Financial Service Providers (Pre-Implementation Adjustments) Bill — Second Reading In Committee 
Text is incorporated into the Bound Volume 
Financial Service Providers (Pre-Implementation Adjustments) Bill — Second Reading In Committee 
[Sitting date: 22 June 2010. Volume:664;Page:11947. Text is incorporated into the Bound Volume.] 
Tuesday 22 June 2010 
( 
continued on Wednesday 23 June 2010 
) 
Financial Service Providers (Pre-Implementation Adjustments) Bill 
Second Reading 
Debate resumed. 
STUART NASH (Labour) 
: 
 It is a little bit difficult when one finishes at 10 o’clock at night and then starts again at 9 o’clock the next morning. However what I was saying at 10 o’clock last night is that I am very supportive of the Financial Service Providers (Pre-Implementation Adjustments) Bill. In fact I think it is very necessary because what we have seen with the collapse of the finance companies is that many many ordinary New Zealanders have been ripped off and basically taken to the cleaners by a whole raft of people masquerading as financial advisers. I was talking about brands like Colin Meads and Richard Long who were out there touting for these services. They were iconic brands and very good at what they did but they knew absolutely nothing about finances. I was speaking to someone last night after 10 o’clock who said to me that she invested in Hanover Finance because of Richard Long. Here was a man who stood for integrity and trust and who was in our living rooms nearly every single night. So if Richard Long said it was good therefore it must be good! 
Hone Harawira 
: It must be good! 
STUART NASH 
: It must be good! What happened of course was that it was not good at all. Richard Long was a very good newsreader but he knew nothing about financial advice or financial investment. I hope with this sort of financial crisis that iconic New Zealand brands will think very carefully before they start endorsing products that they know nothing about. 
I was also talking about Mark Hotchin’s $30 million house which was built on a graveyard of the shattered dreams and broken promises of thousands of New Zealanders. If that man has any sense he will not return to this country. It is obscene that we see him at the moment holidaying in Hawaii off the money of thousands of New Zealanders who are now broke. I cannot imagine having worked all my life reaching the age of 65 or 70 and waking up one morning to find that all my savings had just disappeared. How heartbreaking would that be? In fact there is evidence out there that ordinary New Zealanders have committed suicide over this. They have got to the stage where there is nothing worth living for. All their savings have gone not only for their own retirement and their grandkids’ education but also to allow them to live and retire with dignity. They have to sell their houses they have to sell all their assets and they find themselves with nothing. This is why the legislation that this bill amends is so good. The original legislation was introduced by the Hon Lianne Dalziel and no doubt she will talk about that a little bit in the future. 
This bill will not stop the sort of obscenity that is Hotchin’s extravagance or stop Colin Meads saying that an investment is as “safe as houses”. However it might mean that the type of person who was promoting Hanover Finance as a safe investment would disappear. Real financial advisers will be able to scrutinise investment prospectuses with more rigour and in more detail as is required I would have thought by such a profession. The reason I say this is that the intent of this bill is to provide for responsible regulation of the financial services sector and robust consumer protection in order to restore confidence and trust in the financial services sector. I do not think there would be a person in this House or anyone watching around this country who would not agree that this is necessary. 
Kiwis need to know that when they take their hard-earned money to a financial adviser they will get independent competent advice from a person who will walk them through the alternatives and know what they are talking about. When we go to a lawyer we expect legal advice. When we go to an accountant we expect that person to be qualified and to give us good accounting advice. When we go to a financial adviser we expect that person to be versed in the ways of financial advice and to give us good advice around that area. The past of the Wild West a city full of cowboys was not a good place for the vast majority of Kiwis and I hope those days are now gone. 
As a collective we need to encourage people to invest in a diversified portfolio into the productive economy. We need financial advisers to be well versed in the various options. I would say there is a long way to go before the industry has the full confidence of the investing and saving public again. But this bill along with Lianne Dalziel’s two Acts is a start at least. I hope when this legislation is passed in line with the other two Acts I have talked about that at least we will begin to see confidence and rebuilding begin with New Zealanders once again able to begin to invest with confidence. That is why I am fully supportive of this bill and I commend it to the House. 
DAVID CLENDON (Green) 
: 
 Ata marie. The Greens are pleased to support the Financial Service Providers (Pre-Implementation Adjustments) Bill through a further stage. We do so with some regret. We regret the necessity for such a bill. One would have thought and hoped that in an ideal world amendments of this nature would be unnecessary that people in the financial industry giving advice to often ill-informed laypeople would have a moral compass and that their own integrity would determine that they actually gave good honest advice and protected the investments and assets of normal New Zealanders. But clearly that is not the case. 
I doubt whether anyone in the House does not have someone in his or her close circle of friends or family who has suffered some loss as a result of what has been quite well described as a Wild West cowboy approach to financial investment which we have seen far too much of over the last couple of years. I myself and my extended family know of a young couple who had accumulated a small nest egg that would have been a deposit for their first home. That is gone. The reason it is gone is that they quite wisely invested in two companies—companies that apparently were very sound and whose advertisements on television were fronted by well-known figures. That money is now gone. Basically they discovered they had invested in a daisy chain of debt speculation and overstated values that were not really there. Essentially their investments were simply taken away by people too greedy and too venal to be honest and up front about what was going on. 
