Securities Trustees and Statutory Supervisors Bill — In Committee 
Securities Trustees and Statutory Supervisors Bill — In Committee 
[Volume:671;Page:17707] 
Securities Trustees and Statutory Supervisors Bill 
In Committee 
Part 1 Preliminary provisions 
Hon LIANNE DALZIEL (Labour—Christchurch East) 
: 
 I rise to speak on Part 1 of the Securities Trustees and Statutory Supervisors Bill. One of the concerns I have regarding this legislation is the same concern that I expressed when we debated its first reading in the House—that is whether we are following the right sequence or the right order of play. To my way of thinking the  
Review of Securities Law  
should have come first followed by the establishment of the Financial Markets Authority followed by consideration of this bill. This bill should have been wrapped up in the review of the legislative framework. 
When the Commerce Committee sat for the first time after the 2008 general election it was not very long before we had a briefing from the Ministry of Economic Development. I will never forget the briefing we had from the Registrar of Companies because it really opened our eyes to a lot of the things that none of us had really seen before. It was a stark picture of who was supervising the finance companies that failed. There were two issues of concern: one was the trustees and the other was the auditors. We will still be dealing with those issues in our select committee over the next few weeks. 
The issue for me was that we always talk about there being no regulation for finance companies but that is not true. There was regulation for finance companies; it just was not strong enough. The regulatory supervisors under the former regime were the securities trustees. They were the ones who were responsible for overseeing decisions that were being made by finance companies and for what was not being advised to the public by way of very convoluted arrangements inter-party lending and all sorts of things that should never have been allowed to escape the scrutiny of the supervisors. That is what made me wonder whether this was the right thing to do. 
I am kind of agnostic about it. The Labour Opposition will not vote against the legislation—we will let it go through—but I think it is important to remember why it is important to do a proper regulatory impact analysis whenever one is dealing with the regulatory frameworks that have to stand the test of time. What preceded the finance company failures obviously did not stand the test of time and that is my strongest concern about the approach that we have adopted with this legislation. Labour will not oppose it but I just think we have to be very cautious. 
I would almost say to the Government that it should hold this bill back on the Order Paper. There is nothing wrong with getting the Committee stage out of the way so that it has just a third reading to go but the Government should just wait until after the exposure draft comes out on the securities legislation which will perhaps be introduced in October we now hear. The exposure draft is coming out in August so my strong advice to the Minister of Commerce is that he hold this bill at the end of the Committee stage and then have a serious rethink as to whether this is the structure to take us forward. 
I have some serious doubts as to whether the securities trustees regime is the right one for New Zealand particularly in light of the legislation that we were debating only a few minutes ago. The Financial Markets Authority will have a new role and I am just wondering whether we have created an unnecessary tier of supervision when it could be undertaking that role directly. 
Labour will not be opposing the passage of this bill but I make a plea to the Government to think very carefully about whether this is the direction we want to go in. I have no objection to the philosophy of supervising the supervisors but also I like to make sure that compliance costs are reduced. An unnecessary tier of bureaucracy may in fact be just as bad. 
Hon DAVID PARKER (Labour) 
: 
 I will just develop that theme a little. I agree with the previous speaker the Hon Lianne Dalziel that it might be wise to put the Securities Trustees and Statutory Supervisors Bill on the back-burner for a little bit. Labour is not opposed to the idea of there being oversight of those who are responsible for the supervision of securities—securities trustees and statutory supervisors—but I take the Hon Lianne Dalziel’s suggestion that this oversight might fall within the ambit of the Financial Markets Authority rather than a separate entity. 
Hon Lianne Dalziel 
: Or the Securities—yes the Financial Markets Authority. 
Hon DAVID PARKER 
: The Financial Markets Authority rather than a separate body. 
The issues of cost are very relevant. One of the problems we have in New Zealand’s capital markets is that through compliance costs the cost of raising capital can be too high. There have been some terrible problems and practices in respect of finance companies and we had a good discussion about those in debate on the Financial Markets (Regulators and KiwiSaver) Bill which was discussed previously. There was far too much related-party activity. People were effectively lending moneys to things that they had an interest in and they were effectively reaping the financial benefit of very risky transactions if they went well on the back of relatively low interest rate investments by naive investors. The New Zealand regulatory environment did not protect those investors by making sure they were properly aware of the risks they were taking and the regulatory settings did not enable the regulators to burrow into what was happening in a way that would have exposed it earlier and would therefore have minimised the loss. I am not one of those people who think that we can avoid risk and I am sure that no one on our side of the Chamber—nor indeed anyone in the National Government—thinks that. But we ought to appropriately highlight risk and in those cases we were not doing so. 
Having said that in respect of finance companies—the lack of information that was provided to investors the lack of regulatory oversight of the poor practice within those finance companies and the failure to pick up related-party investing—I find it galling that some of the people who have ripped off people this time had prior form for having done so previously. Despite the failures in the legislation I will not let our regulators off the hook completely. With regard to our regulators—and I include the auditors and statutory supervisors of some of these finance institutions—and the regulatory bodies that oversee finance companies I find it hard to accept that no one looked at the people who had prior form and who had done something similar to rip off investors in earlier incarnations. I would have thought that those people particularly should have had the heavy hand or the intense scrutiny of the regulator in a way that might have prevented some of the losses. 
Having said all of that we have a problem with the expense of raising capital for new ventures that are not finance company - related ventures. We need to take care that we do not overly regulate that space because we want to encourage innovative enterprises in New Zealand to thrive. One of the things they need in order to thrive is access to capital which should be available to them through accessing retail contributions from people who want to invest in their companies. We ought not to make it too expensive for people to produce prospectuses that are easily understood and that properly describe risk. The impediments that we put in the way by increasing their compliance costs hold back New Zealand business in a way that we on this side of the Chamber do not want. 
We say in respect of this matter that we just need a bit of a breather now. We are dealing to the big problem in respect of finance companies and it feels like it is relatively under control—is it not I ask the Hon Lianne Dalziel—in respect of the legislative fixes that are on the way. The finance company things that have gone wrong in previous years are on their way towards being fixed to the extent that they can be through regulation. I am looking to the Hon Lianne Dalziel because her expertise in these matters is greater than mine. We have to make sure that in terms of the fixes we have in that part of the market we are not over-regulating the raising of new capital for inherently risky equity investments in respect of new technology businesses. 
These businesses need to raise capital to expand. That is a hard ask for these businesses. They have to expand into export markets while they are quite small because the New Zealand market in respect of some of these niche products is so small. New Zealanders have these nascent businesses that are being developed to commercialise exciting ideas that can produce export earnings for our country and at an early stage in the development of those businesses they want to sell those products and services offshore. 
That in turn requires quite a bit of capital. They need to raise that capital. Banks will not lend it to them. Unless it is secured over real property banks are not likely to lend capital to businesses and therefore they have to raise it from new shareholders who are willing to invest. If our rules are so restrictive that we limit the pool of likely investors we are doing a disservice to our economy. I do not accept that the only people who should be able to invest in high-risk companies are the ones who are already very wealthy because they are able to lose their money and able to better assess risk. I do not like a securities system that effectively forces everyone to be professional investors rather than enabling ordinary people in New Zealand to have a stake in the outcome of our commercial enterprise. I want to facilitate that. 
