Parker David: Financial Markets Conduct Bill — In CommitteeText is incorporated into the Bound VolumeParker David: Financial Markets Conduct Bill — In Committee[Sitting date: 27 August 2013. Volume:693;Page:12990. Text is incorporated into the Bound Volume.]Hon DAVID PARKER (Labour): Sometimes people are unseemly in their haste but thank you Mr Mallard. I have a question for the Minister of Commerce. I agree that we need to update the forms of disclosure that are made when people have public offerings be they debt participatory securities or equity securities. I agree that the old distinction that we had between investment statements and prospectuses was not working and that anyone who was knowledgable would want to see the prospectus rather than the investment statement. I also believe that prospectuses had become so long and unwieldy listing all manner of risks in a way that was confusing for investors. When faced with a question as to whether they should invest they had a long list of risks that was so long it was hard to discern which were the important risks and which were the less significant risks.So I am pleased that we are updating the forms of disclosure that are to be made but I want the Minister of Commerce to assure me that we are going to be replacing thesetwo documents one of which was too brief and imprecise and the other was too long and overly detailed with a document that strikes the balance in the middle. I was in the practice of law for a long time and used to do quite a bit of prospectus work—Hon Ruth Dyson: You got quite good at it after practising for a while.Hon DAVID PARKER: Yes I did practise enough so that occasionally I did something right thanks Ruth. I started doing work way back when on prospectuses for what was then the Otago Savings Bank or Trust Bank Otago and I did prospectus work for a number of other public companies and also a number of public issuers. I was lucky enough to work with people who had been in the practice doing this sort of practice even longer and they showed me the original offer documents for Radio Otago a matter that my firm had acted in and the people whom I worked with had been promoters of it.The original offer documents in respect of Radio Otago could be read by a layperson or an expert. They properly described the nature of the investment which was an ordinary capital raising. They were open as to the inability to make accurate financial projections because it was a new venture and therefore was a bit of a punt. They informed people that it was a bit of a punt and that you could lose your investment but you could not be liable for anything more. Those documents could be prepared without the firms that were involved in preparation of those documents becoming what one of my subsequent business partners used to call non - risk-taking profit-sharing partners in capital raisings because rules became so complex and expensive to comply with that the professionals made as much money out of it or had to charge a lot to meet the compliance costs of what was being required. But in those old days people had a fair understanding of what it was they were investing in they had the opportunity to invest or not the company was able to access public capital markets rather than being reliant on a smaller pool of investors being professional investors who met professional investment exemptions and I think overall it was actually better back then.I want to have some assurance that these rules here are going to fix the very real problem that we have in respect of ordinary capital raisings in New Zealand. I am not talking about debt securities and finance companies masquerading as being safe when they are unsafe but in respect of an ordinary capital raising which is always risk capital I want New Zealand’s small companies to grow into big companies and in those small companies—and we are a country of small companies partly because we are a small population—I do not want to prevent the people in those businesses from accessing capital to grow.At the moment the first round of capital is the people themselves. The second round is often a mortgage over the house though obviously there are limits to the amount of capital you can raise through that. The third layer of money for those small companies growing is often family members and friends and again we should not be preventing that from happening through securities law. But they do need to be able to expand beyond that. We know that for the lenders to these companies it is very hard to borrow money for those companies if you have not got land-based securities so they are not going to get the money from debt markets or from banks. Effectively they are reliant on ordinary capital raisings and I think they should be able to do that from the public rather than just from rich people both for reasons of lowering their cost of capital and also because I think everyone should have the opportunity to invest in profitable ventures not just wealthy people. So I would like the Minister to address that issue.I would also like the Minister to address the issue as to whether we are dealing with the additional layers of risk and cost that we have created for directors. The certificates and increasing legal risk that directors face if they become directors of issuer companies have become onerous. That is becoming counter-productive because we want experienced directors to be willing to offer a hand to small companies that are trying togrow without them having to take on too much personal liability in the event that the company for which ordinary capital has been raised fails. It does happens sometimes and in respect of that that is why we do have limited liability companies—to protect directors from some of that risk if they are not acting inappropriately. If we so load the duties on directors that they effectively become guarantors of ventures that go wrong then we do not get good directors who are experienced and willing to lend a hand and help these small companies grow into big companies for our mutual prosperity.The third issue I would like the Minister to address is whether this fixes the problem of issuer audits being required post issuing to members of the public. At the moment because of a prior bill that this Parliament has passed in the last 5 years if you are a public issuer—after you have been a public issuer you have to have a special issuer audit of the company that assesses performance against prospectus in a way that increases audit costs. Again that is an inhibition because it increases costs relative to other companies and therefore increases the effective cost of capital and makes it harder for the small businesses to invest.The last question I would like the Minister to answer is what we are doing about and whether we address through this bill the Financial Markets Conduct Bill the very small capital raisings which are at the moment theoretically illegal throughcrowdsource funding. It is a really interesting thing that has started to happen through the internet where small amounts of capital—actually sometimes they are not small amounts of capital because lots of people put in fifty bucks and if 100000 people put in fifty bucks you have raised $5 million. So these small offerings which can be effected through the internet now and it is calledcrowdsource funding ought to be facilitated.I have absolutely no problem with that. I understand that this bill is meant to facilitate that and I want an assurance aboutcrowdsource funding. I would like to know what the limit is per person. I do not think there should be any limit of the total amount that is being raised. I would like to know what the limit is per person and if there is any limit on the total I would like to know because I do not think it is appropriate. I think that if we had an appropriate limit of say—I do not know—a couple of hundred bucks that people can take a punt on if we let them waste that much money on Lotto every weekend why would we not let them invest that throughcrowdsource funding in something that could grow the prosperity of our country and bring the jobs and innovations that we need to prosper as an economy and to create job opportunities for the young people? I will leave it at that and I would like to hear from the Minister in respect of those issues.