It is really critical that we restore people’s confidence and trust in the notion of investment. People need to know that investing is reasonably secure notwithstanding that there will always be some risk. That confidence has been comprehensively lost as a result of the rorts the dishonesty the greed and the misrepresentation that we have seen far too much of for far too long. Restoring confidence is critical not least to the business sector. It is important that New Zealand business has access to capital and small to medium sized enterprise in particular are identifying that as one of the issues confronting them. Access to capital is an issue. We need to encourage people with capital to think that it is a safe bet to invest and to have a reasonable expectation that that money will be secure. 
I have to say that the select committee process for me as a relatively new member was a very positive process. That quite contentious and complex technical issues can be resolved to the satisfaction of people with quite different ideological positions demonstrated the power of select committees. I acknowledge the chair of the Commerce Committee Lianne Dalziel who had a very useful focusing mechanism. She kept using a phrase along the lines of “What is the harm we are trying to remedy?” which was actually quite a good strategy to keep bringing us back to the point of asking what the problem was what we were trying to resolve whom we wanted to capture and whom we did not want to include in the provisions of this bill. As a result of that organisations like credit unions—which are very robust reliable and straight-dealing organisations—are not unwittingly caught up within this legislation. We are not imposing compliance costs on organisations or indeed individuals who were not targeted because they have not displayed the sort of bad behaviour we are endeavouring to overcome here. 
Organisations like the Citizens Advice Bureaux made very good submissions identifying one or two instances where potentially they could have been captured by the provisions of this bill. Clearly not-for-profits like the bureaux were not the target; if they give incidental advice in the course of assisting people in the community that is well and good; the exemption of not-for-profits is a very sensible and strengthening provision of this bill. 
There was discussion for example about what constitutes a sophisticated investor recognising that we do not need to put many protections around people who are perfectly able to look after their own interests. Some useful and informed commentary—and indeed submissions—from individuals and organisations helped us define whom we were trying to protect and who can actually look after their own interests and be left to get on with it. 
That is probably as much as I want to say at this stage except to reiterate that the Greens support this bill and its intention and we look forward to seeing it progressing and to securing and protecting the investments of people who can expect much better and more reliable advice as a result of this legislation. Kia ora. 
Hon LIANNE DALZIEL (Labour—Christchurch East) 
: 
 I am pleased to be able to speak to the report back and second reading of the Financial Service Providers (Pre-Implementation Adjustments) Bill. When the bill was first introduced I said I was pleased that the Minister had indicated his determination to stick to the time frame that he had announced for implementation. As a result of listening to submissions we have accepted the Minister’s decision to extend the time frame not so much for the registration as for the implementation in its fullest sense post - 1 December right the way through to the end of June next year. I also felt that the proposed changes when they were introduced were in line with the principles and the intention of the legislation which I oversaw as the then Minister of Commerce. It was not until I actually started the somewhat arduous task of reading the submissions that we had received—and we received a significant number of very very detailed submissions—that I realised there were flaws in the original framework that I had introduced that I had not been aware of as the then Minister and that clearly the present Minister had not been aware of either. 
Just to put what the Commerce Committee has done with regard to this bill—because it is virtually a re-write of the bill that was introduced and we need to offer an explanation for that—I want to go back for a moment to the pre-2008 election period. In so doing I confess to the House something that I have confessed to my colleagues—that is I know more about the intricate detail and the potential application of this bill now as chair of the committee than I did when introducing the original legislation as the then responsible Minister. I think there is a reason for that which I think should be addressed and I will come to my suggestion about that later on. What I will propose though in this space is possible only when a non-partisan approach is able to be achieved. I think that the present Government when in Opposition and now the reverse—the present Opposition when in Government—proved that a collaborative approach is what is required and produces the best results. I think this bill and the work that we have done on the select committee demonstrates that and I pay tribute to all of the committee members for what we have been able to achieve on a collaborative basis. 
Returning to the pre-2008 period I know that as the then Minister I put pressure on Charles Chauvel who at the time was the chair of the Finance and Expenditure Committee. I put pressure on him because I wanted those bills back in the House in time to be passed before the 2008 general election. There were two bills that I wanted back in particular. They were the bills in my name but also the bill to provide proper prudential supervision for the non-bank deposit-taking sector which of course had transferred to the name of the then Minister of Finance the Hon Dr Michael Cullen. In many respects I did not mind if the legislation was not perfect and I kept saying that to Charles Chauvel at the time. That was because there was time post-election to undertake any remedial work that needed to be done while getting on with the job of establishing the regulatory frameworks for the new supervisory and dispute resolution regimes to cover what was an under-regulated sector. 
I just want to use the word “under-regulated” again. This was not a totally non-regulated sector but it was under-regulated and I think that was the critical problem. I know that a lot of people have wanted to put blame on those who were responsible for the regulatory frameworks over probably a couple of decades since the stock market crashed in 1987 if we really want to go back to when we were first alerted to the problems that we have to confront today. But the problem was that there were regulatory provisions in place and they offered insufficient protection. I think that our committee has been quite good at getting to the bottom of some of the things that we have not been able to get to the bottom of before. We have an inquiry under way that will continue to work to find those essential gaps in our system and hopefully it will make recommendations to resolve them. 