I do not want to avoid risk for people. I want simply and relatively cost-effectively to describe risk to those people so they can take that decision. If they take that decision and it turns out to be Microsoft they will be wealthy. If it turns out to be Fortex Feltex or a company like that they will lose their money. People who invest sometimes lose their money. I do not want to prevent people from having the opportunity to raise money to expand these businesses which we need to improve the breadth of New Zealand’s exports by having inappropriate securities laws. 
New Zealand has a problem in terms of the breadth of our exports. It is true that the rural sector is going gangbusters at the moment with the highest-ever commodity prices and a relatively low dollar currently compared with where it was 6 months ago. But that is not enough for New Zealand to bridge the wage gap with Australia. To afford the sorts of social services that we like in our health and education systems in New Zealand we need to build the breadth of our exports. 
In order to build the breadth of our exports we have to enable those companies to raise money. We must make sure that in properly regulating some of the poor conduct we have had in finance companies and other financial intermediaries we do not stop the small companies being able to access capital from people who are not their family and from people who are not the wealthiest individuals in New Zealand. They collectively could all invest $5000 each if they had it to raise $250000. It would take 50 investors at $5000 each to raise $250000 to get these nascent companies operating and expanding to their next level of expansion. The compliance costs at the moment for raising capital are already too high partly because of our ridiculous financial reporting rules and the audit rules around them which need to be simplified. I hope that we take a wee break before we entrench some overly high costs through this particular bill. 
Having said that I say that we agree with the intention of the bill. We are just suggesting that maybe it could sit on the Order Paper once it goes through the Committee stage awaiting an exposure draft of another piece of work that has been done by the Minister which might be able to tidy up these things at the same time. 
CLARE CURRAN (Labour—Dunedin South) 
: 
 I will talk to Part 1 of the Securities Trustees and Statutory Supervisors Bill. I reiterate what my colleagues have said about our supporting the legislation but also the importance of taking a bit of a breath around it and perhaps taking a sensible and logical approach to how it is progressed into law. 
I will expand on some of the comments made by the previous speaker my colleague the Hon David Parker around the inappropriate securities regulation and the risk of it affecting capital coming into the country and the ability of new businesses to attract capital. It is extremely important that we have consistency on practice across our legislation and across our intent in terms of the signals we are sending to business. On the one hand we have this bill. We are saying we should take a deep breath leave it sitting on the Table and wait for the rest of the legislation to come through so that it has some logic around it. But on the other hand we have another piece of legislation before the House the Telecommunications (TSO Broadband and Other Matters) Amendment Bill which is putting in place a 10-year regulatory holiday. This regulatory holiday is essentially open slather and allows one part of the industry to get a benefit in order to progress a Government policy. 
The industry that my colleague David Parker referred to is critical to our country’s future. The new innovation high-tech industry is currently worth nearly $20 billion to the New Zealand economy and of that $20 billion $5 billion is export earnings. It is absolutely critical that we put in place legislation—this is where the Securities Trustees and Statutory Supervisors Bill is relevant—that has coherence in terms of the policy direction and the signals that this Government is sending to the market place. Those export earnings are critical. If we are to progress as a nation we need to look at how our innovation and our innovative creative industries and technological industries can maximise leverage in terms of building on that export base. Therefore the ability to bring in new capital is critical. 
We have referred a few times to the fact that Labour will support this legislation because it forms part of the ongoing reform of financial products and providers which was started by Labour and has been continued by the National Government. I pay tribute and give credit to my colleague Lianne Dalziel for progressing this bill and all the other legislation that it is linked to because it is carrying on that very good work. Lianne Dalziel’s work has set the groundwork for that. I also commend the Minister of Commerce Simon Power for his sensibleness in the way he has progressed the legislation although we ask that he listens to what we are saying around putting this bill on hold. 
The bill as we have heard removes the automatic right for the six previously statutorily approved trustees to supervise issues of debt securities in some investment schemes. It introduces a licensing regime for trustees that are to be run first by the Securities Commission and then by the Financial Markets Authority. That is why we are saying the Government should put the legislation on hold. Under that new regime all trustees statutory supervisors and unit trustees must be bodies corporate and their directors and senior managers must be of good character. 
Retirement village statutory supervisors have been included in the regime in recognition of the similar role that they play to trustees in monitoring the financial position of retirement villages. There was quite a lot of discussion in the Commerce Committee about retirement villages. We heard a number of people express the view that the Retirement Villages Act 2003 already provides sufficient protection for retirement village residents. However the committee decided that retirement villages should be included to ensure that residents receive the same protection as people with financial interests in securities. Most of the submissions related to the costs and the committee recommended that the Government’s costs be reviewed. 
The bill also contains a number of provisions designed to ensure that trustees statutory supervisors and unit trustees comply with their obligations. The Securities Commission may seek pecuniary— 
Sitting suspended from 6 p.m. to 7.30 p.m. 
CLARE CURRAN 
: Thank you— 
Hon Simon Power 
: He’s back. 
CLARE CURRAN 
: He is back. I think I earlier passed on my congratulations to the new Assistant Speaker Ross Robertson but also I welcome back the Minister in the chair the Minister of Commerce. It is great to have him in the Chamber while we talk about this bill. 
I will quickly recap on what I was saying. Although Labour supports this bill we have expressed our reservations about the need for it to be passed right away and the importance as we see it of parking it while other measures we know are coming are put in place in respect of the Financial Markets Authority. We think it is precipitous to pass it as it stands at this point. 
One of the things that my colleague the Hon David Parker talked about earlier tonight on which I particularly agree with him is the possibility and the spectre that this legislation raises of the stifling I suppose of the potential ability of companies particularly those with export capacity in our new technology areas and innovation sector to raise capital in this environment. That possibility needs to be looked at. 
Before the dinner break I was talking about one of the significant issues that appear in this bill: the issue of whether retirement village statutory supervisors should be included within the ambit of the bill. I put on the record again—the Minister might like to comment on this—that this is another reason why this bill should perhaps be parked for a later date after the Committee stage. As I and my colleagues have said we support the bill but this issue is another complex issue that needs more consideration. 
We considered carefully whether it was appropriate to bring retirement village statutory supervisors within the bill’s ambit as we are aware of the view that the Retirement Villages Act 2003 already provides protection for retirement village residents. This part of the bill received quite a lot of attention and quite a lot of consideration by the select committee and a number of submissions were made on it. On balance we supported the inclusion of retirement village statutory supervisors in the licensing regime because excluding them meant that residents of retirement villages would receive less protection in certain aspects than people with a financial interest in a security. We considered that that would be anomalous and undesirable. 
The Retirement Villages Act is inadequate on its own because it lacks the sanctions against poorly performing statutory supervisors. The monitoring and sanction regime proposed by the bill would address the types of deficiencies identified in the 2009 report by the Retirement Commissioner. 
A number of submitters raised concerns about the additional compliance costs that would be associated with this bill. But it is outside of the scope of this bill to address that issue which is one of the reasons why we think that the bill due to its complexities should be parked on the Table. 
