Financial Service Providers (Registration and Dispute Resolution) Bill — In Committee Third Reading 
Text is incorporated into the Bound Volume 
Financial Service Providers (Registration and Dispute Resolution) Bill — In Committee Third Reading 
[Sitting date: 23 September 2008. Volume:650;Page:19043. Text is incorporated into the Bound Volume.] 
Financial Service Providers (Registration and Dispute Resolution) Bill 
In Committee 
Debate resumed. 
Clauses 1 to 75 and schedules 1 and 2  ( 
continued 
)  
CHRIS TREMAIN (National—Napier) 
: 
 Before I speak to the Financial Service Providers (Registration and Dispute Resolution) Bill I acknowledge the valedictory speeches of Mark Blumsky Katherine Rich and Clem Simich who all set a very good tone in terms of their speeches and who were not afraid to acknowledge their political opponents. They were excellent contributions to the House. 
For the first part of my speech I will focus on clause 3 and then I will turn to clauses 5 and 6. Clause 3 “Overview” provides the reasons why we are enacting this legislation. Members of the community who are listening to this speech will remember that three bills form part of a portfolio of legislation that has been put in place to provide greater protection for consumers. The Financial Service Providers (Registration and Dispute Resolution) Bill is the third of those bills. Clause 3 provides us with an overview and states: “This Act requires financial service providers to be registered.” So the bill forces all financial service providers to be registered and it makes sure that they are all members of a disputes resolution service. 
The key area where the Maori Party got a little bit confused between this bill and the Financial Advisers Bill was in the fact that this bill has a wider scope and nowhere is that more confirmed than in clause 5 which defines the meaning of a financial service. It widens the scope of who will need to be part of the register and who will need to register with a dispute resolutions service. Clause 5 states that a financial service includes any service that has a financial adviser service that acts as a deposit taker that is a registered bank that keeps invests administers or manages money that operates a money or value transfer service and that issues and manages a means of payment—for example credit and debit cards. Thus one starts to get a feel for the fact that the scope of this Act is a lot wider than the scope of the Financial Advisers Bill. 
Although the scope of this legislation will include a number of financial organisations a number of them already have dispute resolution services that are set up and operating effectively. The officials thought that a couple of dispute resolution services were not operating effectively but this legislation forces organisations to be registered and to be involved with a dispute resolutions service. If these organisations do not have one set up within their industry grouping they will be forced under the legislation to join a reserve scheme. That is an important part of the bill. 
I also want to focus on clause 6 “Application of Act”. What we tried to do here was to replicate the clauses that were in the Financial Advisers Bill so that those organisations that were exempted from that bill would also be exempted from this bill. Clause 6(2)(a) provides that lawyers and chartered accountants who were always exempted from the Financial Advisers Bill pretty much from the word go will remain exempted in this legislation and will remain covered by their own legislation and their own disputes resolution services within their own professional bodies. In respect of clause 6(2)(ba) one group that lobbied quite hard to be excluded from the legislation was tax agents. They felt that they provided a similar service to that of chartered accountants who had their own body and code of conduct and who had their own disputes resolution service. Tax agents really felt they were being treated unfairly and separately from chartered accountants. I think that all of us on the Finance and Expenditure Committee—and certainly the Minister—thought it was wise to keep tax agents separate from the bill. 
Interestingly I have to declare a conflict of interest in respect of clause 6(2)(bb) as I have businesses in the real estate industry. Real estate agents have been exempted from this legislation largely because the advice they tend to give is secondary to the actual act of buying and selling a property and also because they are covered by their own legislation. Now that there is a separate Real Estate Agents Authority there is a disputes resolution service for members of the public in those instances. 
CRAIG FOSS (National—Tukituki) 
: 
 I continue in the Committee stage here but I would like to acknowledge the very good valedictories we enjoyed before from Mark Blumsky Katherine Rich and Clem Simich. We will miss those members not only in our caucus and in our party but also in the House. 