That was why I wanted the legislation passed before the election. I wanted the work to continue in the period when we went off to do our job applications for our triennial job interview which is I guess what a general election is. I wanted to make sure that the bills were not left at the select committee or remained on the Order Paper past the House’s rising for the election period because nothing would have happened for a very long time if that had been the case. 
If there is a criticism that I have of the current Government and there is one it is that— 
Hone Harawira 
: Just one? 
Hon LIANNE DALZIEL 
: —no—this bill should have been introduced last year. That is the only criticism I will make. If it had been introduced last year we would have had much more time to spend on the detailed analysis that we have had to undertake. I know that members of the committee our advisers our clerks the officials and the Parliamentary Counsel Office were all under pressure. But the pressure that we were under pales into insignificance in comparison with the impact that the time frame had on the finance sector and the finance sector is critical to getting this legislation right. So I pay tribute to the extraordinary efforts that the major stakeholders went to in order to meet the extremely tight deadlines that we imposed on them. We know that people worked over weekends and that people worked overnight in some cases in order to meet these time frames and to deliver what I believe is now much more like the framework that I envisaged 3 years ago when I announced the decisions made by Cabinet back in 2007. Less than a month before Bridgecorp failed I made those announcements and then the domino effect started again. We had had the three failures in 2006. Bridgecorp was really the tipping point as we saw finance companies fall over one after the other. That was what the committee returned to in the end. I acknowledge my colleague David Clendon from the Greens for commenting on that. 
The committee came back to a very fundamental question: what were we trying to do? We brought that perspective to what we were doing. We asked what the risk was that we were trying to mitigate what the mischief was that this bill was trying to remedy and whether the regulatory response was proportionate. We came up with a mixed set of answers depending on whom we were talking about. The legislation is fundamentally about protecting unsophisticated investors. I know that among some of the mum and dad investors as they are called—or probably more aptly in some cases nana and grandad investors—there was a kind of resentment that the language used implied that they were unsophisticated or naive but I reject the view that these were greedy investors as some have said. I want to place on record my abhorrence of the practice of deliberately hiding the level of risk behind a lower interest rate than was required to reflect the actual risk that they were taking with their hard-earned money. People lost their life savings in circumstances where they did not realise the level of risk that they were taking. There was a lack of knowledge and a reliance on financial advisers. 
Our driver as a committee became a single-minded focus on the mischief that we were seeking to remedy. That is why we divided category 1 and category 2 products more appropriately defined financial advice more clearly incorporated the concept of personalised financial advice and tied financial planning to the risk related to investment. We carved out the wholesale clients who can look after themselves and we tidied up the qualifying financial entity provisions. All the committee members worked hard on this bill and I thank them for that work. In the same way that I have acknowledged the stakeholders I also acknowledge our committee clerks our advisers the departmental officials parliamentary counsel and the Minister of Commerce and his staff—his private secretary and his adviser. Finally I acknowledge this House for allowing us to do things differently from usual such as granting us leave to provide the departmental report to stakeholders during the time before we had reported back. 
This has been a very good process. It has been a hard process but it has been made very clear to me that we do need to take up the option of exposure draft bills accompanying discussion documents at a much earlier stage so that the people who work at the coalface are able to give us very direct advice about how legislation will be implemented. In fact they have made it clear to us that they could not have known these things in advance. We have I think made this bill much better and I commend its passage through the House. 
MELISSA LEE (National) 
: 
 It is a pleasure to rise to speak on the second reading of the Financial Service Providers (Pre-Implementation Adjustments) Bill. Thousands of Kiwis have been affected by about 30 finance company failures in the past 4 years. That led to a loss of confidence in the financial services sector and this bill seeks to amend the Financial Advisers Act 2008 and the Financial Services Providers (Registration and Dispute Resolution) Act 2008 in order to give back the confidence to consumers so that they can once again feel secure and place their trust in the financial services sector. This sector is vital in raising capital for businesses. Getting ahead as a nation economically could well mean our having to get the confidence of the mum and dad investors back on dry ground once again. 
It is not often that I agree with the Opposition but it was a pleasure listening to the chair of the Commerce Committee Lianne Dalziel speak earlier and I agree with her that a lot of hard work was put into this bill by the select committee. I would like to acknowledge the chair Lianne Dalziel who just spoke and the deputy chair Sam Peseta Lotu-Iiga who made an amazing contribution during this process. For someone like me who does not come from the finance sector and often even the acronyms meant nothing to me it was bloody hard work—sorry; my apologies. It was amazing learning from them and even Lianne Dalziel admitted that she found out more about this bill and the processes and the sector as the chair of the Commerce Committee than she ever did as the Minister of Commerce. I would like to acknowledge the Minister for having the foresight to bring this bill to the House to see it through its passage and also like Lianne Dalziel I acknowledge all the officials because they have put in amazing work. As she said we have demanded so much from them with sometimes overnight report-back time frames which has been quite tough on them I am sure. I acknowledge all the clerks the Parliamentary Counsel Office and everyone who has helped us through the process. 
