Dalziel Lianne: Financial Markets (Regulators and KiwiSaver) Bill — In Committee 
Dalziel Lianne: Financial Markets (Regulators and KiwiSaver) Bill — In Committee 
[Volume:671;Page:17686] 
Hon LIANNE DALZIEL (Labour—Christchurch East) 
: 
 This is what I would call a meaty part of the Financial Markets (Regulators and KiwiSaver) Bill and this is the one I want to focus on. I cannot imagine that debate on this part will be over in an hour so I do not know why the Minister in the chair the Minister of Commerce thinks it will pass so quickly. I will table an amendment to this part which I would like the Committee to consider. The Minister will not be surprised at this because Labour members of the Commerce Committee referred to it in the report back from the committee. We think it is fundamentally important that there are principles to bind all financial markets participants. We were disappointed to see the securities review repeat one of the errors of the past which is not to have a number of principles. I think one overarching principle was mentioned at the end of the discussion document which I feel will be ineffective in terms of what we are trying to achieve here. 
What I have done is—[ 
Interruption 
] I have not tabled it yet. I have plenty of time but somebody might like to assist me with that—to take from the Financial Services Authority in the UK the principles it established under its conduct provisions. It has authority under legislation there to issue statements of principle in respect of the conduct expected of approved persons. When the authority issues a statement of principle it is also required to issue a code of practice for the purpose of helping to determine whether a person’s conduct complies with the statement of principle and the code then specifies descriptions of the conduct etc. that would be a breach of this code. Any failure to comply with a statement of principle means that issues need to be addressed. I have mentioned this in the House before and I will mention it again because I think it was a bit of a driver for me but unfortunately it was too late for me to influence the securities legislation review. The reason is that when I went back to the UK and met with the Financial Services Authority for second time in my period as Minister of Commerce it was unfortunately in 2008. It was at that time that I met the outgoing chair Sir Callum McCarthy—I have told this story before—and at the meeting we had he pulled from his pocket the laminated card with this set of principles. That is where I got the principles from. He told me that they guided him in all he did and that they guided the Financial Services Authority in all it did. Then he gave me his own personal laminated card. He probably had dozens of them but doing that was very effective. For me that is the indelible memory I now have of that occasion when I realised for the first time that the enforceable principles that underpin rules make the difference because unlike rules they are not made to be broken. Having come from the legal profession—and I know that others in this Chamber have come from the accounting profession—I know that our professions our entire livelihoods are dependent on advice for people to get around rules but principles cannot be got around because they guide everything we do with integrity. 
Let us look at the principles that the Financial Services Authority developed under its code. The first one is integrity: “1 Integrity—A firm must conduct its business with integrity. 2 Skill care and diligence—A firm must conduct its business with due skill care and diligence. 3 Management and control—A firm must take reasonable care to organise and control its affairs responsibly and effectively with adequate risk management systems. 4 Financial prudence—A firm must maintain adequate financial resources.” How useful that would have been as a principle to underpin certain activities of certain finance companies. “5 Market conduct—A firm must observe proper standards of market conduct. 6 Customers’ interests—A firm must pay due regard to the interests of its customers and treat them fairly. 7 Communications with clients—A firm must pay due regard to the information needs of its clients and communicate information to them in a way which is clear fair and not misleading.” 
I will comment on one thing because I know that the Minister in the chair the Minister of Commerce has made some statements recently about the need to hold people personally accountable for statements they have made in the public arena—celebrity endorsements. I do not agree with that; I think we should prohibit them from doing it. Under current broadcasting standards we are not allowed to have a doctor say that a particular non-prescription drug is OK. That is prohibited because a doctor saying that sends a very clear message. I do not know about other members but I do not think it is appropriate to have a celebrity endorsement for a finance company where that person cannot possibly know whether that company is up to delivering. I do not think we should punish the messenger; I think we just prevent that message from being sent because it is the wrong message to be sending. I think this is what the statement of principles that sits behind the Financial Services Authority in the UK is all about. As principle 7 states we have to make sure that information is communicated in a way that is clear fair and not misleading. “8 Conflicts of interest—A firm must manage conflicts of interest fairly both between itself and its customers and between a customer and another client.” 