I will concentrate on a couple of clauses. Clause 42 was of interest to me at the Finance and Expenditure Committee and even as we have it now as new clause 42B. It is about the territorial scope of this bill. Again it is one of those particular clauses that at the select committee we made sure was totally aligned with and very much the same as those in the Financial Advisers Bill. But at the select committee we had some interesting discussions about this one and even towards the last minute I think it was being constantly improved. I just note that because there are many theoretical examples in which people could fall outside this bill. Under the title “Territorial scope” the clause states: “This Act applies to the provision in New Zealand of a financial service by a person who is in New Zealand regardless of where the financial service provider is resident is incorporated or carries on business.” We had a lot of discussions actually because we had the theoretical example of someone—as the bill was originally drafted—who could whip through Auckland airport and make a few phone calls and we were not sure whether that person would be covered. So the provision has been tightened but again in this new clause and in the same clause in the previous Financial Advisers Bill it is a very difficult part and almost a glaring hole in both bills. Although I am not offering a solution to it I am identifying the problem. 
This relates to the common theme of what I was speaking about earlier—the globalisation of everything. For example we could make up an example right now: someone living overseas could offer an interest-free loan to people in New Zealand. If New Zealanders went offshore to solicit that money or to get advice to get such funds etc. took ownership of those funds outside of New Zealand and then came back and in some way utilised those funds for themselves or others without getting advice and if various regulatory bodies had problems with those particular transactions then they would fall outside the gambit of this bill. The same applies for the Financial Advisers Bill.  
I am not offering a solution to that. I do not think there is one unless we tighten up our agreements with other jurisdictions. Some authorities are quite tight—Australia in places and other places in Europe—and of course any dodgy activities happen in places that are commonly known as tax havens or that have somewhat lower thresholds of regulatory integrity than we expect here in New Zealand. Sadly there have been examples in the past. A while ago people from Thailand were calling down to New Zealand offering to New Zealanders wonderful deals on equity trading and all sorts of commodity gains and unfortunately some New Zealanders were taken in by the scams and sent funds to Thailand. Those people had no recourse whatsoever; there was no civil or legal recourse. Even under this bill there is no recourse whatsoever if a New Zealander transacts funds and sends them overseas to some unusual pyramid scheme or to what is basically a simple rip-off. 
Again I am not offering a solution to that but just identifying this practice as a potential problem because those who are of a mind to exploit others and rip them off are also of a mind to look through regulations such as these look for the holes and find them. They could be New Zealanders deciding to transact from outside New Zealand or they could be people pushing something down into New Zealand from an offshore entity with which New Zealand does not have strong arrangements. Unfortunately we will probably see ongoing examples of that activity. Between now and earlier when I spoke on the second reading of the bill I note that I saw a headline going across the news wires that the FBI—a major regulatory body in the United States but not even a financial regulatory body—was reviewing the activities of Lehman Bros Freddie Mac and Fannie Mae for potential or alleged mortgage fraud. That was very interesting. 
I have a question to ask of the Minister concerning clause 62 which is under the heading “Annual reports and information requests by Minister”. 
The clause states: “The person responsible for an approved dispute resolution scheme must supply to the Minister within 3 months after the end of the financial year applying to the scheme an annual report containing prescribed information about the scheme …”. I ask about the time period which is kind of touched on there. We see by the words that were struck out by the committee that we originally said the report had to be supplied “by 1 July each year … in relation to the 12 months ending on 31 March in that year.” I ask the Minister whether the provision relates to the financial year of the particular scheme because of course there can be many end dates for financial years—31 December 31 March 30 June or even others. Because I see that the Minister has to report back to the House I ask whether there would be any interest by the Minister to have reports presented all in one go. From the time of the first annual report back to a Minister—let us say 3 months after 31 December—to the potential last one which is 3 months after 30 June and is therefore 30 September one can see there is quite a long time between drinks—a long time between annual reports to the Minister. I would be interested in that explanation because I see that that provision is sitting alongside the 5-year review of the scheme in relation to the robustness of the regulations we are putting in place tonight. 
