Dalziel Lianne: Financial Markets Conduct Bill — First Reading 
Dalziel Lianne: Financial Markets Conduct Bill — First Reading 
[Volume:678;Page:877] 
Hon LIANNE DALZIEL (Labour—Christchurch East) 
: 
 The Financial Markets Conduct Bill is a substantial bill and I certainly am very pleased to finally see it being debated here in Parliament. I think the fact that it is such a substantial bill does show that it has been through an amazing process. I congratulate the Government on taking the step of putting out a draft exposure bill and getting that feedback after two sets of discussion documents over a significant period of time—in fact over two Governments—and then responding to the recommendations of the Capital Market Development Taskforce which I was very pleased to be part of introducing. 
There are some issues that I think we need to have on the table as we debate this bill because there is a line in the regulatory impact statement that just worries me a little bit and I want to put it on the table because I no longer sit on the Commerce Committee and I would like the select committee to look at it very very carefully. The regulatory impact statement sets out the objectives which is always a very good idea in a regulatory impact statement—to actually decide what it is that you are trying to achieve from the outset. It lists the objectives as follows: “Providing information well targeted to serve investors’ decisions and their abilities to understand the information provided;” which I think was a point that the Minister made and I think that is a very good objective. 
 It goes on to say: “Reducing costs to issuers by providing sufficient certainty around their obligations and removing unwarranted obligations;”—and there may be some issues with that which I will come back to later—“Ensuring that products have adequate governance arrangements to allow for effective monitoring and reduce governance risks;” That is very good. It goes on: “Effective enforcement of breaches of duties to provide incentives for issuers to play by the rules while giving investors a degree of assurance that they can rely on the rules being enforced (particularly where large numbers of retail investors are involved);”. Again a good objective. 
And then finally this one which is the one I am just a little bit worried about and it is one that has actually been mentioned by the Minister in his contribution and also by the chair of the select committee: “Ensuring that the regulations allow an appropriate level of innovation and flexibility in the market.” That word “innovation” when I think of the global financial crisis is actually not a word that I necessarily find great comfort in and that is something that the select committee is going to have to look at very carefully. 
So the regulatory impact statement does acknowledge the conflicting nature of some of these and in particular that is one that stands out from the other objectives and I think it is something that is worthy of consideration. There is a balancing act that the regulatory impact statement says needs to be applied. But what I am concerned about is that the balance must not be at the expense of those who would not describe themselves as sophisticated investors. 
I use those words “sophisticated investors” deliberately because the last time I used the words “unsophisticated investors” in Parliament I received a very angry email from somebody whom I am not going to name and I just want to read you an extract from what she said. She said: “Dear Ms Dalziel. I am one of your ‘unsophisticated investors’ who fell victim to Lombard Investments. I hold”—and I am not going to talk about her degree but she has substantial qualifications she has worked in a range of fields and I am not going to say what they are because it may identify her. She was completing an additional degree and working in another professional area. “My partner another of your ‘unsophisticated investors’ who fell victim to Lombard Investments is a highly qualified scientist. This Ms Dalziel is called specialisation—the way most successful societies are run. Calling us unsophisticated is adding insult to injury. We are highly specialised in our fields of expertise and expected the finance industry to be the same. More to the point we expected our country’s laws regarding finance to be made and upheld by specialised experts including you. Politicians have failed us in this and now you call us unsophisticated investors. I think you should publicly apologise for this insult and state that in a society of specialisation we all have our fields of expertise and rightly expect the finance industry and law surrounding it also to be run by experts instead of thieves. Regards”. 
I wrote back to her and I put on the record the apology that I gave her by email. On the record here I had no intention of offending this individual. In fact the reason that we have this law in front of us today is because of people like her and her husband who got caught out. So I started off by saying: “I’m sorry that you and your husband fell victim to one of the finance company failures. I would be very interested to know what attracted you both to invest in Lombard particularly their marketing or rate of return and whether you used a financial adviser or planner to help you assess the risk of your investment. The Government is completing the work of the review of financial products and providers with a new Financial Markets Conduct Bill”—here we have that today—“to take over from the existing securities laws and this is going to be a big feature of the new regime—defining who needs to be told what. 
“This leads on to my use of the phrase ‘unsophisticated investors’. I am truly sorry that you have been offended by the use of the phrase. I have used it many times and will reflect on how I might better describe the opposite of a sophisticated investor which is what I intended. The phrase ‘sophisticated investor’ is used in legislation all around the world and I took the definition of a ‘sophisticated investor’ off an American website to show how truly international that was. It was the type of investor who is deemed to have sufficient investing experience and knowledge to weigh the risks and merits of an investment opportunity and then for certain purposes net worth and income restrictions must be met before a person can be classified as a sophisticated investor and then it goes through some particular examples. 
“And the website goes on to say: ‘sophisticated investors are the dream clients of most financial services firms as they generate much higher fees than retail investors. Certain assumptions are made about sophisticated investors—they can hold their investments indefinitely the funds do not need to be liquidated for cash needs and they can assume a total loss of investment principal without causing severe damage to their overall net worth.’ ” 
I went on to say to her: “In using the phrase ‘unsophisticated investors’ I was thinking about people who did not have sufficient investing experience and knowledge to weigh the risks and merits of an investment opportunity or who could not assume a total loss of investment principal without causing severe damage to their overall net worth. I am qualified to practise law but I would regard myself as an unsophisticated investor on both of these tests. It simply did not occur to me that someone hearing me use the phrase ‘unsophisticated investors’ would think I was in any way describing them personally as unsophisticated. Again my apologies for this unintended hurt.” 
And she came back to me to explain why she invested in Lombard. She said: “I can see that I certainly don’t fit that definition of ‘sophisticated investor’ and apologise for misunderstanding the term. We chose Lombard because the interest rates were attractive though not extreme as we thought the ‘secured option’ was indeed properly secured. Also the money seemed to go into sensible housing developments. But the main encouragement was that Sir Douglas Graham promoted the company and we perhaps wrongly assumed he knew what he was doing. We did not have a financial adviser instead falsely assuming that the law covered secured investments adequately. 
“It was very painful to recently see that the development we lost savings over was sold at a very low price to a couple of developers who only need to finish six nearly complete houses to cover the cheap cost they paid for the unfinished Brooklyn Rise project. Under the circumstances we would have been quite satisfied to wait a year or two without interest while the project finished if at least we could have got our money back. Instead the lawyers in charge decided on receivership and that we should settle for a few cents per dollar. But it looks as though their decision was wrong since the new developers seem to think the project will be worthwhile. 
“So we have basically given a couple of smug bargain hunters a good slice of our retirement savings. So I hope the new regime forces lawyers in charge of that kind of situation to really give investors full alternatives such as waiting for the property market to improve. I wish you best success with improving investments in the future and restoring investor confidence.” 
This is not about innovation. This is about good practice best practice principles that underpin ethical practices in our financial markets and the law does not deliver ethics— 
The ASSISTANT SPEAKER (Lindsay Tisch) 
: I am sorry to interrupt the honourable member.