Hon SIMON POWER (Minister of Commerce) 
: 
 Part 1 of the Securities Trustees and Statutory Supervisors Bill establishes the purpose of the bill which is “to protect the interests of security holders and”—as the member pointed out—“of residents of retirement villages and to enhance investor confidence in financial markets and retirement villages”. As members will be aware a little-used provision in the Standing Orders that relates to cognate bills has as we discovered some time ago in another piece of legislation enabled us to mesh this bill and the Financial Markets Authority legislation together for the purposes of their first second and third readings but alas not in the Committee stage so we are dealing with this bill separately from the other legislation at this time. But the idea behind that little-used provision is that the substantive debate about each of those bills is so inextricably linked to the other that it would waste the House’s time to deal with them separately. Those matters so overlap that it makes sense to deal with them together at their first second and third readings. However because that is not able to be the case in the Committee stage we are dealing with this bill separately now. 
There is a Supplementary Order Paper in my name that replaces references to the Securities Commission with references to the Financial Markets Authority to reflect the fact that they are being dealt with as cognate bills. It also inserts references to the KiwiSaver Act to include non-restricted schemes within the licensing regime. A non-restricted scheme is a KiwiSaver scheme whose manager is the issuer of interests in that scheme rather than the trustee. 
The background to this legislation is simple. When I first became the Minister of Commerce one of the issues I was most concerned about was how the front-line regulator had behaved—or not behaved for that matter—during the collapse of so many finance companies. I extracted the work done on trustees and custodians from the broader Securities Act review and said that I would bring it forward and deal with it ahead of that review. If it is the Committee’s wish that the bill passes through the Committee stage tonight then we will be able to do that in a prompt and efficient way. 
One of the things I asked early on of officials in respect of this particular role of the trustees though is: what if we did not have them? What if the front-line regulator role that they had played was just removed from the equation? The reliability of the front-line regulator to talk to investors about product and how it was classified and to protect—“protect” is a strong word—or oversee and supervise the investment was the relevant job of the trustees. I came close to asking that question in a legislative sense. In other words what value does it add for the investor to have the corporate trustee in the model? 
Things had to change. The passive role that the trustees had adopted up until recently was not going to satisfy me or this Government or I imagine for that matter any party in the House that they were adding value and oversight to investors’ decision-making. In fairness to the Trustee Corporations Association they came to me and said that they were prepared to change the way they did business. This bill is a result of those discussions. The Commerce Committee has looked at it carefully and I was persuaded at the last minute that it was worth keeping them and it was worth proceeding with this legislation. The select committee has done a good job of getting into the detail of those issues. But the sticky issue for the Committee and frankly for the Government as well was the issue of retirement villages. I understand that this issue causes some consternation to members of the industry but the truth is this: if a security is being issued by way of a licence or some other instrument for those living in a retirement village they deserve the same protection as those who are purchasing a plain security or a security as we know it in terms of the capital markets or for that matter private markets. If the money and the instrument are being overseen by a front-line regulator then they also deserve the protection of legislation in the context of retirement villages. The Government moved and I note that the select committee has recommended continuing the inclusion of retirement villages in this legislation. 
This funnily enough was the first step we took for investor protection. It is now inextricably linked to the Financial Markets Authority which in itself is inextricably linked to the wider Securities Act review but progress is being made and I am grateful to members of the committee for their assistance on that. 
STUART NASH (Labour) 
: 
 I thank the Minister of Commerce for getting up and clarifying those issues. It is good to see the Hon Simon Power take a call on this bill because as we heard from Simon Bridges a while ago 40 percent of the legislation that has been put through by the National Government has been in the name of Mr Power. It will be sad to see a hard-working Minister leave and we all wonder why the Hon Simon Power has decided to leave. I suspect that he is sick and tired of carrying the rest of his colleagues. 
As the Minister mentioned it may be a little bit confusing for those people who have followed this bill. In the first reading debate we talked about the Securities Trustees and Statutory Supervisors Bill then we brought it together with the Financial Markets (Regulators and KiwiSaver) Bill so now in one speech we are talking about two quite large bills. As the Hon Simon Power said it is quite unusual to wrap two bills together. However we did that because the bills were quite similar in their intent. 
At the moment in the Committee stage we are talking about just the Securities Trustees and Statutory Supervisors Bill. I come back to Part 1 and I agree with something Mr Power said. As we know many many New Zealanders were rorted of their life-savings due to what I believe was negligence perhaps incompetence and I will not go any further than that—[ 
Interruption 
]—yes let us say negligence—on the part of a lot of the trustees or statutory supervisors managing the financial companies etc. What was needed to return confidence back to the market and to give New Zealanders confidence that they could come back to the market was legislation that would ensure that trustees and statutory supervisors could effectively perform the functions of trustees and statutory supervisors. 
Clause 3 sets out the purpose and states: “The purpose of this Act is to protect the interests of security holders and of residents of retirement villages”. That is most important and I say that because there is a very wide perception out there—and I am one who holds this perception—about the interests of security holders. I do not know much about residents of retirement villages but certainly the people who have come into my office and the people I liaise with who lost their life-savings had the perception that they were not well looked after by their statutory providers. I continue reading clause 3 which goes on to state: “and to enhance investor confidence in financial markets and retirement villages”. It then sets out three means for doing so: “by—(a) requiring persons who wish to be appointed as trustees or statutory supervisors to be capable of effectively performing the functions of trustees or statutory supervisors;”. 
It may seem that that is common sense. Of course we want the people who have been appointed as trustees or statutory supervisors to act in a competent manner but what happened was that they did not perform in a competent manner. They did not undertake their duties. I must say here that I do not want to stereotype every single trustee or statutory supervisor because no doubt there were some who did their work with diligence— 
Hon Simon Power 
: Very good ones. 
STUART NASH 
: Yes there were some very good ones so I do not mean to bring every single statutory supervisor or trustee into this. When I am maligning certain companies I think a lot of people know who or what I am talking about. A number of them have appeared before the courts a few of them have been sentenced and some have yet to come before the courts and hopefully be judged by a jury of their peers. What we need to do for every single New Zealander who has lost faith in our capital markets is ensure that confidence exists. 
There is risk every time people invest in any sort of investment and a prudent investor understands that risk and will manage that risk. That is why they get a rate of return over and above the risk-free rate of return. If we wanted no risk whatsoever we would invest in US Treasury bonds or something like that or put the money in Kiwibank—something with absolutely no risk. But there are organisations that pay an interest rate above the risk-free rate of return and the question then is about pricing risk. It is up to investors to understand that and manage it. One of the risks I believe they should not have to take into account is the risk of negligence or incompetence on the part of the statutory supervisors or the trustees. That is a risk that is never taken into account because it is incredibly difficult to quantify. 
DAVID SHEARER (Labour—Mt Albert) 
: 
 I am pleased to take a call on the Securities Trustees and Statutory Supervisors Bill. I appreciate the Minister in the chair the Minister of Commerce taking part in the discussion as he did earlier and his explanation of the link between this bill and the Financial Markets Authority legislation. They are pretty inextricably linked. That is pretty hefty legislation that we will be getting to hopefully later on this evening. Certainly I appreciated the explanation of the cognate legislation and the navigation through the intricacies of parliamentary process. 
I reiterate that Labour is supporting this legislation. As my colleague Stuart Nash just said this legislation is designed to restore confidence in our financial markets and to make sure they operate in a way that enables people who are investing to have real confidence that the thing that happened unfortunately to tens of thousands of New Zealanders in the crash of a lot of our financial institutions is not repeated. Many of our citizens particularly older citizens lost their life-savings and were put in a position where they were unable to re-earn those savings. As younger people we might have a second or third chance but as an older person we do not have that chance. 