Finally I tell the Committee that clause 59 relates to the obligation to publish rules about any approved dispute resolution scheme. I understand that the wording of this clause comes from other legislation but something does not read quite correctly to me in subclause (b) which states that the rules must be published “on an Internet site in an electronic form that is publicly available (at all reasonable times).” Well first of all “on an Internet site” means that it is electronic; it cannot be anything but electronic. And I would just like to question what is meant by “at all reasonable times”. Reasonable time for one entity for the Minister or for the public can mean many different things. I fully realise that the common-sense test there is about being available all the time. The net is wide open somewhere 24/7 and back-up sites are available so most sites particularly for these financial services are cached somewhere and are available 24/7. It is not the availability on the Internet site that would be the problem; it would be a power cut or something like that. But the rules would still be available on a site somewhere in the world. That is just a little bit of a quirk and I wonder whether the Minister had thought about that or whether there had been any advice on that. Otherwise I will just leave it on the Table as something to consider. Thank you.  
CHRIS TREMAIN (National—Napier) 
: 
 I rise to continue where I left off previously which is on clause 6 “Application of Act”. I made the point when debating the Financial Advisers Bill about non-profit organisations and their exclusion now from the Act. New Zealanders will be interested to know that initially non-profit organisations’ budget services were part of a dragnet inclusion in the Financial Advisers Bill and there was a debate about whether they would be included in this Financial Service Providers (Registration and Dispute Resolution) Bill as well. Now we have reached the point where we have excluded them specifically which is good.  
That is a point that New Zealanders need to be careful of and it comes very much to the fore in terms of where National is at with its wider economic policy. Our five principal policies cover ongoing reduction in personal taxation a real focus on education looking at the line-by-line item of Government expenditure making sure there is value for money in everything that is delivered through the Government and investment in infrastructure to try to promote growth in our economy so that we can actually deliver additional services to the people of New Zealand on an ongoing basis. But a real driver for us is that fifth point around that sort of creeping bureaucracy that we see and that we so often are questioned about by people in New Zealand who say we talk about bureaucracy and its impact on New Zealanders but ask what we are actually talking about. What we are talking about is reflected in new paragraph (cd) of clause 6(2) which excludes from the Act non-profit organisations that provide free financial services. Initially they were included in the Financial Advisers Bill and were potentially part of this financial service providers bill. That meant that voluntary organisations providing free financial services around the country were going to be potentially included and would certainly be included in the Financial Advisers Bill with the raft of additional regulation that was going to be wrapped around them. That meant their members would have to become accredited registered and have ongoing professional development. There were all sorts of varying costs around doing that.  
We are not talking about people who are advising mums and dads who have earned $300000 and are looking to invest their life-savings for their retirement. We are talking about volunteers in our communities who are looking after those who have fallen on tough times and who maybe are on a benefit and have only a couple of hundred dollars a week to go on. Some of those people whom Mr Harawira was talking about earlier struggle with their budgets big time. They need some help. They need to know that $50 is going on clothing that $120 is going towards their rent or whatever and they need budget advice. The problem with this creeping regulation in clause 6(2)(cd) is that it has the potential to exclude many of those people and for them to walk away from providing those voluntary services. Quite frankly that is just crazy. We need those people in our community.  
Those members of the community who put their hand up day after day and who put in their own time do not expect one cent from the help they give. Sure they might not be qualified accountants they might not be qualified budget advisers but by heck do they deliver a service to our community! Every day they go out there; they have people come to them and those people value the service they receive. We cannot afford to let the legislation that we draft down here in Wellington bog down and capture these people in a dragnet wrap bureaucracy around them and wrap compliance costs around them to keep them out. It is very good that we have reached this point now. So non-profit organisations will be exempt from this legislation; they will not be wrapped up in it and that is good.  
