Faafoi KrisFINANCIAL SERVICES LEGISLATION AMENDMENT BILLFirst ReadingHon KRIS FAAFOI (Minister of Commerce and Consumer Affairs): Kia orana Madam Assistant Speaker. I move That the Financial Services Legislation Amendment Bill be now read a first time. I nominate the Economic Development Science and Innovation Committee to consider the bill. The Financial Services Legislation Amendment Bill amends the regulation of financial advice and other financial services. It will ensure that these services are provided in a way that promotes the confident and informed participation of businesses investors and consumers in financial markets. The bill does three main things. Firstly it overhauls the current regulatory regime for financial advice; secondly the bill makes changes intended to address the misuse of the Financial Service Providers Register; and thirdly the bill makes minor changes to address technical issues that have arisen since the implementation of the Financial Markets Conduct Act. Over the past three years the Ministry of Business Innovation and Employment has undertaken a comprehensive review of the legislation that regulates financial advice. Prior to the current legislation being passed in 2008 financial advice was largely unregulated and investor confidence was low. While the current regime has made some positive changes in this respect there are a number of issues that need addressing. Financial advice has an important role to play in the lives of all New Zealanders. Financial products can be complicated and are not easily understood by consumers so good advice can help bridge this gap. Financial advice can help consumers plan for life's significant milestones such as buying a first home or moving into retirement. It can be instrumental in helping everyday New Zealanders improve their financial position and given the growing balances under the KiwiSaver scheme it is as important as ever that consumers can access high-quality financial advice. Because of the complex nature of financial products there is a real potential for harm to consumers as a result of poor advice. When making a decision about a financial product many consumers need to rely on the information given to them by a financial adviser. As consumers put a great deal of trust in these people and institutions that provide the financial advice it is important that they be held to appropriate standards of conduct and competence. Following extensive consultation with industry participants and consumers the ministry found a number of issues with the current regime that are preventing consumers from accessing high-quality financial advice. The current regime is unnecessarily complex and has set conduct and competency standards that are inconsistent across the industry. This has created a real disincentive to provide certain types of financial advice and as a result consumers have struggled to get answers to simple questions such as: Which KiwiSaver fund is the right one for me?" The complexity of the existing regime can also cause confusion for consumers who are left to wonder what standards their adviser is held to. This complexity is a problem for financial advice businesses too some of which raised concerns about undue compliance costs. The Financial Services Legislation Amendment Bill will overcome these issues and will improve access to high-quality financial advice for all New Zealanders. The regime puts the consumer at the centre of financial advice and this will go a long way towards improving consumer confidence in this industry. The new regime establishes a level playing field of regulation for all who provide financial advice. It will ensure that consumers have the same protections regardless of how or where they choose to access that advice. This includes a requirement for everyone giving advice to put the consumer's interests first and to meet the standards of conduct competency and client care. The bill also gives the Financial Markets Authority (FMA) the tools that it needs to effectively regulate financial advice. At present only some advisers at large firms are subject to active regulatory oversight by the FMA. The new legislation will require everyone providing financial advice to retail clients to be covered by a licence meaning they are actively monitored. The bill strikes a balance between ensuring consumers can access quality advice and not imposing any undue compliance costs on the industry. To this end licensing will be granted at the firm level to reduce costs on individual advisers. The bill takes a flexible and technology-neutral approach to allow for different business models and to futureproof the regime. This will enable computer-generated phone financial advice known as robo-advice to be given to consumers. Robo-advice presents an opportunity that will enable more New Zealanders to access financial advice and regardless of how a firm decides to deliver financial advice consumers will have the same products. To encourage confidence in the financial advice the bill retains the ability for consumers to access redress through the independent dispute resolution schemes. The bill also makes use of the flexible approach to enforcement that exists in the Financial Markets Conduct Act as it stands. The FMA will be given a range of tools so that it can deal with misconduct in the most appropriate manner. Finally the new regime will introduce simplified disclosure statements. Current disclosure documents are long complex and filled with jargon. Consumers are often left in the dark about commissions and other factors that may influence the advice they receive. The bill will ensure that consumers are given the key information they need to make confident and informed financial decisions. I recognise that the new regime will involve significant changes for many in the industry and I also understand that meeting competency requirements may take some time for some advisers who will need to balance study with work. The bill therefore seeks to enable a smooth transition to the new regime. Industry participants will have the time they need to upskill and obtain licences. I have heard that there are some concerns from the industry about this bill particularly from smaller operators in the market. These will no doubt be discussed at select committee. To those that have been following the review of the financial advice regime and the passage of this piece of legislation I encourage you to provide a submission to the select committee because we want to ensure that the legislation seeks the right balance between ensuring that consumers can access the financial advice they need and not imposing any undue compliance costs particularly on those smaller businesses providing financial advice. The ministry's review also looked at the misuse of the Financial Service Providers Register. There have been instances of offshore entities registering here in New Zealand in order to mislead consumers by implying that they are subject to regulatory oversight here in New Zealand. This has the potential to harm New Zealand's reputation and reduce confidence in the regulation of our financial markets. This bill seeks to address this issue by amending the Financial Service Providers Act and these changes will require businesses to have a stronger connection to New Zealand in order to be registered. It will also impose additional requirements on businesses that have advertised their registered status in order to ensure that consumers are not being misled. The bill also includes some minor changes to the Financial Markets Conduct Act to address technical issues that have emerged since the industry began operating under the Act. In conclusion the Financial Services Legislation Amendment Bill will implement a package of changes that will deliver positive outcomes for everyday New Zealanders. I commend the bill to the House."