During the select committee process we had some major discussions about the shape this bill needed to take but the thing we always came back to and focused on was to always remember that this bill was designed to protect the unsophisticated investors the mums and dads and the retired grandmother who wants to invest so she has a little something to leave as a legacy for her grandchildren. Often they really have no idea where to start when it comes to investments. These are the people who lost money as the result of finance company failures—quite a lot of money. They could have really used some sound financial advice and this bill addresses that issue. 
As a committee we considered a large volume of things in this bill but one of the things I found very interesting—and I am sure we will discuss it further when we go into other stages of this bill—was the definition of financial advice. We were looking to protect unsophisticated investors so we initially got to a point where we wanted to make sure that everything was captured. It got to a point that even a discussion in a taxi on my way to the airport or headed to Parliament about thoughts on whether to invest in or out of the housing market could have been construed as financial advice. A group of friends sitting around a dinner table discussing the merits of a financial institution could also have been deemed to be financial advice. 
The focus of the select committee was to protect the unsophisticated investors but at the same time to provide clarity to the definition so that there was no question as to what financial advice is and who is providing the service. So it was very pleasing and I am sure there would have been a lot of people who were concerned they would be captured by this legislation who made amazing very technical and very detailed submissions to the select committee. Only those people who provide financial adviser services in the ordinary course of their business and those who provide advice in the course of another financial service are captured by this. This means that advice provided incidental to other services as with the taxi driver I mentioned before are excluded. Also excluded is advice on the procedures for the acquiring and disposing of financial products. Also budgeting services are often called financial planning services. So to make sure there is no confusion we have changed the wording in the bill to “investment planning service”. 
The other issue I found very interesting was the need for authorisation. However if we authorise everyone the compliance costs and the stress on the sector would be quite phenomenal. As a select committee we considered that there was no real need for advisers who work only with category 2 products like mortgages and insurances who work for a qualified financial entity—a QFE. They can do this job without the need to be authorised. They can still become authorised financial advisers should they so wish. 
The best thing about this bill is we are giving more power to the Securities Commission. The commission will now be able to ban people for up to 10 years by way of an application to the courts. They have the power to declare that a product of a qualified financial entity must be sold only through individually authorised financial advisers. Before an entity is provided with a qualified financial entity status it must demonstrate the capacity to comply with the regime. This means that the commission does not have to vet every single product a qualified financial entity sells but will allow the commission to step in under exceptional circumstances when there is trouble. 
The expanded powers given to the Securities Commission will go a long way to enhancing consumer confidence which has taken a major setback. It will promote more professionalism from the sector and the serious deficiencies we have seen in the financial advisers industry in terms of disclosure competence and independence will surely improve. I commend this bill; it is a great bill. 
CLARE CURRAN (Labour—Dunedin South) 
: 
 The Financial Service Providers (Pre-Implementation Adjustments) Bill is a very important bill and it is a very good example of how well parliamentarians can work together swiftly to address a critical issue. The issue is to protect ordinary investors—mums and dads—from shonky and irresponsible financial advice to provide responsible regulation and to restore confidence in the financial sector. I am very proud of the work that was done by the Commerce Committee and all of the officials involved. I acknowledge up front the incredible amount of work that was done by the members of the committee particularly the chair the Hon Lianne Dalziel the deputy chair Sam Lotu-Iiga Katrina Shanks and my colleague Charles Chauvel and I thank them for their hard work on this bill. I also acknowledge the long-suffering officials the clerks parliamentary counsel and the work done by the Minister to move this bill ahead. 
Over the past 4 years millions of dollars have been lost as a result of about 30 financial company collapses and www.interest.co.nz estimates that up to 200000 depositors have been affected. Although this may include double-counting—some of those people may have invested in more than one company—even if it is 100000 people that is an awful lot of people who have been affected. Many of those investors made their decisions based on faulty advice from financial advisers. This bill will not stop all of those obscenities such as Colin Meads saying that Hanover Finance was “safe as houses” when clearly it was not but it might mean that the types of people who were marketing and promoting Hanover Finance as a safe investment will disappear. The issue of truth in advertising kept coming up over and over again when submitters came to the select committee. We heard that the advertising was clearly opposite to the reality. Real financial advisers will now be able to scrutinise investment prospectuses with more rigour and more detail as is required I would have thought by such a profession. 
The intent of this bill is to provide for responsible regulation of the financial services sector and robust consumer protection in order to preserve confidence and trust in our financial services sector. I do not think anybody in this House or anyone who is watching would not agree that that was necessary. I will mention one particular recent case study. Jailed Timaru investment adviser Neville Cant was banned from operating as an adviser or investment broker for 5 years. The ban under the Securities Market Act was the automatic result of Cant’s conviction for theft of $100000 by a person in a special relationship theft from clients and two charges of forgery. Cant was sentenced on those charges and Securities Act charges in early June. He received a 14-month prison sentence on the theft charge and was ordered to pay reparation of $100000 and a concurrent 10-month sentence on the two forgery charges. He was also fined $136000 on six charges laid under the Securities Act in relation to charges of offering and allotting securities to members of the public without a prospectus or an offerer’s statement. Securities Commission spokesperson Roger Marwick was quoted in the  
Timaru Herald 
 as saying that the commission had received a number of complaints regarding investment schemes established by Cant who was now banned from acting as an employee or agent of an investment adviser or broker in any way that would allow him to give investment advice or receive investment money or investment property from a member of the public. He was also not allowed to direct promote or manage any investment adviser or broker company for 5 years. The aim of the Financial Service Providers (Pre-Implementation Adjustments) Bill is to ensure that incidents like this are eradicated from our financial services sector. 