I am particularly pleased that the Labour Party is able to support the legislation. I thank the Minister the Commerce Committee and the officials for working so diligently to bring it together. It is complex legislation. 
We are supporting the legislation because it forms part of the ongoing reform of financial products and providers that we started under the Labour Government. It is now being continued seamlessly under National and I am pleased that has happened. I think both parties as do all people in this Chamber agree on the need to make the financial markets much more secure for ordinary New Zealanders. 
To reiterate the purpose of the bill is to protect the interests of investors and enhance investor confidence in financial markets by requiring people who wish to be appointed as trustees or statutory supervisors to be capable of performing the functions of trustees or statutory supervisors. The crux of the issue is that that has not happened in the past. People have not performed that function adequately and as a result the situation over the last couple of years was able to arise. The bill enables trustees and statutory supervisors to be held accountable for any failure to perform their functions effectively. In effect it puts the onus on those people to ensure that the institutions that they represent or the trusts they are involved with perform effectively. 
As I said before some of the preparatory work was started under the Labour Government. This bill was introduced in December 2009. It is now 16 months since then and I am really pleased that the bill will I hope go through its remaining stages fairly smoothly tonight and in its subsequent reading. 
The bill will provide a regime that supervises in effect the supervisors. It looks after those people who are entrusted with supervising the various trusts and trustees of institutions. Although the role of trustees was included in the review of financial products and providers undertaken by the Labour Government there are still further concerns about the model of supervision they provided. Those concerns were raised as I said by the string of finance company collapses. 
CLARE CURRAN (Labour—Dunedin South) 
: 
 I go back to what the Minister in the chair the Minister of Commerce said about the reason for linking the bills together and his justification for that. As he knows Labour is supporting the Securities Trustees and Statutory Supervisors Bill but we are arguing—I think quite justifiably so—that this particular bill is being progressed prematurely. That is because it could have waited to be wrapped up with the Securities Act reforms and the establishment of the Financial Markets Authority. The Minister might not agree with that idea but my colleague the Hon Lianne Dalziel talked a lot about the logic of it earlier. 
As the Financial Markets (Regulators and KiwiSaver) Bill is also being progressed at the same time it might minimise some of the confusion when the bill becomes law but it is concerning that the Securities Act review deadline has been delayed until 2011. A number of my colleagues have talked tonight about the Financial Markets (Regulators and KiwiSaver) Bill in relation to the things that have not been addressed yet the importance of addressing those things and the order that they are done in. 
I take the opportunity while the Minister is in the Chamber to quickly recap something I said earlier about the issue of taking responsibility. He referred to that issue with regard to the Financial Markets Authority which is the new authority replacing the powers of all those agencies. He talked about all the agencies having a staring competition—those are the words he used—and those agencies not taking responsibility for all of their various responsibilities. In terms of taking responsibility and practising what one preaches I draw a comparison between that example and the mishandling of the South Canterbury Finance collapse which was the largest financial collapse in New Zealand history. It is one of the reasons why we are talking about this legislation and it is why both pieces of legislation are before the Committee. The issue of taking responsibility is really critical. 
A number of my colleagues have also talked about that issue tonight. After various trusts connected with Allan Hubbard as well as Hubbard himself were put into statutory management by the Government South Canterbury Finance was unable to have the confidence of investors that it needed which contributed to its demise. There are serious questions about why South Canterbury Finance was not put into statutory management and why the Retail Deposit Guarantee Scheme coverage was extended despite the negative rating and the state of the audited accounts. 
Labour supports the Securities Trustees and Statutory Supervisors Bill. I wish we could make the names of our bills a bit simpler— 
Hon Member 
: Just for you Clare! 
CLARE CURRAN 
: Just from a plain English point of view and from a financial literacy point of view. That is another issue that has been raised in this Chamber a lot tonight so it is not actually a joke. The issue of financial literacy and the ability of the ordinary person out there to understand the importance of this legislation and the other legislation we are talking about tonight is actually really critical. Understanding and de-jargonising our legislation is quite a critical issue. I hope the Minister will support me on that. 
Labour supports the bill because reform of the ways that trustees and statutory supervisors operate is essential for the prevention of another financial collapse. We have talked tonight—and on various other occasions when debating this legislation—about how all of these collapses happened why they happened and what we are doing about it. We want to prevent more collapses happening. That is why the issue of taking responsibility is so important. There needs to be greater transparency in that area as has been evident from the Government’s handling of the South Canterbury Finance collapse. 
JO GOODHEW (Junior Whip—National) 
: 
 I move  
That the question be now put 
. 
CARMEL SEPULONI (Labour) 
: 
 There is still some more to discuss on Part 1 of the Securities Trustees and Statutory Supervisors Bill before moving on to Part 2 so I thought I would stand to take a call. It is a bill I am particularly interested in. I have been having quite robust discussions with my colleague Nanaia Mahuta on this particular bill. 
To start off as I have just come to the Chamber I will state very clearly Labour’s position on the bill before I get into the specifics and the detail in relation to Part 1. Just in case members are in any doubt I say that Labour will be supporting this legislation as it forms part of the ongoing reform of financial products and providers started by Labour and continued by National although we consider it to be premature as the Financial Markets Authority is not yet established and the Securities Act review is not complete. The legislation is being passed ahead of other decisions that will impact on the whole regulatory framework and that is a concern for us. 
We acknowledge that this bill addresses a number of the weaknesses in the current supervision regime for corporate trustees and statutory supervisors. It establishes a licensing regime for the trustees and supervisors of securities and retirement villages. The regime will be administered by the Securities Commission until the Financial Markets Authority is established. We support the bill but not without concerns. As I said it is being passed ahead of other decisions that will impact on the whole regulatory framework. 
I will get into the specifics in relation to Part 1 because I am sure that is what you want me to do Mr Chair. Part 1 contains the preliminary provisions; it contains the purpose and the interpretation. Looking at the purpose of the bill we see that the bill purports to protect the interests of investors and “to enhance investor confidence in financial markets … by—(a) requiring persons who wish to be appointed as trustees or statutory supervisors to be capable of effectively performing the functions of trustees or statutory supervisors;”. We find that purpose very interesting. As I said my colleague Nanaia Mahuta and I were having quite a detailed discussion about this. The bill also intends “requiring trustees and statutory supervisors to perform their functions effectively;” and “enabling trustees and statutory supervisors to be held accountable for any failure to perform their functions effectively.” That really is the gist of Part 1 and the purpose of the bill. 
The law is being changed to provide for a regime that supervises the supervisors. Although the role of trustees was included in the Review of Financial Products and Providers undertaken by Labour further concerns about the model of supervision they provided were raised by the string of finance company collapses. Concerns included perceptions of trustees’ lack of independence and capability. 
The bill contains a number of provisions designed to ensure that trustees and statutory supervisors comply with their obligations. The Securities Commission may seek pecuniary penalties and compensatory orders against those who fail to comply. Under the bill trustees and statutory supervisors are required to report to the Securities Commission any breach or potential breach of any issue or obligation and notify the commission of the steps they intend to take as a result. It also requires that they report to the Securities Commission when any issuer they supervise is likely to become insolvent and that they notify the commission of the steps they intend to take as a result. It also requires that when requested by the Securities Commission they attest as to issuers’ compliance with issuer obligations. In circumstances where they cannot so attest they must state the reasons why. 
