Power Simon: Financial Service Providers (Pre-Implementation Adjustments) Bill — First Reading 
Power Simon: Financial Service Providers (Pre-Implementation Adjustments) Bill — First Reading 
[Volume:660;Page:8916] 
Hon SIMON POWER (Minister of Commerce) 
: 
 I move  
That the Financial Service Providers (Pre-Implementation Adjustments) Bill be now read a first time. 
 At the appropriate time I intend to move that the Financial Service Providers (Pre-Implementation Adjustments) Bill be referred to the Commerce Committee that the committee report finally to the House on or before 4 May 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). 
The objective of this bill is to make a number of necessary and desirable amendments to the Financial Advisers Act 2008 and the Financial Service Providers (Registration and Dispute Resolution) Act 2008 before being fully implemented by the end of this year. I recognise that that is a short time frame and I appreciate that this will put pressure on the committee and on stakeholders seeking to make submissions. However the register of individual financial advisers and other financial service providers is due to go online in the middle of the year with the regime to be in place in early December. It is critical that the industry has clarity about its obligations so that these timetables can be met. 
The Financial Advisers Act and the Financial Service Providers (Registration and Dispute Resolution) Act 2008 together with the Reserve Bank of New Zealand Amendment Act 2008 were part of a suite of reforms introduced by the previous Government and agreed with by this Government that were aimed— 
Hon Lianne Dalziel 
: That’s the first time you’ve actually mentioned us. 
Hon SIMON POWER 
: —I am getting the hang of that actually—at promoting confidence in the financial sector. I want to emphasise to those who may have an interest in this bill and to the chair of the Commerce Committee who is in the House this evening that this bill is not an opportunity to relitigate the fundamental policies of the regime upon which there is broad agreement. Rather the changes proposed in this bill are aimed at balancing our two objectives of encouraging confidence and promoting efficiency as we implement the new regime. Any submissions from stakeholders should keep this limited scope in mind. 
A number of the amendments in the bill are technical in nature and are intended to resolve uncertainties and create clarity for both industry and regulators such as by clarifying some of the product classifications under the Financial Advisers Act and by removing uncertainty over the territorial scope of the Financial Service Providers (Registration and Dispute Resolution) Act. These are matters that have been raised with me since I became Minister and I know that my colleague opposite has also had these matters raised with her as the previous Minister I suspect but certainly since that time as well. 
There is one specific area of the bill I would like to focus on regarding the qualifying financial entity framework. The qualifying financial entity framework is intended to improve the efficiency of regulation for large institutions so they are able to take responsibility for both the products being advised on and for the advice itself. Many large institutions such as the registered banks and the larger insurance providers have argued that the framework for the qualifying financial entity model does not balance the two objectives of public confidence and efficiency in the most effective way. At present the Financial Advisers Act allows qualifying financial entities to cover only products that they issue. I propose to widen this to include other products for which the qualifying financial entity has clear responsibility. In this regard I note that the Securities Commission has stated that it will use the terms and conditions of qualifying financial entity licences to ensure regulatory neutrality—and this is quite an important point—between qualifying financial entity advisers and non-qualifying financial entity advisers. 
Furthermore the Act currently distinguishes between financial advisers who are employed by a qualifying financial entity and those who act as the qualifying financial entity’s agents. Only employees are permitted to advise on their qualifying financial entity’s complex products. Provided the Securities Commission as regulator is satisfied that a qualifying financial entity knows who all of its agents are and has adequate control over the advice they offer this distinction is not necessary. I therefore propose to remove it thus allowing employees and agents to advise on their qualifying financial entity’s complex products. However as I noted this equal treatment depends on clarity over exactly for whom the qualifying financial entity is responsible and on the qualifying financial entity having good systems in place to manage the advice offered by its advisers. Although the Securities Commission already has quite broad powers to ensure that this is the case the bill clarifies the situation of financial advisers who are working for qualifying financial entities but who are not their employees by replacing the slightly unclear concept of a qualifying financial entity’s agents with a transparent system of so-called nominated representatives. 
I have been discussing the broader qualifying financial entity framework with industry and I expect that a number of stakeholders will make submissions on it. By following the principles of responsibility for products and responsibility for advice—and it is critical to emphasise that—the qualifying financial entity model should accommodate a variety of business models provided always that adequate supervision and oversight remains in place. My view and the Government’s view is that as long as the oversight of the advisers within these entities is not compromised the framework should be enhanced to improve its flexibility where possible. 
I will also respond briefly to some of the other issues that have been raised by industry in recent months but that do not appear in the bill. There have been calls for the Financial Advisers Act to be amended to allow some entities to provide certain types of financial advice but the cornerstone of the legislation is that the professionalism of financial advice is best encouraged by ensuring that it is delivered by competent and ethical individuals. Although it may be appropriate that changes be made to improve business efficiencies such changes must be consistent with this fundamental principle. I have also received requests for wholesale advice to be excluded from the regime. My view is that all financial advisers should be broadly inside the framework but that may be achieved through other avenues. Those discussions are continuing. Both Acts already contain a number of mechanisms that can be used to ensure that the obligations imposed on wholesale advisers are not out of proportion to the benefits of regulation—obligations including the option of tailored disclosure obligations separate standards of client care through the code of professional conduct and the recognition of entities as qualifying financial entities. The committee may want to consider whether these obligations are sufficient. 
Finally I would like to address the regime’s coverage of what are termed investment transactions in the Financial Advisers Act. These provisions are important as they relate to the protection of client money and property when this is handled by financial intermediaries. The mishandling of client funds has the potential to seriously undermine confidence in the financial sector. However the current framework established by the Act leads to an impractical outcome whereby natural persons alone can make investment transactions but not companies and other entities. This will create significant compliance costs for businesses without creating much benefit for the public. I intend to write to the select committee with additional proposed amendments to the Acts to ensure that that situation is rectified at the time the committee is dealing with this bill. 
Although I am still in the process of preparing my proposal it is likely to reflect the following features: it will allow both entities and natural persons to make investment transactions it will be a registration-based regime that leverages off the existing framework set up by the Financial Service Providers (Registration and Dispute Resolution) Act and the Financial Advisers Act it will maintain the minimum money-handling standards set up by the Financial Advisers Act and of course the Securities Commission will be the enforcer of that regime. Most important in designing this framework I want to ensure that the level of oversight is proportionate to the risk posed by the relevant transactions. 
I take this opportunity to thank the various stakeholder groups that have had input into this bill which will go a long way to improving confidence in New Zealand’s financial sector. I look forward to continuing to work alongside the select committee to ensure that the time frames originally set for the implementation of this legislation are not wavered from and we will make every endeavour to ensure that that is the case. I commend this bill to the House.