Huo Raymond: Securities Trustees and Statutory Supervisors Bill — First Reading 
Huo Raymond: Securities Trustees and Statutory Supervisors Bill — First Reading 
[Volume:661;Page:9731] 
RAYMOND HUO (Labour) 
: 
 The Securities Trustees and Statutory Supervisors Bill may sound very dry to many members of the general public. Helpfully I will record a short conversation I had with my senior partner on a similar subject years ago when I was practising law in Auckland. He asked me to explain particular issues either by showing graphs or by telling stories. A story by the  
Sunday Star-Times 
 newspaper of 28 November 2008 was right to the point: “Lending role questions for NZ Guardian Trust and Hanover Finance” was the headline. Guardian Trust provided mortgage funding that was part of a property development. Its main funder at that time was Bridgecorp. Guardian Trust then provided additional finance with a first mortgage which meant that it ranked ahead of Bridgecorp’s loan in the event of a default. When Bridgecorp went—to use the language of the newspaper—“belly-up” last year Hanover Finance stepped in and took over its mortgage on the development making it the second mortgage on the land secured by Guardian Trust’s mortgage. This put Guardian Trust in an unusual position because it also acted as corporate trustee for Hanover Finance and had a supervisory role over that company’s affairs. The story went on to say that Hanover Finance was forced to exercise a mortgagee sale and Guardian Trust was forced to follow suit. Both companies were in default on their obligations to investors—both suspended repayments to their investors. Hanover Finance then tried to put together a restructuring plan and the plan had to first be approved by Guardian Trust in its role as Hanover Finance’s corporate trustee. Guardian Trust insisted there was no conflict of interest in its roles as trustee and mortgagee citing Chinese walls within the company. That is to say that the firm had developed or implemented polices and procedures to safeguard insider information and to ensure that no improper trading occurred. 
There is no need for us to follow up the story which is nearly 2 years old but it is a story that explains well why the law is being changed. The regulatory impact statement states that Treasury supports the proposed legislation “except for the requirements for the trustees to report breaches in trust deeds … in real-time and for the Commission to have the power to direct trustees to take a particular course of action to remedy breaches”. It fears that the power to direct the trustees how to act will blur the clarity between trustees and the Securities Commission and it says it does not fit well with the proposal to give the regulator the ability to take legal action against trustees which would likely be exercised at the same time. The requirements for trustees to inform the regulator of breaches in real time could lead to significant compliance costs which are likely to be borne by firms seeking to raise capital. The other aspect—or the elephant in the room—that this bill ignores according to Chapman Tripp is the dynamic created by the changing nature of the trustee and issuer relationship. The trustee as front-line regulator is in the unusual and potentially unhealthy position of having to negotiate its regulatory mandate and its remuneration with the very party it is charged with regulating—namely the issuer. 
Another article I wish to quote is from the website www.depositrates.co.nz which was published on 4 March 2010: “Commerce Minister Simon Power included trustees in his review of the Securities Act after a report by Companies Registrar Neville Harris in March last year”—2009—“slammed finance companies for acting like ‘Ponzi schemes’ and raised concerns about trustee diligence and accountability.” Interestingly that article attracted a comment that was posted the following day: “From the past experiences we have all just very recently witnessed would you really support Trustee companies continuing with any power what so ever to oversee finance/investment companies. Where have these Trustee companies been when the investors have needed them the most?????? Whilst the Securities commission have appeared to be near useless I feel they are the lessor incompetent of the two. Get real take note how the Australian Securities Commission work they aren’t pen pushers with wet paper towels to beat you with!”. The name of the commentator is Craig; the family name is not available. 
This bill borrowing the words of Chapman Tripp again reflects both regulation and deregulation at the same time. On the one hand the trustees and supervisors will need to be licensed and to comply with ongoing requirements—namely the regulation—but on the other hand the preferred position that existing trustees enjoy will be removed opening the way for others to enter the market or deregulation. According to McDouall Stuart’s  
New Zealand Finance Companies Report 2008 
 New Zealand’s financial system is worth $431 billion of which registered banks are worth $345 billion non-bank financial institutions $22 billion savings institutions $4 billion and managed funds $60 billion. 
I am very pleased to rise to support this bill in its first reading because the bill purports to protect the interests of investors and to enhance investor confidence in the financial market through various measures. The law has to be changed because New Zealand places too much reliance on private supervisors and because as evidenced by these real-time stories they are not accountable enough. Other problems with our regime were raised by the string of finance company collapses including the lack of independence and capability of some trustees. The previous Labour Government made great progress in tidying up the financial services sector including the Review of Financial Products and Providers. I am very pleased to see that this bill which is a continuation of those efforts is now being progressed. 
This is a complex technical and very important bill. We will be keenly involved in scrutinising it at the Commerce Committee. However as madam chair the Hon Lianne Dalziel pointed out earlier in the House the time frame and the way the bill has been presented may hamper submission efforts from stakeholders professionals and the general public and the extent the bill is to be scrutinised. Thank you very much.