Curran Clare: Securities Trustees and Statutory Supervisors Bill — First Reading 
Curran Clare: Securities Trustees and Statutory Supervisors Bill — First Reading 
[Volume:661;Page:9728] 
CLARE CURRAN (Labour—Dunedin South) 
: 
 Labour will be supporting the Securities Trustees and Statutory Supervisors Bill because it makes sense. Effectively this bill is about trying to make sure that the interests of investors are protected and that investors are made more confident in financial markets by ensuring that trustees statutory supervisors and unit trustees are capable of performing their functions are performing those functions effectively and are accountable for any failure to perform them. So the bill is kind of simple really and it is to be applauded. Introduced at the end of 2009 this bill is a continuation of the great progress that Labour made in tidying up the financial services sector including the review of financial products and providers. As a member of the Commerce Committee I look forward to scrutinising this somewhat lengthy and technical bill in the select committee deliberation. But I want to put on record that the bill is important. It is certainly not all that is required but I give a tick to the Government for introducing it. 
It is hugely important to build investor confidence in this country after a series of financial failures the collapse of a number of finance companies and the effects on the number of people who lost their hard-earned investments. This bill follows on from the conclusions of both an IMF and World Bank report in 2004 and the consultations undertaken by the Ministry of Economic Development in the review of financial products and providers in 2006 which found that New Zealand placed too much reliance on private supervisors such as corporate trustees and that those supervisors and trustees often lacked accountability. So this bill removes the automatic right for the six statutorily appointed approved trustees to supervise issuers of debt and some investment schemes and it introduces a licensing regime for trustees that will be run by the Securities Commission. 
The bill makes it an offence to act as a trustee or statutory supervisor without a licence so that a person who commits such an offence will be liable on summary conviction to a fine that does not exceed $300000. A trustee statutory supervisor or unit trustee must hold a licence that covers the debt security participatory security or unit trust to which the appointment relates and a licence holder must comply with every condition imposed on the licence. Licences will ensure that the trustee statutory supervisor or unit trustee is a body corporate and that their directors and senior managers must be of good character. This bill contains a number of provisions designed to ensure that trustees statutory supervisors and unit trustees comply with their obligations and the Securities Commission may seek pecuniary penalty and compensatory orders against those who fail to comply. 
These clauses are designed to address the lack of capability and accountability of supervisors and trustees in the current system as I have already said and the fundamental role of trustees statutory supervisors or unit trustees is to ensure compliance with the terms of the trust deed or the offer of security. So when an issuer gets into difficulties the trustee supervisor is supposed to take action inform the investors and engage expert assistance or place the issuer into liquidation. 
The finance company failures of 2006 to 2008 raised some important issues: firstly the lack of capability or capacity and the fact that trustees and supervisors have not been equipped to deal with the size and complexity of the securities they supervised. There have been the issues of weak trustees of the role of trustees and supervisors not being defined properly and of the potential for their lack of independence from the issuer—trustees and supervisors are funded by the entities they supervise. There has also been weak accountability: individual investors can take court action but that is the only form of accountability. Concerns have been raised in respect of similar issues relating to the performance of some statutory advisers of retirement villages as well. 
To give some context to the situation that has resulted in this legislation I will read extracts from a couple of articles that appeared in late 2008. The first is from the  
Sunday Star-Times 
. It is entitled “Business reality behind smooth assurances” and it is written by Greg Ninness: “Trustee companies are fond of emphasising the trust part of their name more than the company part and this is reflected in the way they promote themselves. Words such as ‘integrity’ and ‘experience’ often feature prominently in their promotional material and they frequently promote themselves as a bulwark which can shelter a family from financial turmoil. But look beneath the veneer of prudently old-fashioned values and you will find a modern commercially-oriented business. … A core part of the activities of most trustee companies is managing family trusts usually for many years after the person who established it has died. Often this will involve investing the trust’s money to provide an income for its beneficiaries. Trustee companies could invest this money directly in property or shares or any number of the managed funds which are available to the general public and sometimes they do. But many trustee companies have also formed their own managed funds into which they can channel money they are investing on their clients’ behalf. Where this happens the trustee company gets fees and its funds management arm generates also levies fees. The third leg of most trustee companies’ business is acting as a corporate trustee. The law requires certain types of investment vehicles such as finance company debentures unit trusts and organisations such as retirement villages to have a trustee or statutory supervisor to protect investors’ interests. Although the trustee’s powers are limited in such situations many people are questioning the value they provide to the investing public …”. 
A brief excerpt from another article also written in 2008 from the  
National Business Review  
in August written by Sarah McDonald and Fiona Robertson starts off by stating: “In 2004  
National Business Review  
published a double-page spread titled ‘A matter of trust’ detailing major concerns held by many in the finance industry abut the effectiveness of trustees at protecting retail investors. The carnage that has ensued since then with more than $5 billion either frozen or lost completely in failed finance company fund or mortgage trust investments has done nothing to assuage those anxieties. And the consensus amongst finance and investment industry professionals that  
National Business Review  
spoke to is that trustees are underpaid in some cases ineffectual and in others plain incompetent.” The point I make is that this bill goes a long way to addressing this situation but there is a lot more to be done. 
In closing I will mention the work that is currently being done by my colleague the Hon Lianne Dalziel the previous Minister of Commerce. She has recently launched a member’s bill to better protect investors. The Illegal Contracts (Unlawful Limitations on Regulators’ Powers) Amendment Bill will ensure that investors will not miss out on the benefits coming from a regulator taking action against an investment company that has breached the rules. The issue was brought to her attention through the ING issues when people were forced to sign away their rights to gain any benefit from someone else taking action against ING including the regulator. Over half a billion dollars was stranded in the ING product funds with a lot of that sum representing the life savings of elderly people who continue to be angry and confused at the way they were treated. This bill makes a move to ensure that Kiwi investors get a fair deal worthy of the consideration of Parliament and I hope that members from all sides of the House will give it a fair hearing if it is drawn from the ballot. 
I think that members have heard tonight from my colleague the Hon David Parker that there is also more to be done in beefing up the Securities Commission to better regulate the space and in not just relying on trustees. He also said that the Capital Market Development Taskforce reported and recommended on that which mirrors similar things happening in the UK and Australia. 
As I said earlier Labour supports this bill. We do not think that it goes far enough in that there is a lot more to be done but we think that it is sensible will protect investors and will help to restore confidence in the financial sector.