Foss Craig: Financial Advisers Bill — Second Reading In Committee Third Reading 
Text is incorporated into the Bound Volume 
Foss Craig: Financial Advisers Bill — Second Reading In Committee Third Reading 
[Sitting date: 23 September 2008. Volume:650;Page:18974. Text is incorporated into the Bound Volume.] 
CRAIG FOSS (National—Tukituki) 
: 
 I rise to continue the National speeches in support of the second reading of the Financial Advisers Bill. Colleagues have talked about the suite of bills—and I am sure that the Minister of Commerce covered it; I missed her speech—that hold hands with this particular bill: the Reserve Bank of New Zealand Amendment Bill (No 3) and the Financial Services Providers (Registration and Dispute Resolution) Bill. It is all good stuff and quite timely—even more timely now I guess given the condition of and events in the financial markets since this bill was referred to the Finance and Expenditure Committee on 19 February 2008. 
There is one thing. My colleague Mr Tremain gave the example of someone caught up in the current crisis and I heard someone from the Government side of the House—I do not know whose voice it was—say that real estate agents are exempt from this bill. Yes real estate agents are exempt from this bill but that comment showed the incredible naivety and the lack of financial literacy of whoever it was who shouted it out. The commentary on the bill talks about “category 1 products (complex products such as a security other than …”. The bill excludes property quite explicitly—that is right. But if members look at the cause of the current subprime mortgage crisis around the world they have to ask what a subprime mortgage is. It is not the initial transaction of purchasing a property for sale; it is the ongoing leverage or de-leverage of the financing of property. That is what a subprime mortgage in the United States is. Investors around the world including some in New Zealand have been caught out by lending on property with a somewhat dubious valuation and perhaps associated transactions and fees. So yes those investments in property are affected by the intent of this bill; they will be caught up by it. 
At the end of the day it is all about asset classes be it hard assets such as property the derivatives of property or financial instruments down the chain. They will all be picked up. Property is explicitly excluded here in the first instance but if we go down one or two generations of any transaction of any of the current crises we see that the core asset devaluation the core deflation of those balance sheets is about property. Yes those investors might not be the initial owners of the property but if we look down the titles we see that they are guarantors and there is cross-party lending on the titles. Yes this bill and the other two bills pick up some of those issues but let us try to talk sensibly about the financial markets. 
I have here the first version of the bill which was referred to the select committee. I notice only one Government member of the committee here and I am looking forward to her speech on this bill. The bill that was referred to us on 19 February 2008 and the bill that we have before us are a credit to the process but goodness gracious me the first 70 pages of the original version are struck out—the first five parts are totally gutted struck out rewritten. That is a good reflection of the process which Simon Power alluded to—well done. Yes we acknowledge the Minister and her ambitions to have good robust and long-lasting legislation—we fully appreciate that—but we went through a fair few hoops on the way to get there. Who is to blame? I do not know. Perhaps those who were involved in the first draft needed a bit more input from the real world. What we see before us now is a better reflection of the real world because it is a reflection of the risk of investments and advice and that is entirely what financial markets are about. They are about the pricing applications and return—reward—of risk rather than individual occupations individual products etc. As Mr Power said earlier there is still some work to do but this bill is a good start. I am pleased to have been able with my colleagues on the select committee to contribute to the bill before us now. 
My colleague Mr Power also made the point about travel agents. I remember during the submissions process asking about travel agents and we seemed to park that issue saying that it was just travel agents and insurance. But we made the point that many people ask their travel agent when they should buy some foreign exchange. They say they are going to the United States and they ask whether they should buy US dollars now or in 6 months’ time when they go there—and we have all seen the volatility of the foreign exchange markets. The travel agent’s response qualified as financial advice; the travel agent is doing his or her best and maybe is just reading something off a computer screen but under the original bill that information would have constituted financial advice. There are myriad different examples like that from the hire purchase example in the commentary to the car salesman who offers advice on which loan to take or even which deposit to make—a 3-month a 6-month or a 12-month one—if the rates for each one are the same because as those with some financial literacy will know they are not actually all the same. 
My colleagues have spoken about the current conditions in financial markets around the world which are under major stress. I think about $5 billion is either frozen or very very stressed within New Zealand. But I acknowledge that New Zealand has many robust institutions—banking and non-banking—that are performing very well and their depositors’ funds are very very safe indeed. I acknowledge those institutions and I appreciate the tough times they are having as they search for funding and capital. 
I would like to make the point that the original bill was referred to the select committee on 19 February 2008 and the closing date for submissions was 4 April 2008. As submission after submission came in goodness gracious me it was pretty obvious by that stage that the bill would need amending. So there was the first interim report and the closing date for submissions on it was 16 May 2008. Then the second interim report came out and that is pretty much what we have before us today and the closing date for submissions was 22 August 2008. I sat in on many of those submissions and there were common themes. As I said before I acknowledge the path that this bill has taken to get to the more realistic and real-world form that it is in now but again I question why it needed to take such a tortuous and long path in the first place. It was almost an example of real-time submissions and bill-making as Mr Power alluded to earlier. Engaging with the submitters was a very healthy process. They knew their stuff and for a lot of it they knew it better than many of the members sitting round the committee table did. 
It is interesting to have this example because at least better legislation come out of the select committee process. Imagine if that process had been extended to the Electoral Finance Act which was raced through under urgency prior to Christmas last year. That legislation is creating all sorts of problems. Imagine if the same process had been extended to the emissions trading scheme bill. A thousand amendments to that bill were not submitted on and another 785 amendments were made to the bill that arrived back in the House. A total of 1785 amendments that had not been submitted on were raced through the House under urgency. Even KiwiSaver was in the same bucket. Good legislation does take good select committee time but most members would acknowledge that they are on a select committee to at least make legislation as good robust and long-lasting as possible. 
During the Committee stage I will be picking up a few points. My colleague Chris Tremain picked up that about $5 billion is under stress at the moment within New Zealand. Some of that is because of allegedly fraudulent and dodgy activities but much of it is from the market going against the investors—whatever they were. We have to distinguish between the two because the Serious Fraud Office the Securities Commission and the police are investigating many of those instances right now. 
I again make the point in this House that in the current environment—and I am sure the Minister said the same thing—with the stress in the financial sector now is a terrible time to be getting rid of the Serious Fraud Office. This bill is forward-looking—it is not retrospective—but at least we have the Serious Fraud Office to look at alleged misdemeanours that this bill cannot address yet the current administration is trying to wipe that office off the face of the earth. What an absolutely absurd time to do that with the stresses and the strains that the financial markets are under! 
I look forward to the Committee stage. I look forward to robust speeches from the other side; as we are sitting under urgency they must urgently want to speak. I will speak again in the Committee stage.  
Bill read a second time.