Guy Nathan: Financial Markets (Regulators and KiwiSaver) Bill Auditor Regulation and External Reporting Bill — First Readings 
Guy Nathan: Financial Markets (Regulators and KiwiSaver) Bill Auditor Regulation and External Reporting Bill — First Readings 
[Volume:667;Page:14182] 
Hon NATHAN GUY (Minister of Internal Affairs) 
 on behalf of the  
Minister of Commerce 
: I move  
That the Financial Markets (Regulators and KiwiSaver) Bill and the Auditor Regulation and External Reporting Bill be now read a first time. 
 At the appropriate time I intend to move that the Financial Markets (Regulators and KiwiSaver) Bill be considered by the Commerce Committee 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). I also intend to move that the Auditor Regulation and External Reporting Bill be referred to the Commerce Committee for consideration. 
The Financial Markets (Regulators and KiwiSaver) Bill establishes a new financial sector regulator the Financial Markets Authority and makes important changes to the governance of KiwiSaver schemes. The Auditor Regulation and External Reporting Bill provides for the regulation of the auditing profession and consolidates the setting of accounting and auditing standards within a new body the External Reporting Board. The House is debating the Financial Markets (Regulators and KiwiSaver) Bill and the Auditor Regulation and External Reporting Bill simultaneously because of their interconnected nature. 
In recent years confidence in the financial sector has been damaged by a number of serious corporate collapses particularly the collapse of finance companies. The Government cannot remove all the risk from investment decisions. However if we want to develop the kinds of vibrant capital markets that are required to lift New Zealand’s economic performance it is essential that the financial sector is subject to clear rules that investors can be confident will be enforced actively and consistently. To enhance investor confidence in financial markets it is also essential that investors have confidence in key financial market participants like auditors trustees and financial advisers. The collapse of finance companies has clearly highlighted the need for a more integrated approach to the regulation of the financial sector and a much more active enforcement role for regulatory agencies. Achieving both of those objectives has been impeded by the fragmentation of responsibilities across different regulators. 
The Financial Markets (Regulators and KiwiSaver) Bill establishes a new Financial Markets Authority or FMA which in conjunction with the Reserve Bank will have responsibility for the regulation of the financial sector. The authority will assume the current responsibilities of the Securities Commission which will be disestablished. It will also take over the regulatory roles of the Government Actuary and some of the regulatory functions of the Companies Office have an enhanced role in overseeing registered securities exchanges and take on responsibility for the regulation of financial advisers trustees and auditors. The result of these changes is that the authority will have responsibility for the regulation of issuers throughout the lifespan of the securities they are offering rather than just focusing primarily on the issuers’ disclosure at point of sale as is currently the case. 
The Financial Markets Authority will undertake an annual oversight review of the NZX and will report on how well the exchange is supervising its markets. NZX and the authority will enforce market rules and market integrity regulations through a new financial markets ruling panel which is established by the bill. The Financial Markets (Regulators and KiwiSaver) Bill also provides for the Financial Markets Authority to exercise another person’s right of action against a financial market participant. Subject to certain procedural safeguards it will allow the authority—amongst other things—to enforce directors’ duties owed under the Companies Act. That is a significant new power and I will be particularly interested in submissions that the select committee receives on that specific matter. The bill also provides the power to make regulations that override certain statutory exemptions in the Securities Act 1978 to help ensure that financial instruments cannot be structured in such a way as to avoid coming within its scope. To facilitate the comparability of different offers of securities the bill provides for the establishment of a register of securities which will provide better public access to the relevant disclosures and information relating to offers of securities. 
This bill also aims to ensure that we are effectively regulating where investor funds will be increasingly directed in the future namely KiwiSaver. At the end of March 2010 KiwiSaver held almost $6 billion of assets. This amount will only grow in years to come as more people join the scheme. KiwiSaver schemes are currently structured so that the trustee of the scheme has ultimate responsibility for the management and administration of the assets. The trustee is also currently the insurer of interest in the scheme under the Securities Act making the trustee responsible for amongst other things the correctness of disclosures made by the scheme. That arrangement does not reflect how most retail schemes operate at present because each scheme also has a manager that creates and promotes the scheme and is responsible for day-to-day investment decisions. The Financial Markets (Regulators and KiwiSaver) Bill requires that KiwiSaver schemes have a designated manager who is also the issuer for the purposes of the Securities Act 1978. This makes the directors of the manager responsible for the scheme’s disclosures whereas the trustee is responsible for custodianship of the assets and supervising the manager of the scheme. These changes will also enable trustees of KiwiSaver schemes to be brought within the trustee’s licensing regime established by the Security Trustees and Statutory Supervisors Bill. 
The Auditor Regulation and External Reporting Bill will allocate auditor regulation powers to the Financial Market Authority and strengthen the financial reporting system. Investors need to be confident that financial reports provide unbiased transparent and relevant information about the economic performance and position of businesses. The bill will require professional accounting bodies to regulate members who carry out issuer audits as a specialist profession. As the Registrar of Companies stated in a report to the Commerce Committee last year many finance company audits lack the rigour and the analytical depth one would expect for entities managing such investments. The bill also empowers the Financial Market Authority to monitor how well the professional bodies are carrying out the new auditor licensing function including the ability to instruct them to make changes. 
The Financial Market Authority will also have the front-line responsibility for carrying out quality reviews of all practices that perform issuer audits. The Financial Market Authority will be able to initiate or take over investigations of licensed auditors and auditing firms if it is in the public interest to do so and to make administrative orders should the need arise. 
Finally the bill consolidates financial reporting and auditing and assurance standards within a reconstituted Accounting Standards Review Board to be called the External Reporting Board. These responsibilities are currently split between the New Zealand Institute of Chartered Accountants and the Accounting Standards Review Board. Like the Accounting Standards Review Board the new External Reporting Board will be an independent Crown entity. 
In conclusion these bill are very very important. They are among the key elements in the Government’s reform package to strengthen investor confidence and participation in New Zealand’s financial markets. 
I commend these bills to the House.