The bill is being progressed prematurely. We could have waited to wrap it up with the Securities Act reforms and the establishment of the Financial Markets Authority. However since the Financial Markets (Regulators and KiwiSaver) Bill is also being progressed at the same time this may minimise some of the confusion when the bill becomes law. It is concerning that the Securities Act review deadline has been delayed until 2011. 
MICHAEL WOODHOUSE (National) 
: 
 I move  
That the question be now put 
. 
Motion agreed to. 
The question was put that the amendments set out on Supplementary Order Paper 223 in the name of the Hon Simon Power to Part 1 be agreed to. 
Amendments agreed to. 
Part 1 as amended agreed to. 
Part 2 Regulation of trustees and statutory supervisors 
The CHAIRPERSON (H V Ross Robertson) 
: I say to members that this is debate on clauses 6 to 43A and I expect members to address those provisions. 
JACINDA ARDERN (Labour) 
: 
 I congratulate you Mr Chair as it is the first time I have spoken since you have taken on this new role. I welcome you back to it. I am happy to repeat my congratulations at a time when the Minister in the chair the Minister of Commerce is not distracting you Mr Chair from the effusive praise that I am heaping upon you. I could say anything right now and it would not occur to either the Minister or you. I could be breaking every Standing Order in the book. At least now we know that there is a small fault in his ability to multitask. 
I will address Part 2 of the Securities Trustees and Statutory Supervisors Bill. I think it was important to spend a bit of time talking about Part 1 because it really sets out the general direction of the bill. I agree with the Commerce Committee’s inclusion of retirement villages under the general scope of this bill particularly given that in the purpose the importance of investor confidence has not changed. 
It seems particularly timely that we are talking about investor confidence in the current environment. I do not think we can underestimate the importance of trying to improve in New Zealand investor confidence generally. We have seen in our economy the wider impact that a limited view of mum and dad investors on where their money is considered safe or otherwise has led to quite a skewed investor market. People are more interested in investing in bricks and mortar as a consequence of several shocks that they have experienced over the past decade. It is important that confidence remains a primary purpose in legislation like this even though it is dealing with a very specific part of investor confidence. 
I will carry that matter through in my brief contribution today on Part 2 of the bill. Given that I am the first to address this part I will give just a very brief overview. Under this part the bill sets out the requirement to be licensed and to comply with a licence. It removes the automatic statutory approval for the six trustee corporations. It sets out that a trustee or statutory supervisor must hold a licence that covers a debt security or participatory security to which the appointment relates. A licence holder must comply with every condition imposed on that licence. It seems all relatively straightforward and a bit of a given but of course legislation must always be clear in this regard. It is an offence for a person to act as a trustee or statutory supervisor without an appropriate licence and for a person to represent that a person holds a licence that covers the security without their holding such a licence. 
It gets a little bit interesting in clauses 9 to 18 of Subpart 1 which are about decisions on applications for licences. This is where the bill empowers the Securities Commission to license persons to be trustees when it comes to debt securities statutory supervisors etc. This is also where the commission has the ability to license persons to be statutory supervisors of retirement villages. The bill sets out that the Financial Markets Authority will take over that role when it is up and running. 
Colleagues have already pointed out that we have a concern with the overlap that exists between this bill and other pieces of work in this area. Although we support this legislation it is our view that we should have considered it as a wider package of the ongoing reform of financial products. In Part 2 we see an example of where that is an issue: there will be a transition period to the Financial Markets Authority which is not yet established. I would have liked to see this regulation contextually debated rather than us talking about setting it out in provisions in Part 2 and then having to look at a transition period particularly when the Securities Act review is also not yet complete. It is disappointing that we cannot do it coherently as one wider debate. 
I think the issue with these provisions which the Commerce Committee has drawn out is that licences are issued for 5 years. The Commerce Committee recommended that this period be extended to 8 years to avoid uncertainty for issuers. Obviously uncertainty when we are dealing in markets like this is an issue. So if the Commerce Committee thought it was good to extend the period of licences why do we not hear that rationale in relation to the transitory period where the Financial Markets Authority will later take over responsibility? 
Hon NANAIA MAHUTA (Labour—Hauraki-Waikato) 
: 
 Tena koe thank you Mr Chair. I also congratulate you on your role as Chair of the Committee and of this particular debate. I intend to take only a brief call to really highlight some of the issues that have led to Labour’s position of supporting the Securities Trustees and Statutory Supervisors Bill. First of all at the heart of the bill the Minister of Commerce opened his comments by saying the bill is intended to protect the interests of investors and we certainly understand that in the current economic climate and as a result of the collapse of financial markets we need to improve and strengthen legislation to ensure that investors are able to be protected in terms of their assets and the investments they make. 
At the core of this bill are some essential responsibilities of trustees that the bill comments on and aims to strengthen. Firstly are trustees capable of performing their role? Can they perform their functions effectively? They should and must be held accountable for any failure to perform their functions as trustees. If we drill into the essence of what this bill is about we find that it aims to provide protections and put measures in place to achieve those outcomes. That is why Labour is particularly pleased to support the bill’s intent. 
In Part 2 in particular I will comment on two aspects of Subpart 2. Clauses 24 to 26 are around the issue of monitoring and enforcement. Licence holders must report at regular intervals between 6 and 12 months from the issue of the licence and once every 6 months after that to the Securities Commission particularly concerning the licence holder’s compliance with the terms of trust deeds and deeds of participation and continued compliance with the requirements of eligibility to hold a licence. Anyone who has been a trustee understands that part of their role and function is to implement the terms of the trust deed. 
That is a very important role. I have often had discussions with people who undertake the role of the trustee and struggle with getting their heads around the terms of a trust deed and what their actual responsibility is. That takes some self education on their part to read the trust deed and secondly to understand their full obligation as trustees in implementing the intent of that trust deed. So ongoing monitoring and enforcement in this area can only be a good thing. 
The other issue I will comment on is the variation and cancellation of licences and the removal of trustees in clauses 30 to 43 of Subpart 2 of Part 2. The bill enables the commission to vary a licence before the expiry of the licence without the consent of a licence holder. I understand that one important reason for this is the way in which “material change of circumstances” is defined. I would appreciate some clarification from the Minister in terms of what leads his thinking around this particular change and clarifying for my own part as I was not a member of the select committee how he envisages that this will improve aspects of the roles of trustees. For my part again I would appreciate that clarification from a Minister who certainly has his head around these types of issues the level of detail and the intent of the change. 
Part of this change identifies that apart from extensive powers to vary licences the bill also gives the commission powers to remove trustees and cancel licences. Again just by way of asking a question of the Minister I ask whether he foreshadows that this could be problematic; if not and I am raising an issue that is completely off on a tangent then I would be happy to be corrected. But it seems to me that there is quite a huge power there to be given to the commission to be able to remove trustees and cancel licences but I can only suspect that that is in direct relevance to the way in which the trustee may not have carried out their duty and obligation with regard to the rest of the Act. I see the Minister nodding. In some part by some great fortune my inclination was correct on that. 
This then certainly demonstrates and confirms to me that the Minister has given deep consideration to the changes required in this sector and they have been well-thought-through. I have appreciated his insight into the way in which the financial markets can be better regulated for the benefit of investors and ultimately to ensure that there are greater regulations around the roles of trustees to be able to conduct their particular function with the utmost regard and responsibility to the role they have as trustee. 
