Markets Authority to take civil pecuniary penalty proceedings in a wide variety of circumstances. The bill contains a general prohibition on misleading or deceptive conduct similar to that found in the Fair Trading Act. It also contains serious criminal offences for egregious violations of the law such as where there is intentional or reckless misconduct. This is a significant part of the bill and is another area that I invite the select committee to pay close attention to during its deliberations. 
This is a bill of considerable technical complexity. An exposure draft of the bill was released for consultation in August and many extensive submissions were received at that time. These submissions have helped shape the bill that is currently before us. I would like to thank all those who submitted during this process for their constructive engagement and I hope that they interact during the select committee proceedings in a similar manner. 
Regulations under the bill will also provide greater alignment with Australia and help achieve the single economic market objective of ensuring that investors in financial products in Australia and New Zealand receive comparable disclosures. 
In conclusion this bill is a significant piece of law reform in the commercial sector. It is a crucial step towards rebuilding investor confidence and strengthening New Zealand’s financial markets. I commend the bill to the House.