Beaumont Carol: Financial Markets (Regulators and KiwiSaver) Bill — In Committee 
Beaumont Carol: Financial Markets (Regulators and KiwiSaver) Bill — In Committee 
[Volume:671;Page:17701] 
CAROL BEAUMONT (Labour) 
: 
 I will continue with a couple of points in relation to the Financial Markets Authority as outlined in Part 2 of the Financial Markets (Regulators and KiwiSaver) Bill. Firstly I will talk particularly about its ability to monitor and conduct inquiries and investigations into any matter relating to financial markets or the activity of financial market participants. Secondly I will talk about the provision to keep under review the law and practices relating to financial markets financial market participants and other persons engaged in conduct relating to those markets. 
Those are two very useful responsibilities or functions of the Financial Markets Authority. One issue that is worthy of some consideration is the types of inquiries and investigations that we might need in relation to our financial markets. “Financial markets” covers quite a range of different operations from the second tier or fringe end right through to very big investment companies and the like. I think understanding how those companies operate—how people choose to use different types of lenders for example—is very useful. 
In the course of looking at the issue of fringe lenders or loan sharks it became very apparent to me that people were using so-called finance companies that were lending irresponsibly and at an excessive interest rate even though they could have got access to credit elsewhere. That seemed to be a very strange situation and understanding that type of behaviour seemed to be very important. It may well go to the matter I raised earlier of financial literacy or it may well go to other matters like the way particular communities are targeted by some sorts of finance companies and so on. The types of inquiries the Financial Markets Authority could conduct under clause 9 is something for us to think about. 
Likewise keeping under review the law and practices as outlined in clause 9 provides an opportunity for us to look at our financial markets in terms of how we can ensure that they are functioning as per the objective which is to have fair efficient and transparent financial markets as outlined in clause 8 in Part 2. One of the ways of keeping the law and practices under review is for the Financial Markets Authority to ensure that it is looking at best practice internationally. Where similar problems are being addressed in other jurisdictions let us make sure that we look at and review the laws in those jurisdictions. A number of countries have been dealing with for example the question of excessive interest rates and how they might be managed and trying to work out whether capping interest rates is the best way to go or whether other provisions are better. Using that information and keeping law in other jurisdictions under review is particularly relevant to us and useful for us as a country. 
I come to the amendment being promoted by the Hon Lianne Dalziel which is to insert a new clause 9A in Part 2. She is attempting to look at principles to bind all financial market participants. That is a really good idea. It makes a great deal of sense for us as a Committee to agree on the kinds of principles we think should underlie every financial market transaction and that all the participants should sign up to. One of the provisions she has outlined in the amendment is that “A firm must conduct its business with integrity.” A lot of the places that have caused a great deal of harm in New Zealand—and I do not mean just at the fringe market end; I mean some of the investment companies that have caused many small investors to lose their life savings—were not acting with integrity. The amendment would ensure that we have that requirement as a bottom line. Another provision is “Skill care and diligence:”. 
The two provisions I thought it was worth picking up on as Labour’s spokesperson on consumer affairs were the two provisions in the amendment about principles relating to customers’ interests and communication with customers. I think the suggestions she is making in the provisions are very sensible. 
The question was put that the following amendment in the name of the Hon Lianne Dalziel to Part 2 be agreed to: 
to insert the following new clause: 
9APrinciples to bind all financial markets participants 
The FMA will have an overriding power to enforce the following principles which will be binding on financial market participants— 
(a)integrity: a firm must conduct its business with integrity: 
(b)skill care and diligence: a firm must conduct its business with due skill care and diligence: 
(c)management and control: a firm must take reasonable care to organise and control its affairs responsibly and effectively with adequate risk management systems: 
(d)financial prudence: a firm must maintain adequate financial resources: 
(e)market conduct: a firm must observe proper standards of market conduct: 
(f)customers’ interests: a firm must pay due regard to the interests of its customers and treat them fairly: 
(g)communications with customers: 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: 
(h)conflicts of interest: a firm must manage conflicts of interest fairly both between itself and its customers and between one customer and another: 
(i)customers relationships of trust: a firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgment: 
(j)customers’ assets: a firm must arrange adequate protection for customers’ assets when it is responsible for them: 
(k)relations with regulators: a firm must deal with its regulators in an open and cooperative way and must tell the FMA promptly anything relating to the firm of which the FMA would reasonably expect prompt notice.