With that said I think that members of our team have identified some questions and we have appreciated the opportunity to continue to raise matters of interest. But can I say from a layperson’s point of view although this is a hugely technical bill and I am not a member on the select committee I do understand that people out there in our communities want a strong level of protection. I am delighted that the select committee gave some consideration to including retirement villages in this because quite simply the Retirement Villages Act 2003 does not address the issues and the role of trustee as this bill does. So although I understand that the submissions that came to the select committee were in part somewhat of two minds after deep consideration by the Commerce Committee its ultimate decision to include retirement villages will I think protect those good old folks those senior citizens who are in retirement villages and have a particular interest in the ongoing management of the place where they reside. Kia ora. 
Hon SIMON POWER (Minister of Commerce) 
: 
 The Hon Nanaia Mahuta raises an interesting question as to the issues—[ 
Interruption 
] No it was good. It was a good question as to why the obligations that the Securities Commission can inquire into do not relate to trustees but to licensees. There are a couple of reasons. The first is that licensees will have broader considerations to take into account—that is statutory obligations that they may otherwise have that do not relate to the direct relationship between the trustees and beneficiaries or investors which may occur as part of the mutual relationship that develops between those two parties. So what happens is that the “licensee” obligation as opposed to the “trustee” obligation imposes a wider obligation on those people who act in the capacity of statutory trustees and also draws in the statutory obligations that they might have under other pieces of legislation that the Financial Markets Authority may or may not have interest in as opposed to just the relationship between the trustee and the investor. 
The CHAIRPERSON (Ross Robertson) 
: The question is that the Minister’s amendments— 
Clare Curran 
: Mr Chair— 
The CHAIRPERSON (Ross Robertson) 
: Is the member calling? Members must call and I refer members to Speaker’s ruling 25/5. Sometimes it is a bit hard to hear and it is important that members call. 
Clare Curran 
: My apologies Mr Chair but I did call. Perhaps I need to use more projection. 
The CHAIRPERSON (Ross Robertson) 
: I call the honourable member. 
CLARE CURRAN (Labour—Dunedin South) 
: 
 I will do my best to shout into the microphone more often. In respect of Part 2 of the Securities Trustees and Statutory Supervisors Bill I would like to refer in particular to the provision that applies to retirement village statutory supervisors. I would like to return to that issue particularly given the fact that the Minister of Commerce is the Minister in the chair. I refer particularly to the provision that the retirement village statutory supervisors come within the ambit of the licensing regime that is established by the bill. This I think does remain an important issue and a slightly thorny issue if I can use that expression. It is one of the reasons why we still continue to question this. 
I am still grappling with the complexities of the issues that came before us at the Commerce Committee. Clauses 9 to 18 empower the Securities Commission to licence persons to be trustees in respect of debt securities statutory supervisors in respect of participatory securities and trustees in respect of unit trusts. The commission may also licence persons to be statutory supervisors of retirement villages. We note that the Financial Markets Authority will take over this role when it is up and running. That is one of the reasons why we have questions—particularly given the submissions that came before the Commerce Committee and the kinds of thorny issues that arose around the impact on the residents of retirement villages—and one of the reasons why we thought this issue and this particular legislation should be parked at the select committee. 
As I have said there were a number of submissions on that point. We did support the inclusion of retirement village statutory supervisors in the licensing regime because to exclude them meant that the residents of those retirement villages would receive less protection. Although we think that is anomalous and undesirable we are also concerned about the potential impact on the residents of retirement villages. As we know those people are on fixed incomes and the importance of determining what additional costs that regime may impose on retirement village residents was important because those costs could be passed on to the residents. 
We still remain somewhat conflicted by the impact of the new regime and why we think that that issue still needs more consideration which is another very good reason why it should be parked. I repeat that we support the legislation but we have concerns about that issue. I want to continue to reiterate those concerns around the potential and direct costs to retirement home residents. 
I speak as the member of Parliament for Dunedin South. There are a number of retirement homes there and I think the impact of anything that will raise costs for those residents is pretty important. It is possible that a licensing regime would increase the number of statutory supervisory firms in the market. That would lead to increased competition which could affect base rates charged by statutory supervisors and lead to an overall reduction in fees. So there is that possibility but there is also the possibility that it could end up increasing fees and that is one of the reasons why Labour remains concerned about this. 
JO GOODHEW (Junior Whip—National) 
: 
 I move  
That the question be now put 
. 
CARMEL SEPULONI (Labour) 
: 
 Before I get into the detail of Part 2 of the Securities Trustees and Statutory Supervisors Bill I need to remind the Government and anyone who is listening that Labour supports this bill. Reform of the ways that trustees and statutory supervisors operate is essential for the prevention of another financial collapse and there does need to be greater transparency in this area as has been evidenced by the Government’s handling of South Canterbury Finance— 
Jo Goodhew 
: Stick to the bill. 
CARMEL SEPULONI 
: I will bring it in—I need just to remind the Committee that it is relevant to what we are discussing today and that the collapse of South Canterbury Finance was the largest financial collapse in New Zealand’s history. 
I turn to the provisions of Part 2. The bill removes the automatic statutory approval for six trustee corporations. A trustee statutory supervisor or unit trustee must hold a licence that covers the debt security participatory security or unit trust to which the appointment relates. A licence holder must comply with every condition imposed on a licence. Part 2 outlines that it is an offence for a person to act as a trustee statutory supervisor or unit trustee without an appropriate licence and for a person to represent that a person holds a licence that covers a security without holding such a licence. We think that is very important on this side of the Chamber. 
The bill empowers the Securities Commission to licence persons to be trustees in respect of debt securities statutory supervisors in respect of participatory securities and trustees in respect of unit trusts. The commission may also licence persons to be statutory supervisors of retirement villages. The Financial Markets Authority will take over this role when it is up and running. I think that goes back to what we were concerned about before that maybe this is a little bit premature considering that there are other things coming up that are relevant to what we are discussing in this bill. 
Part 2 sets out the criteria under which licences may be granted provides that licences must be issued for a period no longer than 8 years and provides that licences may be varied. The bill as introduced provided that licences are issued for 5 years but the Commerce Committee recommended that this be extended to 8 years to avoid uncertainty for issuers operators of retirement villages and also licence holders. The commission may issue or vary a licence only if it is satisfied that: “(a) the applicant is—(i) a body corporate that is incorporated in New Zealand; or (ii) an overseas company (as defined in the Companies Act 1993) registered under that Act: (b) every director and senior manager of the applicant is of good character:” as defined in clause 15. The Commerce Committee recommended including a regulation-making power to provide for the matters the Securities Commission and the Financial Markets Authority must take into account in making a good-character assessment. Then finally the applicant either “(i) is registered under the Financial Service Providers (Registration and Dispute Resolution) Act 2008; or (ii) complies with section 13(a) and (b) of that Act:” as stated in clause 15(1) and (2). Clause 15(3) sets out in detail the factors the commission must take into account in deciding to issue or vary a licence including things like the skills and financial resources available to the applicant governance structure and other things. 
