Huo Raymond: Financial Service Providers (Pre-Implementation Adjustments) Bill — First Reading 
Huo Raymond: Financial Service Providers (Pre-Implementation Adjustments) Bill — First Reading 
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RAYMOND HUO (Labour) 
: 
 The Financial Service Providers (Pre-Implementation Adjustment) Bill amends two Acts of Parliament passed by the previous Labour Government in 2008. Both Acts passed with support from National and Labour supports this bill too. In contrast to Ms Shanks who has just resumed her seat I can see and appreciate why a bipartisan approach has been taken. The previous Labour Government passed the Financial Advisers Act 2008 to ensure that financial advisers were subject to tighter rules of professional conduct and competence. The Financial Services Providers (Registration and Dispute Resolution) Act 2008 established an independent and free dispute resolution service for consumers who have problems with financial advisers or service providers. This bill as the Hon Simon Power stated this evening is aimed at simplifying the implementation of the Financial Advisers Act and reducing costs while encouraging public confidence in the industry. 
A media statement released by Workplace Savings NZ in December 2009 is very helpful in understanding the difference between what it called a real provider of financial services such as a bank and an employer who merely promotes for instance a superannuation scheme for its workers. Its executive director Bruce Kerr said the concern of his organisation was about employers who make retirement savings arrangements available to their employees through the workplace being caught by the definition of a financial service provider. He said the organisation had worked hard with officials to develop appropriate relief mechanisms without which such an employer would need to register as a financial service provider and join a dispute resolution scheme. For employers who want to help their employees save through a registered superannuation scheme or KiwiSaver scheme the proposed changes will help to exempt them from the need to register as financial service providers. 
The Hon Lianne Dalziel in her third reading speeches on the two bills in 2008 explained the purposes of the two pieces of legislation. The Financial Advisers Act 2008 was one part of the Labour Government’s effort to bolster investor confidence after the global credit crunch and a string of finance company failures in New Zealand. The regulations contained in that Act focus on financial products instead of financial decisions as was initially proposed. A tiered approach to advisers was taken and the legislation enabled the adoption of a qualifying financial entity or QFE model in order to reduce compliance costs for institutions with a large number of advisers while ensuring there was an appropriate regulatory coverage of advisers within those institutions. The Financial Services Providers (Registration and Dispute Resolution) Act 2008 as its name suggests established an independent and free dispute resolution service for consumers. A co-regulatory model was also created in which industry groups were to develop their own schemes which then had to be approved by the Ministry of Consumer Affairs. 
Why does the legislation need to be amended? The Minister responsible for this bill the Hon Simon Power has stated that the new legislation will reduce costs and encourage public confidence in the industry. The bill proposes a number of technical amendments. The main amendments to the Financial Advisers Act relate to the regulation of qualifying financial entities. The proposed changes include first that a qualifying financial entity will be able to name representatives namely individual contractors and agents whose advice it will take responsibility for instead of the entity being automatically responsible for advice from all its contractors; and second that the ability to provide financial advice or conduct investment transactions in relation to a qualifying financial entity’s category 1 products without being an authorised financial adviser will be extended to the qualifying financial entity’s named representatives. That is currently permitted only in respect of the qualifying financial entity’s employees. The third change is to permit the employees and named contractors to provide financial adviser services for products for which the qualifying financial entity is a promoter under the Securities Act. Currently the Financial Advisers Act allows that only if the qualifying financial entity is the issuer of the product. 
Those changes are generally welcomed in the industry for the flexibility that they are supposed to provide. Potentially those changes will help to make the qualifying financial entity model more appealing for many of those involved in the industry. 
However some concerns are worth noting at the bill’s first reading. The law firm Kensington Swan in its financial law updates listed two reservations with regard to the extension to the qualifying financial entity model. Firstly it is unclear whether it is intended that an individual can be nominated by more than one qualifying financial entity. The firm foresees some major complications ahead with the roll-out of such a model. Secondly at a policy level these changes risk undermining the Securities Commission’s stated desire for there to be regulatory neutrality or at least they create that perception. Expanding the relief from liability under the Financial Advisers Act for nominated representatives runs counter to the objective of individual adviser responsibility. 
With the help and active involvement of the financial service providers the wider sector and the public in the development of the bill I am confident that the bill will meet its objectives and—if members will let me borrow what the Hon Lianne Dalziel said in 2008 in the third reading of the Financial Advisers Bill—I hope this bill “brings financial advice regulation into the 21st century aligns us with international best practice and provides for an appropriate level of investor protection in New Zealand.” Thank you.