I move on to Part 2 in terms of registration and the purpose of Part 2. It is to “establish a compulsory public register of financial service providers …”. A compulsory register will be developed. It will be an online register which is documented in Subpart 4 where it talks specifically about the register of service providers. Clauses 23 and 24 in particular deal with that. It will be an online service similar to the service run by the Companies Office and it will be run by the Ministry of Economic Development I understand. I am hoping that this service will be as straightforward as the online service provided for the registration of companies around the country. That service is world leading; I stand here and acknowledge that. The Companies Office online service for the provision of registration for companies is world leading and acknowledged as such. One can log on to that service very easily one can register one’s company directors and start-up capital and one can very quickly walk away with a company. It looks as though the Inland Revenue Department will now provide the department’s tax numbers together with that information as well.  
I just hope that the service for the online registration of financial service providers in this bill will be as efficient as the service provided by the Inland Revenue Department and that it can facilitate the easy provision of registration to make sure that we capture the necessary information.  
That is all I would say at this point in time Mr Chairman; thank you very much for this opportunity. 
The question was put that the amendments set out on Supplementary Order Paper 254 in the name of the Hon Lianne Dalziel and the following amendment in her name to clause 66 be agreed to: 
to omit from subclause (4) “subsection (3)(c)” and substitute “subsection (3A)(c)”. 
Amendments agreed to. 
Clauses 1 to 75 and schedules 1 and 2 as amended agreed to. 
Bill reported with amendment. 
Report adopted. 
Third Reading 
Hon LIANNE DALZIEL (Minister of Commerce) 
: 
 I move  
That the Financial Service Providers (Registration and Dispute Resolution) Bill be now read a third time 
. I am confident that this bill coupled with the two other bills we have passed over the last couple of weeks will increase confidence in the financial sector. They are all very timely instruments to provide that degree of support. I welcome in particular the availability of a register for financial service providers and also for all consumers having access to redress. These are mechanisms that will both result from this bill.  
Hon Clayton Cosgrove 
: It’ll help John Key—those transactions. 
Hon LIANNE DALZIEL 
: I understand that my colleague is chipping in on me from behind in order to make particular points and I am simply responding to him so that it is recorded in  
Hansard 
.  
Hon Clayton Cosgrove 
: Well what is Tranz Rail? 
Hon LIANNE DALZIEL 
: Well if I had that number of shares and could not remember whether I—anyway it does not matter; we will not go there.  
The provision of registration requirements enables a negative vet to occur in respect of people who are acting as financial service providers. I acknowledge the very passionate contribution from the Maori Party member Hone Harawira because I thought that his contribution picked up a very important aspect of this legislation that a lot of people have not quite recognised. It is that by requiring every financial service provider in this country to register we will be putting the spotlight on some people who do not want to have a spotlight shone upon them. I think that it is very important that we have this legislation in place in order to achieve that. That means that the loan sharks themselves will all have to line up to be registered but guess what? They will find out that if they turn up to be registered but are undischarged bankrupts; or are persons prohibited from being a director or a promoter of or concerned in the management of an incorporated or unincorporated body under the Companies Act the Securities Act the Securities Markets Act or the Takeovers Act; or are persons subject to a management banning order under one of those Acts or to an order under section 108 of the Credit Contracts and Consumer Finance Act; or have been convicted of an offence against sections of this particular legislation within the past 5 years; or have been convicted of basically a fraud or dishonesty offence under the Crimes Act within the past 5 years; or have been convicted of money-laundering offences or of an offence relating to the financing of terrorism; or are persons who are subject to a confiscation order under the Proceeds of Crime Act then those people will not be able to register as financial service providers. Although this legislation does not go as far as the fit and proper person test that will be required of people involved in non-bank deposit taking this is very good legislation in terms of providing some basic protection for those who may need that protection and we have heard about those people.  
I will also comment briefly about how important it will be to have access to redress mechanisms but in so doing I will acknowledge again the banking sector and the insurance and savings sector which have already established their own excellent mechanisms to support those sectors to adhere to codes of practice that enable consumers to have their complaints addressed. They have been extremely helpful to work with in developing this legislation and very supportive of it and now we will see consumer dispute resolution services available across the board. That provision will of course be handed over to my colleague the Hon Judith Tizard who unfortunately is not able to participate in this debate but as the Minister of Consumer Affairs it is right and proper that the provision relating to the implementation of the consumer dispute resolution services transfer to her.  
