Parker David: Financial Markets Conduct Bill Financial Markets (Repeals and Amendments) Bill — Third ReadingsText is incorporated into the Bound VolumeParker David: Financial Markets Conduct Bill Financial Markets (Repeals and Amendments) Bill — Third Readings[Sitting date: 27 August 2013. Volume:693;Page:12999. Text is incorporated into the Bound Volume.]Hon DAVID PARKER (Labour): Can I begin by saying that I think we agree on all sides of the House to a response to some of the terrible behaviour that we saw in respectof debt securities where finance companies pretended to be safe when they were not. They pretended that they were secure investments when often the debt security that was being offered was a secondary security with a first mortgage security lying ahead of the effective security that investors had when investing in finance companies. There were often earlier debentures and earlier mortgages over the properties that the finance company lending was itself secured over when the finance company lent out the money that the people invested. After those problems we had to do something.Some of the problems that we had in respect of finance companies were in breach of the existing securities law and were just poor practice under that. We had related party loans that were not properly disclosed. We had misrepresentations. We had false prospectuses being signed off by directors and some of that has had criminal and civil consequences for some of the errant directors involved. We had poor audit practice at some times and some of the statutory supervisors who oversee finance companies under the existing regime did not cover themselves with glory either. Having said all of that it was also obvious that we needed to strengthen the law in respect of debt security offerings. We also needed to update the law relating to ordinary capital raisings.There are a couple of issues that have been raised in the Committee stage that I should comment on. One is a reference to Ross Asset Management. My understanding is that the essential problem in respect of Ross Asset Management is still not fixed. I do not think this legislation addresses it. This is no criticism of the Minister of Commerce. But the essential problem with Ross Asset Management is that we had one person who was effectively acting as a manager for lots of different people and he did not have any requirement to have any board structure or other people overseeing his decisions. He was effectively sitting there as an agent for these people and giving them individual advice. When you have lots of money effectively under management tens of millions of dollars—Hon Craig Foss: He was also custodian.Hon DAVID PARKER: He was also a custodian?Hon Craig Foss: That’s in here.Hon DAVID PARKER: So he might be caught as a custodial trustee but my understanding is that there is no obligation for someone who has got management of lots of different people’s moneys—and it could be all of their life-savings—to have some sort of decision-making structure that would involve a board. There is no prospectus involved because he is not offering securities to the public or whatever the new offer document equivalent is—Hon Craig Foss: Changes to the DIMS regulations which affect that.Hon DAVID PARKER: Sorry there are changes to?Hon Craig Foss: DIMS regulations which affect—there are—Hon DAVID PARKER: Discretionary investment management services regulations partially affect that. I have been contacted by a member of the financial services sector who is saying that this is still an area that needs further reform because notwithstanding those changes the Ross Asset Management debacle could actually occur again and not be prevented by the legislation that we are about to pass. It is not a criticism of the Government or the prior people who started this work which was started by Labour. You cannot think of everything. You cannot deal with everything in respect of one bill. But I do not think that we should pretend that the Ross Asset Management injustice that has been caused is completely fixed by this legislation.In respect of getting the balance right between properly protecting unsophisticated investors and debt securities you have to at the same time not be over-regulating ordinary capital raisings. I have heard the response in respect to my question as to what the position is in respect ofcrowdsource funding was. I have been referred to clause 388of the Financial Markets Conduct Bill which then refers to clause 6 of schedule 1 of the bill saying that through that route there is an ability to exempt some forms ofcrowdsource funding from some of the requirements of ordinary capital raising.I would say with respect that I think we actually will in the future have to revisit that because I do not even see why you should have to run that gauntlet in respect of raising from members of the public small amounts of money not much more than some people waste at Lotto shops in the weekend. I do not see why people should have to crawl through and obtain exemptions and show that they come within those exemptions rather than just having a statutory exemption that sayscrowdsource funding—somehow defined—of $100 or $200 per investor is not caught by these regulations. That would be a really simple way to carve out that. So maybe we should come back to that. Again this is no criticism of the Government because effectivelycrowdsource funding is just something that has sprung up as a consequence of the internet in the last year or two. I did not know that it existed until about a year ago.Hon Craig Foss: A lot of that’s in theregs.Hon DAVID PARKER: A lot of that is in the regulations. So the regulations might actually be able to do that in a simple way. It would be really good. Thank you Minister for that intervention. It might be that the regulations can actually have a very simple solution that just completely exempts that sort of capital raising for ordinary capital for small amounts without any regulatory burden. That would be fantastic.Hon Craig Foss: There’s some but not as nearly as heavy.Hon DAVID PARKER: Right. The Minister says some. I am not sure that there is a need for any in respect of that. I certainly do not want them to have to have issuer audits going into the future or higher director duties than would apply to companies that had not raised money from the public.As you will hear from my interventions now and earlier I have a real concern that in a country of small businesses we do not over-regulate ordinary capital raising and that includes at all levels of the capital raising. With those comments I congratulate the Minister of Commerce and the prior Ministers from both sides who have been involved in bringing this to fruition. I hope that as a consequence New Zealand investors in debt securities can have more confidence that they are not going to lose their life-savings if they invest in debt securities and that we facilitate the prosperous expansion of the New Zealand economy through appropriately regulated—but not over-regulated—capital raisings.