Chauvel Charles: Financial Service Providers (Pre-Implementation Adjustments) Bill — First Reading 
Chauvel Charles: Financial Service Providers (Pre-Implementation Adjustments) Bill — First Reading 
[Volume:660;Page:8921] 
CHARLES CHAUVEL (Labour) 
: 
 The previous Labour-led Government especially in its 2005-08 term was concerned to remedy the reputation that New Zealand had developed over many years for its severely under-regulated financial services market. That determination arose before some of the finance company failures and the other less than desirable conduct that we have seen in this country from that sector over the last few years. It was largely motivated by a concern about the stability of our financial company sector and a general lack of proper consumer protection. Those were some of the symptoms that the legislation promoted by the last Labour-led Government targeted. Much of that legislation went through the parliamentary process under the sponsorship of Lianne Dalziel as Minister of Commerce so it was good to hear her contribution on the Financial Service Providers (Pre-Implementation Adjustments) Bill tonight. 
There were three laws of particular note. All of them had major-party bipartisan support. The first was the Reserve Bank of New Zealand Amendment Act 2008 which provided for Reserve Bank prudential supervision of non-bank deposit takers rather than simply relying on the trustees of those non-bank deposit takers to exercise the necessary oversight. That is a major clean-up in the sector and it seems to be functioning extremely well. The second reform was the Financial Advisers Act 2008. The third was the Financial Service Providers (Registration and Dispute Resolution) Act 2008. It is the second and third of these three Acts that would be amended by the bill that we are now reading a first time. 
In 2008 Labour sponsored the Financial Advisers Act to ensure that financial advisers were subject to tighter rules of professional conduct and competence. The Act was just one part as I have said of the effort to bolster investor confidence in anticipation of the global credit crunch and as I said because of concern about finance company liquidity in New Zealand. The regulations that were authorised to be made under the Act were required to focus on financial products not financial decisions as was the original proposition in the first draft of the bill circulated for comment. 
A tiered approach to the regulation of advisers was taken. First authorised financial advisers were to be allowed to provide advice on complex products for example securities or futures contracts—the really tricky stuff. There were to be stringent requirements in that first category as is appropriate. Advisers falling into the second category faced only a basic code of conduct and reasonably minimalist disclosure requirements but in return for those pretty light-handed regulatory requirements on them they were permitted to provide advice on only simple products like insurance or consumer credit contracts. But even the second tier of advisers was required to be registered and to belong to a dispute resolution scheme. Those two requirements had never existed before and this absence contributed to the Wild West nature of our financial services regime. The legislation enabled a qualifying financial entity or QFE to reduce compliance costs for institutions with large numbers of advisers. There had been concern that those institutions would be subjected to enormous administrative costs if each of their advisers had to register and be subject to the provisions of the Act so the qualifying financial entity mechanism was established to effectively provide for group registration. 
The Securities Commission was the regulatory body empowered to oversee the new rules. The Act established a Commissioner for Financial Advisers to be a specialist member of the Securities Commission the code committee and a disciplinary committee. The Financial Service Providers (Registration and Dispute Resolution) Act in turn established an independent and free dispute resolution service for consumers with problems with financial advisers or service providers. That Act basically set up a co-regulatory model under which industry groups would develop their own schemes which would then be subject to approval by the Ministry of Consumer Affairs. The schemes would have to meet certain minimum requirements such as accessibility independence fairness accountability efficiency and effectiveness. The Act also established a reserve scheme for providers that did not belong to any of these particular industry dispute-resolution schemes. They would default into the reserve scheme so that no customer of a financial service provider would go without the protection of an industry dispute-resolution scheme. 
The intention of this amendment bill which was introduced on 8 December last year is to make technical amendments to the Financial Advisers Act 2008 and to the Financial Service Providers (Registration and Dispute Resolution) Act 2008. The amendments largely involve changes to the qualifying financial entity model that I have just described and that other speakers have mentioned. Basically the bill would make three significant changes. First a qualifying financial entity will be required to name individual contractors whose advice it will take responsibility for instead of automatically being responsible for advice from all of its contractors. Secondly the changes will allow a qualifying financial entity’s named contractors as well as its employees to provide financial adviser services on the qualifying financial entity’s complex products without their having to be individually licensed. At the moment under the legislation in its current form that is permitted only for the qualifying financial entity’s employees as opposed to the contractors that it might retain as well. Thirdly employees and named contractors of a qualifying financial entity will be able to provide financial adviser services for products for which the qualifying financial entity is a promoter under the Securities Act. At the moment that is permitted under the Financial Advisers Act only if the qualifying financial entity is actually the issuer of the product as opposed to also being its promoter. Effectively line calls were made about many of these matters in the select committee process. I was the chair of the Finance and Expenditure Committee when we considered those issues. Those calls could have gone either way. Frankly it is probably useful to try out the changes that are suggested in this bill particularly in light of the prevailing economic climate to see whether they will be improvements on the current legislation. As I said in the select committee the evidence could have gone either way. 
Part 1 of the bill amends the Financial Advisers Act and Part 2 amends the Financial Service Providers (Registration and Dispute Resolution) Act. Basically clause 6 deals with matters of interpretation. The most notable change there is the amendment to the definition of a “nominated representative”. A nominated representative will be an individual who is formally nominated by a qualifying financial entity in accordance with the new section 68A to perform financial adviser services in respect of the qualifying financial entity. Clause 8 amends section 12 of the Act to provide that activities performed by certain classes of person do not amount to financial adviser services. Clause 10 amends sections 17 to 19 to make the changes relating to nominated representatives—that is contractors—that I have already referred to. Clause 11 places nominated representatives in the same position as employees. Clause 12 extends the restriction on the term “sharebroker” and the rest of Part 1 is largely concerned with replacing terms changing implementation dates and simplifying wording. There is really only one significant change in Part 2 which is in clause 35. It extends the list of people who are not held to be financial services providers. The two new categories are those who are nominated representatives under the Financial Advisers Act and employers that offer services to employees to enable them to join schemes like KiwiSaver and there are some other technical amendments. 
No regulatory impact statement is required for this bill because according to the bill’s explanatory note “the proposals are minor and machinery in nature.” Labour envisages supporting the bill for that reason and because it amends legislation promoted by the previous Labour-led Government in a way that will hopefully enhance its effect.