Members have heard that the previous Labour Government passed the initial two bills in 2008 in the knowledge that further tidy-up legislation would be required so that work could proceed on the implementation of the financial service advisers regime as quickly as possible. The Government was slow to introduce this bill and we heard my colleague the Hon Lianne Dalziel refer to that earlier. Really that has been our only criticism of this bill as it prolonged uncertainty for the financial services sector. The bill as introduced did not address all the issues identified by the stakeholders and as a result the Commerce Committee virtually had to rewrite it. An enormous amount of good productive work has gone into that. 
There is a fundamental difference between the groups of people who have lost money that they invested. There are savers and there are investors. Investors are those who have or should have knowledge of risk and who seek advice from different sources and make decisions after weighing up the odds. What they did not assess as a risk was the negligent behaviour of people who had no knowledge except that the more they sold the better-off they were which was conflicted in the extreme. Savers however are the ones who put their hard-earned dollars into the hands of the people whom this bill is hoping to regulate to get the rotten eggs out of the sector. With their savings went their dreams of a retirement with dignity a retirement spent enjoying the fruits of their labour only to see that reality cruelly taken away. Savers do not necessarily price-risk as investors do. They pay others to assess the risk and expect competence diligence and honesty. As members have heard this morning we expect that from an accountant a lawyer— 
Hon Clayton Cosgrove 
: What? 
CLARE CURRAN 
: —mostly we expect it from those people—and a doctor and a dentist. Why should we not expect it from a financial adviser? It is not too much to expect and hopefully this bill will go some way to addressing that situation. 
Investors understand that risk equals return whereas savers—the mums and dads many of whom lost all their money in the financial sector—were not pricing risk. They were putting their money away for their retirement their children’s education or their grandchildren’s education. This travesty has resulted in the increase in ill health and decrease in well-being of a huge cohort of New Zealanders. Labour did something about the problem. We passed the Financial Advisers Act and the Financial Service Providers (Registration and Dispute Resolution) Act. This bill makes adjustments that are machinery in nature and there are an awful lot of them but that does not make it any less important in protecting the most vulnerable in our society so it is an extremely important bill. 
The bill is important for other reasons as well. One of the problems in this country is the do-it-yourself mentality to investment and savings. Many people think they know best about how to make an optimal return on their savings without seeking advice from those who are expected to know the markets and the different investment options. It is a double bind in many ways because I guess if we just did it ourselves then we would be taking the risk ourselves. But if we ask for financial advice from somebody whom we think is reputable and then do not get it it is no wonder there is no confidence in the financial sector. Of course it is not that all financial advisers have acted in an unscrupulous manner and not all of those who were operating in an unscrupulous manner were operating out of the back of a tin shed. There were many financial advisers in glass towers whose advice was as devious and self-serving as the advice of financial advisers operating anywhere else. 
This bill I hope will be another step in the process of rebuilding the confidence of ordinary New Zealanders in the investment advice sector because it is what is needed. It is absolutely necessary because it starts to rebuild the confidence of ordinary Kiwis in the financial advisory market. They need to know that when they take their hard-earned money to a financial adviser they will get independent competent advice from a person who will walk them through all the risks and benefits in a transparent and meaningful way. Once again I thank the Commerce Committee members and all of the officials for the hard work they have done on this bill. 
JONATHAN YOUNG (National—New Plymouth) 
: 
 I am very pleased to be able to stand and support the Financial Service Providers (Pre-Implementation Adjustments) Bill. I congratulate the Minister of Commerce on the hard work that he and his office have put in and as well I acknowledge the tremendous work that the Commerce Committee has put in. The bill is very complex and the Commerce Committee does handle a lot of complexity. I think back to the Patents Bill and all of the discussions that we went through—and are still going through—regarding that bill. It is important that we collaborate and work together to find solutions that will work particularly in this case for the investment sector of our society. 
Professor David Mayes the new chair of finance at the Auckland University business school has said that New Zealanders are average when it comes to financial literacy. We know that we are above average in many many areas but this is one particular area in which it has been noted we are lacking. But he went on to say this problem is not unique to this country. A lot of finance company collapses occurred before the effects of the global financial crisis were felt here in New Zealand which puts us ahead of the curve on this one. We discovered that people need to have financial literacy and that education in our society in particular has come up as an obvious area where improvement is needed after the series of finance company collapses which has seen as the previous speaker said 200000 people lose money. I heard one report that said that $6 billion of those people’s savings have been lost. The tragedy is that many of the people who lost their funds are in their retirement so they do not have the opportunity to recover. They have no opportunity to go out and work and to find other alternatives or options to raise an income for their retirement. 