The monitoring and enforcement aspects of Part 2 are quite interesting. Licence holders must report to the Securities Commission at regular intervals between 6 and 12 months from the issue of the licence and then once every 6 months after that date particularly concerning the licence holders’ compliance with the terms of trusts deeds and deeds of participation and continued compliance with the requirements of eligibility to hold a licence. The bill provides that the commission may require a licence holder to submit an action plan if the commission is satisfied that the licence holder has breached or is likely to breach a trustee obligation or if a material change of circumstances has occurred. 
MICHAEL WOODHOUSE (National) 
: 
 I move  
That the question be now put 
. 
Motion agreed to. 
The question was put that the amendments set out on Supplementary Order Paper 223 in the name of the Hon Simon Power to Part 2 be agreed to. 
Amendments agreed to. 
Part 2 as amended agreed to. 
Part 3 Commission’s functions in relation to issuers and operators 
JACINDA ARDERN (Labour) 
: 
 It is my pleasure to be the first speaker on Part 3 of the Securities Trustees and Statutory Supervisors Bill. Unfortunately I did not have a chance to speak on Part 2 which was most disappointing for me because I had a number of matters that I wished to raise under Part 2. I may take a little bit of liberty and mix in my contribution on Part 2 into Part 3. I expect that Mr Chairperson will accept that. I have spoken only on Part 1 so he may allow me to move around the parts just a little bit. I am sure my colleagues will stick with me as I do that. 
The point I would like to raise is that there is an issue about the level to which this bill mixes up subjective and arbitrary judgments and the issuing and varying of licences. I think that probably some of the best examples of that sit in Part 2. But I am sure this is an issue that extends across the bill. If I were to draw the Committee’s attention to a couple of examples of that I think probably some of the best sit around the issue of looking at the competency the credibility or what is called the good character of applicants when applying for a licence or to vary a licence. I would be interested in the Minister’s view or any contribution from the members who sat on the Commerce Committee as to the amount of discussion on what kind of criteria would come under the idea of good character. When we look at other legislation often we will see that select committees or indeed Ministers themselves will set out in draft legislation other ways to measure this idea of good character that is relevant to the legislation. For instance for an alcohol licensing authority a measure of good character is whether one has had any alcohol-related offences. For the prostitution reform legislation where licences were issued the best way to measure good character was deemed to be whether one had committed any criminal offences in particular gang-related offences or violence-related offences because that was specific to the industry for which the individual was seeking a licence. 
However with this bill we see a mixture of measures between whether for instance individuals are registered under the Financial Service Providers (Registration and Dispute Resolution) Act or whether they are registered with the Registrar of Retirement Villages—those are very criteria-based judgments to be made. They are set out; they are clear. There are many more subjective ones which I do not think there is much of a steer on in the bill. I would be interested if the Minister has some views on what they might be and if he could put them on the record for the sake of  
Hansard 
. 
If other members of the Commerce Committee could give us a little bit of further background on this issue I would find that particularly helpful. 
There is one other issue that I wish to seek some clarity on and it sits around someone who seeks a review of a commission’s decision on an application. This is an important issue in the bill. What level of disclosure is expected to be given to an individual who is dissatisfied with the commission’s decision? This relates particularly to the issue that the decisions being made might be subjective. For instance is it expected that the commission would set out decisions on good character in writing to an applicant if a review of a decision is requested? Is it expected that the commission would disclose any information that might be provided by the Registrar of Retirement Villages? The legislation sets out that before issuing a licence the views of the Registrar of Retirement Villages would be taken into account. So would it be expected then that if there was a request for a decision to be reviewed that information would be disclosed? That might set out some issues going down the track for relationship reasons with the Registrar of Retirement Villages. That is an interesting point on which I would not mind hearing the views of the Minister and indeed others. 
CLARE CURRAN (Labour—Dunedin South) 
: 
 I will address Part 3 of the Securities Trustees and Statutory Supervisors Bill which contains clauses 43B to 50. The bill gives the Securities Commission the power to require a trustee statutory supervisor or unit trustee to attest to the commission as to whether the trustee or supervisor is satisfied that an issuer has not breached an issuer obligation in a material aspect. If the trustee statutory supervisor or unit trustee is unable to do so the trustee or supervisor must report details of the issuer’s breach or possible breach to the commission. A duty is imposed on a trustee statutory supervisor or unit trustee who believes that an issuer has breached may have breached or is likely to breach an issuer obligation to report the breach to the commission and advise the commission of any steps the trustee or supervisor intends to take. 
I will go back to the important points we have made about the bill its complexity and the fact that it is coming at the wrong time. The bill is premature and does not address some very important underlying issues. Although Labour supports the bill as members have heard we want to know—and we would like the Minister the Hon Simon Power to address some of the wider issues that the bill has raised and that have been talked about by a number of my colleagues—why it could not have waited to be wrapped up with the Securities Act reforms and follow the establishment of the Financial Markets Authority. 
I will refer back to some of the principles that should underline the legislation on the role of trustees and statutory supervisors. I will refer to a speech my colleague the Hon Lianne Dalziel gave on 30 August last year where she referenced five key objectives that should underpin a financial services authority’s legislative framework. The principles are important core principles that relate to the bill and that have reference to every part of the bill including Part 3. The principles essentially were about market confidence and maintaining confidence in the financial system. 
Another principle was public awareness. We have talked about public awareness with regard to financial literacy and promoting public understanding of the financial system which is of critical importance and is not being addressed in the bill. I am interested to know the Minister’s views on how that will be addressed. 
Other principles were about financial stability contributing to the protection and enhancement of our financial system; consumer protection securing the appropriate degree of protection for consumers; and—going back to one of the key reasons for the legislation and the other legislation it is associated with the Financial Markets (Regulators and KiwiSaver) Bill—a reduction in financial crime reducing the extent to which it is possible for any business to be used with a purpose connected with financial crime. Those principles and objectives should underpin all reforms in this area. 
One of the things we have concerns about which we have expressed on a number of occasions today particularly and in previous discussions on the bill is that those wider principles are not addressed in the legislation. The legislation is back to front and it is being passed ahead of other decisions that will impact on the whole regulatory framework. 
JO GOODHEW (National—Rangitata) 
: 
 I move  
That the question be now put 
. 
CARMEL SEPULONI (Labour) 
: 
 I apologise because I have taken three calls tonight on bills before the Committee and I have not acknowledged you Mr Robertson in your new role as Mr Chair. I acknowledge you in that role and I congratulate you. 
Hon Simon Power 
: I raise a point of order Mr Chairperson. Like many in the Committee I too am pleased you are back in the Chair but as members will be aware— 
The CHAIRPERSON (H V Ross Robertson) 
: That is not a point of order. 
Hon Simon Power 
: It is a point of order because it goes to clarifying an issue. The House itself has not actually agreed to have you permanently as an Assistant Speaker although we have given leave for you to act in that capacity for the next 3 days. That does not take away anything from the contribution you are currently making and we are all very grateful for the level of competency you bring to the role. But in fairness I think we do not want to waste congratulatory messages at this early stage when they pre-empt the House’s taking a decision on the issue more formally. 
The CHAIRPERSON (H V Ross Robertson) 
: Thank you Minister. 
Hon Rick Barker 
: I will speak on the point of order raised by the Hon Simon Power. I say that although his point of order was heartfelt and well meant there is nothing wrong with the Chamber congratulating the honourable member Ross Robertson more than once on his elevation today. It is not out of order to congratulate him on his temporary position but that does not mean to say that we cannot then congratulate him later when the position becomes permanent. I think the member making the congratulations is entirely in order and I am sure the whole of the Committee would join with her in that. 
