Power Simon: Financial Markets (Regulators and KiwiSaver) Bill — In Committee 
Power Simon: Financial Markets (Regulators and KiwiSaver) Bill — In Committee 
[Volume:671;Page:17689] 
Hon SIMON POWER (Minister of Commerce) 
: 
 I think it is fair to say that Lianne Dalziel has just had three calls in a row and it is only appropriate that she was not interrupted given that she is a former Minister of Commerce and that she has chaired the Commerce Committee. I think she chaired the committee on this particular piece of work in a way that indicates she understands what is going on—she was the Minister of Commerce when a lot of the things she described occurred—and she has been determined in her discussions with me about amendments to this legislation and I appreciate that. I also think frankly that the comments she made in respect of the chair of the establishment board will be welcomed by him. 
I will talk briefly about the next step the member referred to and that is in relation the securities legislation which is still to be drafted. But an exposure bill will be released in August for all those who are interested in the detail of this particular piece of work to go through it in some detail. I persuaded myself that although it was an extra step I would rather that the bulk of the work because it is such technical work was done at the exposure bill stage rather than at the time it goes to the select committee. I suspect that that will inform the working of the select committee by the time we get the bill to it which will be hopefully prior to the House lifting in October for the end of this parliamentary session. In fact I am determined that that will be the case. I do think although it does slow it slightly that it is an essential step. My view is that the principles outlined in the member’s amendment fit more squarely with the securities law discussion rather than the Financial Markets Authority. 
Hon Lianne Dalziel 
: So you’ll put them in? 
Hon SIMON POWER 
: I am not saying they will go in; I am saying that there is an opportunity. The Government will oppose this amendment in this bill but there is an opportunity for further discussion and I would be happy to have that discussion with the member at the time of the exposure bill coming forward in August which from memory is the time. 
The issue of celebrity endorsement was slightly overlooked in the reporting of this issue—that is the Cabinet paper says from memory that the issue of celebrity endorsement is subject to a further report to the Government and we will get that report in May. The media ran the story as though it was a done arrangement. That is not the case. Cabinet has asked for further advice about the practicalities of regulating in this particular area. We will know more about that in May. 
The chair of the Commerce Committee looked at me slightly quizzically when I was talking about Part 1 establishing the Financial Markets Authority; of course it is the purposes of Parts 1 to 4 that are contained in Part 1. I want to talk briefly about the establishment of the Financial Markets Authority. The Financial Markets Authority or the FMA as it has become known will replace the Securities Commission and take on certain functions of the Ministry of Economic Development including those of the Government Actuary. It will be an independent Crown entity that in the same way as the Commerce Commission carries out its functions independently. Now that level of independence—and this is an important point—accords with international norms for securities regulators. 
The functions of the Financial Markets Authority will include promoting the confident and informed participation of business investors and consumers and that will be done by the issuing of warnings reports and guidelines and so on. One of the functions is to promote investor awareness that all investment involves risks and it is not the role of the Financial Markets Authority to remove those risks. It is the role of the Financial Markets Authority to monitor compliance with and investigation and enforcement of financial markets legislation. 
The authority will also perform these functions in respect of governance. It will regulate financial advisers securities trustees statutory supervisors and auditors. This is a really important point because one of the things we saw at the time of many of those finance company collapses was various regulators and oversight bodies staring at each other as those particular agencies decided that because their legislation was restrictive and prescriptive they did not have responsibility for the oversight and enforcement of the investment product that was being designed in some cases to be precisely outside of the securities legislation to avoid any independent scrutiny enforcement or oversight by a regulator. 
This particular mechanism of bringing these entities together takes away those gaps. I have referred previously to the fact that as the money hits the floor—and let us not undersell it; we are talking about billions of New Zealand taxpayer dollar investments hitting the floor—the regulators sat and stared at each other and said things euphemistically like: “Well we’re not sure that we’ve got statutory responsibility to oversee this particular part of the transaction.” or “Our legislation doesn’t allow us to intervene on this particular point because it is very prescriptive about what type of product is a security for the purposes of the securities legislation.” This body will remove the notion of that fracturing of regulatory oversight and if nothing else the most significant component part of this work is to give investors and for that matter designers and innovators of product that is going to the market a one-stop shop to have discussion with the regulator and the enforcer and overseer of the market. 
I use that distinction deliberately because often when producers of product are thinking about going to market they will not want to talk to the regulator for fear of the enforcement side becoming part of their discussions rather than the regulatory side of the operation. That is an important distinction. The Financial Markets Authority will be much closer to the market and the design of those products than its predecessors and that is a really important consideration. The market intelligence unit which will be contained within the Financial Markets Authority is designed to be close to the producer the public issuer the person or company that is taking product to market. 
Also when we get into the detail of the bill it is worth pointing out this particular power. For too long because of the prescriptive nature of some of this legislation product has been designed specifically to fall outside legislative and securities markets legislation oversight. That will change with the Financial Markets Authority being given the power to deem a product to be a security for the purposes of oversight supervision and jurisdiction in a way that will force in some respects those who are taking product to market to talk to the regulator at the appropriate time to ensure that everybody understands exactly what is going to market. 
We cannot take away risk. The legislative arm of this Government cannot take away risk from these products and from investors nor should we try to. But the point here is that enforcement and supervision have to come with power and a comprehensive oversight. My view is that this authority will do that. There is still work to be done on the securities legislation and that work is well under way.