Cosgrove Clayton: Financial Markets Conduct Bill — Second Reading 
Text is incorporated into the Bound Volume 
Cosgrove Clayton: Financial Markets Conduct Bill — Second Reading 
[Sitting date: 25 October 2012. Volume:685;Page:6257. Text is incorporated into the Bound Volume.] 
Hon CLAYTON COSGROVE (Labour) 
: 
 I join on behalf of the Labour Party with the Minister for Courts in respect of his comments on the bipartisan nature in respect of this bill the Financial Markets Conduct Bill. It is indeed about promoting efficient markets investor confidence in markets and fair market outcomes and to the best extent that this Parliament can attempting to ensure that those who are charged as company directors with facilitating the investments of others take that duty of care very seriously—and in large part they do of course. 
I think it is noteworthy to touch on the nature of directorships. There was a time when being a director of a company was a reasonably blasé sort of option to take and by that I mean that people did it it was done in good faith and there was not a huge set of Draconian responsibilities around a directorship. That is going back some years. We now know that becoming a company director can be an onerous task that it is a specialist task and that now even prior to this bill but certainly post this bill being a director comes with a huge burden of responsibility and a large amount of accountability and even more so in terms of disclosure and transparency through this legislation. 
We know the history of this. We know that in the last 4 years there have been 61 finance companies that have failed the most recent being of course South Canterbury Finance which was bailed out to the tune of $1.6 billion of taxpayers’ funds. 
 It was interesting that in the Commerce Committee meeting this morning on another piece of legislation—without getting into that—whilst we were in public session we had an interesting discussion about risk and entrepreneurship and how the balance has to be struck. You do not want to cauterise or strangle entrepreneurship. You do not want to cauterise or strangle entrepreneurship in terms of legitimate business risk-taking. Running a business owning a business and participating in the investment market is by its very nature risky. It is not a sure thing. Very few things in life are sure things. As the old adage goes if it smells and tastes like a sure thing it generally is not. So this bill seeks to strike a balance in terms of allowing entrepreneurship and appropriate decisions to be made—for instance by directors and others. 
That does not negate the fact that those decisions may not have a positive outcome. That is the nature of making business decisions. You risk you get reward and sometimes those decisions and those risks do not pay off because that is the nature of business. I think it is appropriate as we go through this to just note that. There is no such thing as I say as a sure bet a sure investment a sure thing. If there was I am sure we would have a far wealthier population generally than we do now. It is important to note that this country is built on entrepreneurship and built on appropriate levels of risk by appropriate and qualified risk takers. 
If we look back in history of course the Capital Market Development Taskforce which was set up under the previous Government in 2008 moved to develop a blueprint and an action plan for the development of New Zealand’s financial system. That is the original genesis for ultimately this bill. We are pleased that the Government has taken this on. I know that investors given the sort of investment carnage that we have had are crying out for appropriate levels of disclosure as the Minister said and transparency and accountability. Without confidence in our financial markets we will not achieve the level of investment that is required and we will not prosper and grow as an economy and as a country. And it is important as the Minister said that these legislative frameworks are as best as we can make them in line with our Australian brothers and sisters across the Ditch because effectively in commercial terms we are almost—almost—one market. So we had the financial task force. 
We have now moved of course to the 61 finance company collapses and no one wants to return to those days. It is interesting if you go through the history of some of them in terms of the criminality that we have seen from some in the recent past. A couple of my colleagues have noted and I think the record would show it is probably correct that when it comes to white-collar versus blue-collar criminals if you will—the burglar versus the white-collar criminal who loses millions and millions of dollars of the funds of the citizenry—it could be argued I think with a high degree of validity that throughout our history the burglar has got a hell of a lot worse sentence and has been dealt with in a far more severe way than many of our white-collar criminals of the past. 
The bill as the Minister said does a number of things. It offers regulated financial products that are categorised as equities securities debt securities managed investment products and derivatives based on the economic substance of the financial product not just the legal form—in essence again attempting to simplify and also create confidence in the market. The offer process as I have said is modelled in an equivalent way to the way it is in Australia bringing us in line. There is a requirement for issuers to prepare a prospectus and investment statement; that requirement will be replaced with a requirement to prepare as the Minister noted a single-product disclosure statement tailored to retail investors. 
That leads us to a point that I made I think in a previous debate that although we have these pieces of legislation and we can tailor-make our documents so that retail investors can understand them so that they are simple and so that they are relatively transparent or as simple as you can make them whilst meeting legal obligations there is also—and I note that Simon Power did some work on this when he was Minister of Commerce—an ongoing need for a higher degree of resource into financial literacy in this country. I mean no disrespect by that. For some of us who have had experience in commercial areas when interpreting documents and business investments we have a level of confidence that we could make judgments and perhaps have a greater understanding of the strictures and documentation surrounding these investments. For others in our community who have not had that visibility or that experience it is tougher for them to make judgments. Again I think where you see the 61 finance companies that collapsed many in the community thought that these were appropriate investments that these were going to provide wonderful financial riches and it just smelt too good. It is also incumbent upon this House I think and the Government to ensure that we have and that we are putting some resource into financial literacy—not just for our adult population but also for those people who are at school so that they can grow up having the confidence to manage their own affairs and participate in investments. 
The Financial Markets Conduct Bill provides for instance for regulations to be made that will prevent products from being structured to avoid regulation. This happened of course in the infamous case of Mark Bryers and the infamous Blue Chip case. Because the investment scheme offered interests in land it was exempt from the Securities Act to the significant detriment of course of investors. Your average Joe in the street looked at an investment like Blue Chip and thought this was a great deal—there was a great sell job on that—and people invested in good faith. I think that there is always an element when you come to investment decisions of—I would not say greed but obviously people want to maximise their investments and that often clouds judgment in terms of whether it is an appropriate risk and an appropriate level of investment. However in the case of course with Blue Chip this was built as some great gilt-edged deal and people were hoodwinked. You could not blame the citizenry for that. 
What this bill will do not only in that case but in others is simplify make transparent and make more accountable a lot of the frameworks and a lot of the schemes of arrangement so that investors can have greater confidence. Many I am sure on both sides of the House will know constituents who have been burnt and who will not be participating in an investment market in these sorts of ways as they have in the past either because they lost their life savings or because their confidence is shot to pieces. Those people will look for simplified investments either in property or in other areas that they know and trust. 
Hon Chester Borrows 
: A Government guaranteed scheme like Mighty River Power. 
Hon CLAYTON COSGROVE 
: We will not destroy the atmosphere—