I would again like to acknowledge the officials. Again we have had tremendous support from the Ministry of Economic Development and in this particular instance the Ministry of Consumer Affairs as well. I will mention parliamentary counsel again too. Although the challenges were not quite as great with this bill as they were with the Financial Advisers Bill which was virtually a rewrite in this particular case the Parliamentary Counsel Office was again able to deliver to a very tight time frame. I want to again acknowledge the members of the Finance and Expenditure Committee for the work they have done and also the submitters for their very helpful contributions. There was no controversy surrounding this bill because everyone sees the sense in it. I am very grateful to have the opportunity to express my support to the Opposition for its assistance in this regard as well and I commend the bill to the House. 
CRAIG FOSS (National—Tukituki) 
: 
 This is the third reading and final chapter of a suite of bills: the Reserve Bank of New Zealand Amendment Bill (No 3) the Financial Advisers Bill which we dealt with this morning and this bill the Financial Service Providers (Registration and Dispute Resolution) Bill which has leapfrogged up the Order Paper for reasons we discussed earlier.  
I will pick up on what the Minister said in acknowledging all those who have pulled this bill together. I know we all worked on both financial bills as members of the select committee. It does disturb me just a tad that I do not think we had any speakers from the Labour side of the House who were on the select committee as we considered this bill. It is surprising and I wonder why but there is still time to hear from them. Obviously the Minister was going to speak on it but no members who saw the passage of this bill or listened to the hundreds of submissions on this bill and on the Financial Advisers Bill have spoken. If it is supposed to be a hallmark bill they are proud of I am amazed that they do not talk on it.  
I also note the acknowledgment of goodwill from all parties and particularly from my colleague Simon Power who has had an awful lot to do with the pulling together of this bill and the Financial Advisers Bill. Yes it has suffered a rewrite but at least we got quite good resolution towards the end. As I said earlier this bill always sat on the sidelines a wee bit—it was a bit like the bridesmaid—but it is not too bad in the form in which it has finally arrived in the House. National members have been voting for it all the way through since its first reading and again I acknowledge the cross-party support on this and other issues. I do not think it serves this Parliament very well when members chip in with little niggles and try to make political capital out of this bill given the goodwill that has gone in from all parties to make this bill happen and bring it to the state it is.  
The Minister raised a very good point. This bill brings some confidence back and once it is in place it will along with the other two bills bring some confidence into a sector that is sadly lacking confidence at the moment given the conditions overseas that have washed on to our shores and given some of the issues that have been created within New Zealand itself. I acknowledge that about $5 billion of New Zealand’s funds are frozen or in receivership at the moment in various companies but I reiterate that we have to distinguish between those that have suffered a market loss because market conditions have gone against the investment and those that have allegedly performed potentially illegal or misleading behaviour. Interestingly the kinds of issues that would come up in the disputes sector here would be when someone has given money to a particular institution under whatever prospectus it had at the time but then the company itself has deteriorated on the way through. The person concerned may have inquired about the well-being of that company from an adviser or taken advice that was the same as the original advice but in fact the particular company itself had deteriorated somewhat. That is a very good example there of the need for some kind of disputes resolution process.  
I also acknowledged earlier the foresightedness of not necessarily having to specify financial disputes resolution experts in the bill. I acknowledge that specifying just disputes resolution experts in the bill was very good. Also many existing organisations already follow best practice and best behaviour and have good and solid codes of practice and rightly the Minister acknowledged them. We do too. They are setting the example. Sadly as in so many things in life a few bad apples spoil the whole bunch for a whole sector. There are billions and billions of dollars in New Zealand that are invested and held in trust by various entities that are quite safe robust and fair.  