This bill seeks to amend the Financial Advisers Act 2008 and the Financial Service Providers (Registration and Dispute Resolution) Act 2008. The intent is to ensure that these Acts provide for the responsible regulation of the financial services sector and bring robust consumer protection in order to restore confidence and trust in the financial services sector. Many of the people who lost their savings in investments did not appreciate the risks that they were taking and would have benefited from receiving knowledgable robust and independent financial advice. Throughout the process of preparing this legislation we continually were aware that there are different types of investors but I will speak on that point later. 
This legislation has been well looked forward to. I think it will bring robustness to the industry and to the sector. It will be good for investors and savers and it will also be very good for the industry. It will bring confidence gradually back—it may not rush in—to this area. That will in turn release capital for businesses including small to medium sized enterprises and bring opportunities for businesses in this country to get ahead. Thank you. 
Bill read a second time. 
In Committee 
CHRIS TREMAIN (Senior Whip—National) 
: 
 I seek leave for all parts of the Financial Service Providers (Pre-Implementation Adjustments) Bill to be taken as one question and in addition I request that members be given multiple calls in this debate. 
The CHAIRPERSON (Hon Rick Barker) 
: Leave is sought for the Financial Service Providers (Pre-Implementation Adjustments) Bill to be taken as a single question and that there be unlimited calls. Is there any objection? There is no objection. Leave is granted. 
Parts 1 and 2 schedule and clauses 1 and 2 
Hon LIANNE DALZIEL (Labour—Christchurch East) 
: 
 I was hoping that the Minister of Commerce would be here to answer some questions; it may well be that he is in a position to do so at some stage in the near future. 
Given that the advisers have come into the Chamber I take the opportunity to acknowledge them and the work they have done. I know that it is not appropriate to bring the advisers into the debate while they are sitting in the Chamber but they made an extraordinary effort. That effort was acknowledged in second reading speeches but I wanted to acknowledge them while they were in the Chamber. The Minister can be very proud of the efforts made by parliamentary counsel the officials from the Ministry of Economic Development who gave advice and also our committee clerks who under extraordinary time limits worked hard to produce what I think is a bill that better reflects the original intent of it. 
I have already confessed in the second reading of the Financial Service Providers (Pre-Implementation Adjustments) Bill that I now know more about the detailed aspects of this legislation than I ever knew when I was Minister of Commerce. I feel very strongly that in the future in this technical area where there is a non-partisan approach across the House we need to look at getting out draft exposure bills so that people can see the detail. Important stakeholders once they have seen how the bill has been written will be able to say how they consider it will work in practice. A number of people spoke to me during the passage of this legislation through our Commerce Committee. They made the point that they had not understood how the legislation that had been passed prior to the last election would work in practice until they set about the task of implementing it. There really was not any way of their knowing in advance but I think that if they had had a draft exposure bill to look at last year we could have got through this process with a little more time and opportunity to reflect on things in the way that we would normally expect to do. 
The Committee stage is an opportunity to go through some of the detail of the bill. One of the things that I want to query though is a question that was raised subsequent to the bill being reported back. Some people raised concerns one of which related to the Mortgage Brokers Association. A number of members of the association had actually started training that would take them up to the authorised financial adviser level. I want to place on record how much I approve of anyone in the financial advisory space getting himself or herself up to that level and beyond. I totally support those brokers who although not required by the legislation to reach that level of authorisation wished to gain the qualifications in order to reach that level. It was a very good approach for them to take. The position we had put to us after we had reported back the bill was that inadvertently we had prevented those people from becoming authorised financial advisers because the Securities Commission would not have the power to grant them that status. They were ineligible because they did not advise on a category 1 product. I spoke to the Minister’s office and I know that other members of the committee did as well. We realised that if we were to encourage better standards within the industry as a whole then we would not want that to be the case. I think it was a typical lawyers’ interpretation of legislation whereby they look for problems rather than solutions—I personally did not think it was intended to be restricted in that way—but I understand that Supplementary Order Paper 146 now addresses that issue and I would like the Minister to explain it. 
Hon CLAYTON COSGROVE (Labour—Waimakariri) 
: 
 I join with colleagues in noting that the Financial Service Providers (Pre-Implementation Adjustments) Bill especially in the current climate—even in the last 72 hours—is extremely important given that large amounts of money invested by a large number of people in a variety of companies and entities over a year or so has been put at risk and lost. We see on television from the latest saga regarding ANZ and ING (NZ) and the rulings that have been made that there is a lot of angst within the community. We can understand it when people’s life savings are invested in good faith in respect of the advice they receive. When it turns to custard they lose those savings. At best in one case reported last night the payout may be 6c or 10c in the dollar. 
For me this bill is interesting because it strikes at the heart of what consumers and the community can expect which is a high degree of professional standards in respect of conduct and in respect of advice. It is quite simple in my view: if people are purporting to promote a product or provide a service or advice they should be qualified to give that advice or produce that product. More especially they should be in a position where they stand by that advice and they are prepared to put their hand up and be accountable in respect of their conduct around it. Obviously there is a difference between providing advice on what sort of product one should buy—what sort of computer or washing machine if you like—and the more fluid environment in terms of providing advice in respect of investments and financial services. We have a thing called a market and it moves and does strange things as it has done in the last 2 years at least. 
