Dalziel Lianne: Financial Markets (Regulators and KiwiSaver) Bill Auditor Regulation and External Reporting Bill — First Readings 
Dalziel Lianne: Financial Markets (Regulators and KiwiSaver) Bill Auditor Regulation and External Reporting Bill — First Readings 
[Volume:667;Page:14184] 
Hon LIANNE DALZIEL (Labour—Christchurch East) 
: 
 Labour will support these bills the Financial Markets (Regulators and KiwiSaver) Bill and the Auditor Regulation and External Reporting Bill being referred to a select committee where we intend to subject them to significant scrutiny. Although we agree with the principles that lie behind the legislation of providing for a single regulator and the regulation of auditors we are concerned that the Government has managed to get its legislative programme out of order—it actually makes no sense whatsoever. Our committee the Commerce Committee will soon be reporting back the Securities Trustees and Statutory Supervisors Bill from the select committee and the Securities Act review has just completed the discussion paper process. Presumably the Government will be considering its approach to that discussion soon. However this legislation and both of those matters are inextricably linked to each other so why is there a rush to get the Financial Market Authority into place ahead of the rules that it will operate under? It makes absolutely no sense to me whatsoever that one would put in place the regulatory body without having the regulatory framework that it is designed to enforce put in place first. 
And why does this legislation not address a fundamental flaw in the design of the present system? I had thought this Government would be keen to address the handbrake that the Serious Fraud Office essentially applies to regulators when it is investigating alleged fraud. That is not fixed by this legislation. I want to look at that matter very carefully when the legislation comes before our select committee. 
In order to answer the question about why there is a rush I think we need to return to the time when Labour took office in 1999. I remind this House that the previous Labour Government inherited a regulatory wasteland as far as the financial sector was concerned. We had a Takeovers Panel whose annual report each year was a blank sheet of paper because it did not have a Takeovers Code to enforce. How ridiculous was that? Year after year we paid the chair of the Takeovers Panel to sign a blank piece of paper as his annual report to the House. We did not have a securities markets regulatory framework to provide for registered exchanges when we became the Government. We did not have continuous disclosure provisions. I remember the people in this House who railed against continuous disclosure becoming the law. One of them now a prominent member of the National Party was formerly a member of the ACT Party. 
I remember that we did not have strong enough rules to prohibit insider trading. Would the Securities Commission have got $20 million for—oh no it was not really this—insider trading out of Fay Richwhite if it had not been for the changes that we put in place and the provisions against market manipulation that we put in place as well? We did not have regulation around financial advisers nor did we as we learnt have sufficient regulation around the non-bank deposit taking sector. I say “sufficient regulation” because I am sick of people saying there were no regulators in the space of the non-bank deposit taking sector. There were regulators; they were called trustee corporations and gee they did a good job. And the auditors did a good job which is why we have the auditors legislation in front of us today as well. 
Every year of our 9 years in Government we were regulating different aspects of the financial sector and the reason it took as long as that was that there was so much to be done. We had earned our reputation as a country with the financial sector’s Wild West and year by year our Government strengthened existing regimes and put in place new regulation. I do not think that anyone should ever forget the fact that we inherited a regulatory wasteland and we inherited it from a National Government. 
I do not know why I was surprised therefore to find this statement in the discussion document on the Securities Act review: “While capital markets like other markets might be expected to work efficiently without government involvement all advanced countries have found it beneficial to introduce a regulatory regime to counter market failures that financial products are inherently prone to.” How could anyone expect capital markets to work without Government involvement post our own finance company sector meltdown let alone the global financial crisis? Who could write that? Who could think that? And what are the market failures that this wonderful whiz-kid has come up with? If we think about what market failures are in this sector we realise they are about people being conned or ripped off; that is what the market failures are. There was insufficient protection offered by those who were in place to protect the interests of those who invested in finance companies. That is what makes me nervous about putting a regulator in place and leaving the rules that it will enforce until later because the regulator’s strength will come from the rules and the principles that the Securities Act will contain. 
As the previous Minister of Commerce I visited the UK’s Financial Services Authority on a couple of occasions. The second time was in election year in 2008 and I met with the outgoing chair Sir Callum McCarthy. We had a discussion about the Financial Services Authority’s oversight of the Northern Rock failure and some of the lessons that it had learnt from that. He pulled from his pocket a laminated card with a set of 11 principles that the Financial Services Authority is able to enforce. Prescriptive rules can always be circumvented he warned but principles unlike rules are not made to be broken. 
The Financial Services Authority’s principles are these: “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. 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. 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. 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. 10 Clients’ assets—A firm must arrange adequate protection for clients’ assets when it is responsible for them. 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.” 
I have spoken favourably about the Government’s decision to establish the Financial Markets Authority. It was a recommendation that came out of the Capital Market Development Taskforce which I commissioned to provide a blueprint for the future of our capital markets. I have also welcomed the setting up of the Financial Markets Authority establishment board ahead of the legislation and congratulated the Minister on the choices he has made. However what I have learnt since making that statement leaves me with no choice other than to say to the Government that Simon Botherway must step aside from the position of chairing the establishment board. And that should be not simply for the period of the Ombudsman’s investigation into the management of potential and actual conflicts of interest in a case where the public does not separate South Canterbury Finance from Allan Hubbard even though the Securities Commission apparently can. 
As if that were not bad enough Simon Botherway’s connections to the vultures that now encircle the entrails of South Canterbury Finance’s assets with taxpayers’ cash in hand mean that he could find himself conflicted in terms of what will be one of the most significant inquiries that this country will ever see into the collapse of such a finance company. Mark my words here and now: if this Government does not agree to a commission of inquiry into what has happened with regard to South Canterbury Finance and Allan and Jean Hubbard then a Labour Government will commit to hold such an inquiry. 
If National wants the Financial Markets Authority to have credibility—and it is tainted already—then it has to think about the primary objective of providing confidence for investors. I wrote to the Minister of Commerce on 28 June this year and I asked him to explain to my constituents about Allan and Jean Hubbard. They pose no threat to anyone in terms of their ability to leave the country and live a disgracefully ostentatious international lifestyle unlike others who have taken money off unsuspecting New Zealanders and spent it on themselves. Why is this couple being put into statutory management when we see others living the high life? That is why this process has been tainted and why if it is to get back on track the Government has to act. 
I seek leave to table the letter that I wrote to the Minister of Commerce on 28 June the letter that I wrote on 30 June and the two replies that I received. 
Mr DEPUTY SPEAKER 
: Leave is sought for that purpose. Is there any objection? There is no objection. 
Documents by leave laid on the Table of the House.