There is one interesting point that was referred to in one of the earlier speeches. The establishment of this register of all those involved in any financial advisory service in New Zealand forms part of the anti - money-laundering obligations under the Financial Action Task Force which the Minister alluded to in I think her first speech and possibly her second speech. But it is very very wide ranging almost a drift-net to catch each and every person or entity involved in giving some form of financial advice. I go back to my point about how the select committee on this bill and the Financial Advisers Bill spent many many hours with many officials trying to define what that meant. At first cut it sounds easy but when we actually get down to the nitty-gritty it is very difficult. We had examples of the travel agent which Mr Power alluded to earlier and about insurance and I alluded to the buying of foreign exchange when someone goes to a travel agent. Effectively in earlier examples they were deemed to be giving financial advice. But that has been cleared up by the previous bill and if there is a dispute this bill would pick that up under the various tiers.  
Again National has voted for this bill. We are quite confident that it will give some confidence to a very uncertain market. At the moment across the globe other institutions are doing similar work but at the end of the day what we do here is only as strong as regulation and our arrangements with other regulatory bodies overseas and in this very mobile world where capital can flow around all over the place the weakest link is our relationship with other organisations countries and institutions. On that note I do acknowledge work going on with the Minister of Revenue and the Minister of Finance in reviewing our various arrangements treaties pensions and tax arrangements with various entities around the world.  
On that note yes National will be voting for this bill. I have enjoyed speaking to it. I have learnt a lot and again I acknowledge officials the Minister and Mr Power for the way they have worked together to make this good legislation. 
CHRIS TREMAIN (National—Napier) 
: 
 I rise to take a brief call to summarise where we have got to and to let the public know that National fully supports the Financial Service Providers (Registration and Dispute Resolution) Bill. Firstly I acknowledge the Ministry of Economic Development and also the Ministry of Consumer Affairs and the efforts they have gone to throughout the consideration of the raft of legislation that has been put before the House. I think sometimes the work that officials do goes unrecognised. If we look in particular at the Financial Advisers Bill which was totally changed from clause 1 onwards we see that a heck of a lot of work had to be done in a very short space of time and the officials should be complimented on that. It was well done I say to them.  
I want to talk about the importance of the financial investment sector. So often we hear in this House the financial sector being slandered. People say those involved in the sector are all loan sharks and they are all trying to make an easy dollar. But without the financial sector we would have very little investment. If investment occurred only through equity then we would have way less business in this country—way less. What the financial sector allows us to do is to invest other people’s capital at a cost. The aim then is to go out and invest that capital in order to get a better return on it. That leverages up the economy and allows us to grow the economy in a way that we would otherwise not be able to do if we did not have the financial investment sector. Members of the New Zealand public need to understand that the sector is critical to growth in our economy. It is very important that we get behind the financial investment sector and not just send a message all the time to those involved in the sector that it is comprised of loan sharks and that they are all a pack of cadgers whom we should pack up and send to Australia. We need to have this sector in New Zealand and we need to have a strong sector.  
This bill together with the Reserve Bank of New Zealand Amendment Bill (No 3) and the Financial Advisers Bill puts in some tighter regulation around the sector to make sure that consumers are given a higher level of protection. But once again as I have said before we are never going to legislate against risk. The fact is that all investments whether they be with a savings bank or in property development carry different levels of risk. People generally understand that the higher the level of risk there is the higher the return will be and the greater the chance will be of losing one’s money. But the important thing is that people are made aware of that—that that information is disclosed to them up front so that they can make a decision based on material information and accurate information.  
We believe that the financial sector is critical to this economy. Getting in behind it and helping it to grow our economy our businesses and our property investment are what will drive economic growth and it is economic growth that allows our Treasurer whichever side of the House he or she sits on to take in a larger tax take to deliver additional services and to deliver the services that we want require and demand as a modern First World economy. It is a building block of our economy and something that we certainly support and we send a strong message to the industry that it is a very important part of this economy.  
In summary this legislation provides much tighter regulation around the financial investment sector and ensures that the disclosure of information is much better than it has been. I think all in all the three bills the Reserve Bank of New Zealand Amendment Bill (No 3) the Financial Advisers Bill and the bill that is before us tonight as a package help to do that. I think this bill will help to take us forward and to get us back on the horse and investing confidently in the economy in a way that can drive us out of the recession we are currently in. Thank you Mr Assistant Speaker. 
Bill read a third time.