The CHAIRPERSON (H V Ross Robertson) 
: Thank you gentlemen. 
CARMEL SEPULONI 
: I will speak on Part 3 of the Securities Trustees and Statutory Supervisors Bill which is really about the Securities Commission’s functions in relation to issuers and operators.  
Looking at this part of the bill I see that it gives the commission the power to require a trustee statutory supervisor or unit trustee to attest to the commission as to whether he or she is satisfied that an issuer has not breached an issuer obligation in a material respect. If the trustee statutory supervisor or unit trustee is unable to do so he or she must report details of the issuer’s breach or possible breach to the commission. A duty is imposed on a trustee statutory supervisor or unit trustee who believes that an issuer has breached may have breached or is likely to breach an issuer obligation to report the breach to the commission and advise the commission of any steps that he or she intends to take. 
A trustee or supervisor must also inform the commission if he or she becomes aware of information on the basis of which a trustee or supervisor could reasonably form the opinion that an issuer is unable or likely to be unable to pay its debts or the value of the issuer’s assets is less than or likely to be less than the value of its liabilities. That really is the gist of Part 3. 
I will reinforce why Labour supports this bill. The reform of the ways that trustees and statutory supervisors operate is essential for the prevention of another financial collapse. That is why Labour takes this bill very seriously and it is why we support it. We need to recognise that across this Chamber there is a shared understanding that there needs to be greater transparency in this area. People will not want to hear this but that was evident in respect of the Government’s handling of the South Canterbury Finance situation. Just to remind the Committee again—and we all know this to be the case—that was the largest financial collapse in New Zealand history. It highlighted the need to have transparency in the sector. Although we may debate the issue of the South Canterbury Finance situation and its collapse obviously we agree that there needs to be changes in the sector and that there needs to be increased transparency. 
There were and there are serious questions about why South Canterbury Finance was not put into statutory management and about why the Crown Retail Deposit Guarantee Scheme was extended despite the negative rating and the state of the audited accounts. Hopefully as I have discussed Part 3 of the bill will create some of the transparency we need in order to ensure that we do not head down that path again that we do not end up in the same situation and that we do not end up with a lot of New Zealanders asking questions about what the Government is doing what really happened to South Canterbury Finance and where the accountability and transparency is. Those were the questions that New Zealanders were left to ask after South Canterbury Finance collapsed. 
Here we are with this bill before us. The aspects of it that I have just discussed in respect of Part 3 will hopefully ensure that in the future we do not end up in a similar or in the same situation. I am sure that Kiwis across the country will be relieved that we are looking at this issue and that we across the Chamber can agree on some things. Labour supports this bill alongside National and other parties as well. Our support is not without reservation and we have said that throughout the debate when discussing this bill but in general we still support it. 
MICHAEL WOODHOUSE (National) 
: 
 I move  
That the question be now put 
. 
Hon RICK BARKER (Labour) 
: 
 I have two points that I would like to raise; two questions to the Minister in the chair the Minister of Commerce a member of the House who is very knowledgable about the law. The first clause I would like the Minister to make some comment on is clause 45. I have always believed that the heading of a clause should be completely and entirely consistent with the substance of it. The heading of clause 45 states: “Trustee or statutory supervisor must report breach or possible breach of issuer obligation”. But when one gets into the text of the clause one finds that it has an important qualifier and that is “reasonable grounds to believe”. Reporting a breach and reporting a breach where one has reasonable grounds to believe there has been a breach are two different things. I want the Minister to explain to us whether the courts or some other institution when they come to interpret this clause in the future will be guided by the “must” in the heading without a qualification or by “reasonable grounds”. I say to the Minister that there appears to be a slight inconsistency there. One could argue that the heading is simply to set out the broad terms and that all the qualifications are put underneath it. But the heading is a very bald statement. 
The second clause I would like the Minister to comment on is clause 48 which I was interested to read. Clause 48 is quite a powerful clause. Subclause (1) states without qualification “No civil criminal or disciplinary proceedings may be brought against a trustee or statutory supervisor in respect of a protected disclosure.” It does not say what the protected disclosure is in regard to. If a member makes a protected disclosure then does that mean that the person is therefore immune from any civil or criminal prosecution? If the member has according to this legislation made a protected disclosure then no civil or criminal disciplinary proceedings may be brought against that particular trustee. 
If it was qualified that the civil or criminal proceedings were limited to being within the ambit of the protected disclosure that pertained particularly to this legislation I would say “Fair enough”. But that is not what the law says. It simply says that no civil or criminal prosecution may be brought against the member. These I think are quite sweeping powers and I would not want a court to later interpret that Parliament must have known what it meant when it drafted the bill to say that no civil or criminal proceedings may be brought against a person who has a protected disclosure. If Parliament intended there to be a qualification then I think we should have said so but there is no qualification in this particular clause. I think the Minister in the chair should dwell on that and offer the Committee some commentary. After all when it comes to interpreting legislation it is not unknown for the courts to go back and look at the  
Hansard 
 record to see what Parliament meant. If the Minister was to make a clear statement about both of those issues I am sure there is a possibility that in the future that statement will be referred to and that his learned words will be well sought by the courts. I look forward to the Minister’s response. 
Hon SIMON POWER (Minister of Commerce) 
: 
 There is the voice of experience; the member Rick Barker understands how the Committee stage is supposed to work—clause by clause and getting into the detail of some of these things. I can reassure the member in respect of his second point. Of course I could not help myself as the member would know; when questions like that one are put I have to rise to my feet and delay this bill even more than I would like to. But a challenge is a challenge right? If the member had dropped his eyes to subclause (4) of clause 48 he would have seen that the nature of protected disclosure is defined in that clause. 
To flick back to clause 45 I say that the member raises an interesting point. As I understand it amendments to the Interpretation Act take into account the heading of a clause or section whereas previously that was not the case; it was only the substantive matter in the clause that the courts paid any attention to. Having said that I point out that clause 45 makes it very clear that if the grounds are met—that is if the reasonable belief is held—then the trustee or supervisor must as soon as practicable make the report. So the matters contained in the heading to clause 45 are in fact a brief summary of what is included in the substantive part of clause 45. 
The question was put that the amendments set out on Supplementary Order Paper 223 in the name of the Hon Simon Power to Part 3 be agreed to. 
Amendments agreed to. 
Part 3 as amended agreed to. 
Part 4 Miscellaneous and amendments to other Acts 
The question was put that the amendments set out on Supplementary Order Paper 223 in the name of the Hon Simon Power to Part 4 be agreed to. 
Amendments agreed to. 
Part 4 as amended agreed to. 
Clause 1 agreed to.  
Clause 2 Commencement 
The question was put that the amendment set out on Supplementary Order Paper 223 in the name of the Hon Simon Power to clause 2 be agreed to. 
Amendment agreed to. 
Clause 2 as amended agreed to. 
Bill to be reported with amendment presently. 
House resumed. 
The Chairperson reported the Legal Services Bill without amendment the Financial Markets (Regulators and KiwiSaver) Bill with amendment and that the Committee had divided it into five bills and the Securities Trustees and Statutory Supervisors Bill with amendment. 
Report adopted.