We have talked about conflicts of interest in relation to this bill. The chair of the establishment board of the Financial Markets Authority Simon Botherway was in a situation that is now currently before the Ombudsman as I understand. But I want to reflect on one element. I personally think that I have taken a very strong line on conflicts of interest. When I was Minister of Immigration I made sure that my husband who is a lawyer did no immigration work at all—none not one jot of immigration work—even though of course very few immigration cases end up in the Minister’s hands. But it was the message it sent that was wrong. But in this particular case I think I made a mistake in the House when I referred to Mr Botherway in the question of South Canterbury Finance and putting his brother’s company into receivership. As I understand it it was Lion Breweries that put that company into receivership and South Canterbury Finance then appointed its own receiver. It is a step removed. I understand that the individual concerned took advice. I want to put it on record that I accept his word for that and that he acted honourably. I still believe he acted mistakenly and that is a view I will continue to hold because I feel that conflicts of interest are not just about real interests; they are about perceptions. Unfortunately in this place as we see all too often perception is reality. However I did want to put that on the record. I agree with my position but I do not agree with how I presented it. I wish Simon Botherway well in his new career. 
I return to the principles. “9 Customers: relationships of trust—A firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgment.” This is so fundamental. We can think about all of those people who went to a financial adviser expecting to get good decent quality advice about where they should put their money and they were let down by a number of those advisers. Did they cross the legal line? Maybe not in particular cases but they certainly would have crossed the line as far as this principle is concerned. “10 Clients’ assets—A firm must arrange adequate protection for clients’ assets when it is responsible for them.” and of course that should go without saying but unfortunately it does not go without saying because adequate protection was not made in many instances in terms of the advice that people should have received. Then finally “11 Relations with regulators—A firm must deal with its regulators in an open and cooperative way and must disclose to the FSA appropriately anything relating to the firm of which the FSA would reasonably expect notice.” 
The reason I really like that principle is that it puts it back to the person who is the financial market participant to say: “I’m going to deal with those who regulate my right to do this or undertake this activity in a reasonable way. I’m going to provide them with the information they need in order to ensure that the market itself has integrity.” That is what I think we are faced with at the moment. We are not talking about what really matters around these things. We have talked in this legislation about the Financial Markets Authority’s functions to promote the confident and informed participation of businesses investors and consumers in the financial markets. That is quite an important objective. We want to promote and facilitate the development of fair efficient and transparent financial markets. But there are two types of people out there and we have written one law to cover both of them. The two types of people are those who know that they take a risk when they invest their money and the other people out there are those who do not get that and who do not relate risk to return or anything like that. 
I know that the answer to that in many respects is the question of financial literacy. But it is more than that. We should be able to trust people to treat people honestly and with integrity. Unfortunately the history of the finance company failures in this country says that there were people day in day out who were prepared to rip off unsuspecting New Zealanders and take all of the benefit from it and none of the consequences for it. I think that is unfair. We have to make sure we do better. We have let down the people of New Zealand in this place and not just from a party political point of view because I think we can all look at each other we can all look in the mirror and say that we all took a little too long to realise that people would take advantage of the lack of regulatory framework around the finance companies and they did. There are other people within that framework though who did not take advantage of other people. They genuinely screwed up their business model; they made mistakes. But they made those mistakes with other people’s money. The question is: who pays? Who carries the cost when things go horribly wrong? 
If these sets of principles were drummed into the hearts and minds of everyone who is out there fund-raising off a sophisticated investor or an unsophisticated ma and pa investor or whatever we want to call them if they were drummed into our everyday living and being then how much better would it have been? How much money might we have seen saved and not seen lost in the debacle of the finance company failures? Our select committee is still considering its review of finance company failures. This legislation bridges the gap in terms of some of the gaps we have already identified but it does not go far enough. We know of the next item of legislation to come soon but again I am expressing some disappointment at what I have seen so far. I also think that some of the gaps we have identified need to be brought back to this House and debated when we report back on our review of the finance company failures and I hope we will be in a position to do so soon. 
I apologise to the Committee that I was not in a position before now to present the amendment I have now tabled in the House but I have been somewhat focused on other matters over the last month. I want to put on record my thanks to my colleagues for allowing me the time to spend with my constituents in Christchurch East over what has been a very difficult time. I know of the challenges that we face in Christchurch East in terms of the recovery from the disaster that the two earthquakes have meted out to my electorate in particular but other parts of Christchurch as well. In many respects what I am learning about recovery is that it is something we need to do in this area as well. The recovery process for those who lost thousands and thousands of hard-earned dollars their life-savings in many instances has not been resolved. It has not been resolved by this Government and it is not resolved by the establishment of the Financial Markets Authority except for one small element. I will come back to that element when we get to that particular part of the legislation.