I am mindful of a bit of a correlation between this situation and a favourite subject of mine which is real estate agents. We went through a similar debate about standards of performance standards of conduct and standards of advice and about people standing by their work their advice and their conduct. I will not get into that area because it is not exactly on point with this bill but I am mindful of the correlations and similarities. The vast majority of people in the real estate industry are good folk who stand by their work do a diligent job and provide diligent advice but there were issues about a minority. The issues were whether they were qualified and had the professional skill to provide advice and conduct their work. 
Greater risks exist I think in the financial area than in the real estate area. With real estate we have a tangible asset bricks and mortar. In the financial sphere of operations we have a market that moves and does strange things and it is more difficult—a bit like trying to nail a jelly to a wall—when sifting through a financial collapse to determine who is accountable. We then have to go to the tertiary level if you like and make a connection in terms of those who have given initial advice to investors to give something a go and in terms of trying to ascertain whether that advice was given in good faith and with professionalism and whether people are prepared to stand by it. 
The difficulty we face with any legislation is that we are not writing legislation for the vast majority of practitioners who would adhere to best practice—whatever that is—whether or not there was a law but for the minority. We are writing legislation for the minority who purport to be professionals purport to give advice at a professional and qualified standard purport to have skills and then when it all turns to custard—in large part thanks to their advice—cut and run. That is not unique to the financial sector. It happens I think in all professions. My colleague Clare Curran ran through a few. Even in those professions that consider themselves to be quite lofty we have seen people err in terms of both standards of professional conduct and advice. 
It has been noted that Labour contributed in large part to this bill with the passing of twin pieces of legislation establishing the new financial advisers and service providers regime in 2008. We were mindful of the environment that existed then. I note in passing that this bill has been slow in its progress. I do not make that comment as a political point; I simply note that given that even in recent days we have seen further uncertainty around financial services in a variety of entities I think the communities will welcome this bill. It will now move through the House relatively swiftly. I think they will look to this legislation for some degree of protection. 
The final point I make is that I think there is also a responsibility within our communities. There is an old adage: if it looks too good to be true and it smells too good to be true often it is too good to be true. It is a bit like going into a casino and expecting to come out with more money than one went in with. Well the house always wins. I think that there is a duty and an obligation both on legislators in this House and Government and on our communities to improve financial literacy. I do not mean any disrespect to those in our community. People go into financial arrangements in good faith. They believe folk. People go and see lawyers to do their house conveyancing because they are professionals. People believe that because lawyers are qualified things will go right. When people walk into a doctor’s surgery very few of them look up and ask to see the certificate on the wall as proof that the doctor is a qualified general practitioner. We take it as a given. I think that as we go into the future there has to be a greater effort to improve our financial literacy within our school system starting with the young and going right through to our adult population. I am a layman in this area myself. It is a big jump for people from doing their household budget getting their finances right and making sure their taxes are all sorted to then being asked to make judgments about where to put their life savings. As I say the sniff test is that if it looks too good to be true it generally is. 
I think some support needs to be put around this regime in the future to provide financial education and further financial advice for laypeople in our communities and to assist them by ensuring that they have some confidence. When a layperson goes into a professional’s office he or she often feels a bit intimidated because the professional is a sort of “Flash Harry”. The layperson may not want to ask the questions; more important he or she may not know the questions to ask. I think that is where some sort of educational regime in the consumer affairs space could be supportive of this legislation. 
BRENDON BURNS (Labour—Christchurch Central) 
: 
 I am pleased to take a short call on the Committee stage of the Financial Service Providers (Pre-Implementation Adjustments) Bill. If ever there was an illustration of the need for legislation like this it came on  
Morning Report 
 this morning where a spokesman appeared for those who had lost money in the debacle around ING (NZ) owned by the ANZ group. The spokesman for that group was himself a financial investment adviser and he was amongst those who had lost money in what had happened with ING. That is because there is not across the financial sector the sort of disclosure that is required for people to know whether they are getting the right advice whether they are making the right investments and whether they are making the right choices to protect themselves and their families when making what can often be long-term investment decisions. So the importance for clarity the importance for transparency and the importance for people to know exactly what they are getting is at the core of this bill and it is to be applauded. It is another signal and message I think that markets do not always deliver everything that people need which is sometimes a mantra we hear. We must have appropriate regulation in place to protect people sometimes from themselves and sometimes from people who are not transparent who are not currently accountable and who sometimes have an agenda behind what it appears they are providing by way of service and assistance. 
Last year my wife and I went to find a financial adviser to give us some advice about our future. We chose a reputable firm. I have no doubt that the adviser we chose gave us good advice but I had no real security around the fact that that was being provided by him. It is a little bit of a lottery so this bill assists in that respect in terms of the transparency and accountability for advice provided. We were not in a situation of requiring any particular financial instruments from the adviser we sought—it was simply in the line of advice—but obviously that can be compounded and present potential conflicts of interest. 
