Power Simon: Securities Trustees and Statutory Supervisors Bill — First Reading 
Power Simon: Securities Trustees and Statutory Supervisors Bill — First Reading 
[Volume:661;Page:9713] 
Hon SIMON POWER (Minister of Commerce) 
: 
 I move  
That the Securities Trustees and Statutory Supervisors Bill be now read a first time. 
 At the appropriate time I intend to move that the Securities Trustees and Statutory Supervisors Bill be referred to the Commerce Committee that the committee report finally to the House on or before 30 June 2010 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). 
This bill establishes a licensing regime for trustees and statutory supervisors who supervise certain issuers of securities or retirement villages. It also provides for the Securities Commission to be notified by trustees or statutory supervisors when any issuer they supervise gets into difficulties and gives the Securities Commission enhanced power to intervene in these circumstances. The role of trustees and statutory supervisors is vitally important in ensuring that the interests of investors are properly protected. Their role is to monitor the issuers of certain types of securities to ensure that the issuer is complying with the terms of its offer to investors and other obligations. Where the issuer fails to comply the trustee or statutory supervisor has a duty to take appropriate steps to protect the interests of investors. However in recent times serious weaknesses have been identified in the supervision of issuers by trustees and statutory supervisors. As far back as 2004 the IMF and the World Bank identified that New Zealand placed heavy reliance on private supervisors like corporate trustees and that there was insufficient accountability for such supervisors. The finance company collapses have highlighted many areas of concern including a failure by some trustees to carry out their role to the expected standard due to a lack of capability and a lack of accountability to investors. 
A well functioning financial sector needs to provide the necessary protections to investors while at the same time ensuring that businesses are able to access capital as easily as possible. Trustees and statutory supervisors have a key role to play in ensuring that the interests of investors are protected and in doing so contributing to confidence in the market. For this reason I asked officials to break out development of a trustee supervisory model from the wider review of the Securities Act and put it on a faster track. The result is that this bill will establish a licensing regime covering trustees of issuers of debt securities statutory supervisors of issuers of participatory securities and trustees of unit trusts as well as retirement village statutory supervisors. 
The bill removes the automatic right of trustee corporations to act as trustees or statutory supervisors and requires that all trustees be licensed by the Securities Commission. In deciding whether to grant a licence the Securities Commission must have regard to a number of factors including the applicant’s monitoring systems and processes the experience and qualifications of the senior directors and managers and the applicant’s financial strength. Licences may last for up to 5 years and may be subject to conditions imposed by the commission. Trustees and statutory supervisors will also be subject to stringent monitoring requirements including 6-monthly reports confirming their ongoing compliance with their licence and any conditions imposed upon it. In addition trustees and statutory supervisors will be required to report to the Securities Commission any actual or potential breach of the terms of their licence and any material change in their circumstances that may impact on their ability to continue to carry out their role. In doing so trustees and statutory supervisors will also be required to provide the commission with an action plan stating what steps they will take to address the breach of the licensing criteria or material change in their circumstances. 
If the commission is not satisfied with the steps that the trustee or statutory supervisor proposes it may direct the trustee to take a particular action or vary the terms of the trustee’s licence. In the most serious cases the commission may revoke the trustee or statutory supervisor’s right to act in respect of particular appointments or cancel the licence altogether. There are also stringent penalties in the bill for trustees or statutory supervisors that fail to comply with their obligations including fines of up to $200000 and orders that will require the trustees to compensate investors for loss that arises out of their failure to comply with their obligations. 
However the bill goes beyond simply ensuring that trustees and statutory supervisors are competent to carry out their role. Part 3 also gives the Securities Commission the power to oversee how they act on behalf of investors in crisis situations. Trustees and statutory supervisors will be required to report to the Securities Commission if any issuer they supervise is likely to breach the terms of the offer or the trust deed is insolvent or is likely to become insolvent. At the same time trustees and statutory supervisors will be required to outline to the commission the steps they intend to take in response. The commission will also have the power to require trustees or statutory supervisors to attest as to whether the issuer is complying with its obligations. The bill provides the Securities Commission with powers to intervene directly in circumstances where there is a significant risk that investors’ interests will be materially prejudiced and the trustee or statutory supervisor has failed to take the necessary steps. In these situations the commission may either direct the trustee to take a particular action or apply to court directly for an order to protect investors’ interests. Amongst other things these court orders may amend the terms of the trust deed impose restrictions on the activities of the issuer or require the appointment of a receiver or manager of the property that constitutes the security. 
The bill also applies the licensing regime to retirement village statutory supervisors. The role of retirement village statutory supervisors in monitoring the financial position of a village involves a broadly similar range of skills as a trustee or statutory supervisor of an issuer. In addition many of the concerns raised about the performance of some trustees and statutory supervisors have also been raised in respect of some retirement village statutory supervisors. These concerns include not working through the problems of financial inadequacy on the part of the village in an appropriate way with the operator and in some cases a lack of proven analysis by some statutory supervisors of village operators’ financial reports. However Part 3 does not apply to retirement village statutory supervisors as it is not intended to give the Securities Commission a role in overseeing the broader retirement village sector. Under the bill the commission’s role in respect of the retirement village sector is solely confined to ensuring that retirement village statutory supervisors have the capability to carry out their role to the required standard. 
Finally I note that the bill does not currently cover trustees of superannuation and KiwiSaver schemes. Although there are some differences in the role of superannuation and KiwiSaver trustees and other trustees and statutory supervisors in light of recent events there is a legitimate question as to whether some or all superannuation and KiwiSaver trustees should be included within the licensing regime established by the bill. I am inviting the select committee to consider that issue in the course of its deliberations. I commend the bill to the House.