I note that we have seen many many thousands of New Zealand investors who have lost money in the myriad financial company collapses over the last 3 or 4 years sometimes after advice from financial service providers to put investments into a particular organisation and institution—into the likes of Hanover Finance which I seem to recall used to promote itself on State-owned television Television New Zealand as the name one could trust. Of course that turned out to be absolutely not the case. 
I welcome this bill. I think it will help to protect people against some of the slick advertising and marketing that we see and give people more confidence that when they make investment choices guided by financial advisers they have every reason to believe that that advice is provided appropriately and transparently. 
STUART NASH (Labour) 
: 
 As my colleagues and those on the other side of the Chamber have spoken about numerous times we all support the Financial Service Providers (Pre-Implementation Adjustments) Bill. But I think we need to ask why the Financial Advisers Act needs to be amended so soon after it was first introduced. I think as my colleague Lianne Dalziel highlighted this bill was on the legislative agenda that the Labour Government really wanted to push through before the election. Ms Dalziel knew that if it did not go through before the election then nothing would be done for quite a long time. The vast majority of Kiwis were looking to Parliament for direction in this area. It was not a contentious bill at all; it was borne out of the recognition that so many ordinary Kiwis have been let down by a sector that they were not expecting would let them down. 
I gave a couple of analogies in my speech in the second reading and I will return to those. When we want legal advice we go to a lawyer. To practise as a lawyer one must have a law degree and must be admitted to the Bar and if one makes a mistake as a lawyer or is involved in negligence or incompetence one goes to a law committee. A whole lot of checks and balances are in place to ensure that the public are well served by the law profession. The same is true if one wants to talk to an accountant. One goes to an accountancy firm speaks to a qualified accountant and gets good advice from the accounting profession. If people do not get good advice if they feel they have been let down or if they feel that the advice has been incompetent there are ways and means for the public to go to the professional body and get redress. 
The situation with the financial services sector was completely different. People used to joke about it. If it was not such a serious issue for the vast majority of New Zealanders—and more so for a targeted lot who have actually lost everything—then it would be quite humorous. People used to say that as there was no work in the building industry they would become financial advisers. It was a bit of a joke. We saw the growth of an industry where people with no qualifications and no experience whatsoever would tout themselves as financial advisers. 
The thing about New Zealanders is we have a bit of a DIY attitude to investment. We talk to our mates or read the paper and we think we know how to invest our money well. Occasionally if we do not know anything about it we will go to someone who touts himself or herself as a financial adviser. To me a financial adviser should be able to provide sound financial advice on what I should do or where I should invest my money. The lack of rules or regulations requirements for qualifications or any professional body sets off alarm bells. But of course how are the vast majority of New Zealanders to know any better? They do not. A financial adviser was out there to advise them what to do. 
I come back to the question: why does this legislation need to be amended? Well Ms Dalziel wanted the legislation to be passed because it needed to be passed. The building blocks of sound prudential regulation needed to be put in place because if they were not in place before the election it would take quite a while after the election. The Minister of Commerce Simon Power claims that the new legislation we are debating now will actually reduce costs and encourage public confidence back into the industry. I say that it will take a while before the public once again has confidence in this industry. We all know someone who has been burnt and we have all read the stories about people who have been burnt. But the 2008 legislation was a very good first step and this bill is a very good second step. 
The bill basically consists of technical amendments designed to ensure that the new regulatory regime can be implemented efficiently and consistently within existing policy frameworks. It just builds on what is already in place which of course is what a lot of legislation does. But this bill does it in a very positive way. I will give members one example. According to Bruce Kerr who is the executive director of Workplace Savings NZ this bill “will offer more certainty to employers who assist their employees with retirement savings arrangements.” Members may ask why. Well if employees come to an employer and ask where they should invest their retirement savings the employer can now I believe say with confidence: “Here are some sound financial advisers. You can have confidence in these people and you can have confidence in the industry.” So it is a whole flow-through process. Mr Kerr had been concerned that employers who make retirement savings arrangements available to their employees through the workplace would be caught by the definition of a “financial service provider” but this bill avoids this difficulty. It takes out a lot of those anomalies that often occur when legislation is put through—not under urgency but in a hurry—to fill a gap. 
PESETA SAM LOTU-IIGA (National—Maungakiekie) 
: 
 I rise to say a few quick words on the Financial Service Providers (Pre-Implementation Adjustments) Bill and I also echo the comments of the chair of the Commerce Committee to our officials and our advisers. I acknowledge personally the staff of the Parliamentary Counsel Office while they are in the Chamber for the hard work that they did within quite tight time constraints. We thank them salute them and wish them well because a lot of legislation is coming through in this area and they will have to deal with it in future. 
This bill has multiparty support so it has not been contentious. But we have had to work on the detail of the provisions of the bill. We have all discussed the balancing act between protecting vulnerable investors as well as trying not to over-regulate. We heard an earlier speaker talk about under-regulation but we were also careful not to over-regulate in circumstances where regulation would serve no purpose and be imposed on those who do not provide financial advice. 
I have already mentioned in a prior speech on this bill that it is difficult to regulate risk. That is not the role of the Government but it has been quite clear in the last 24 hours in the settlement between the Commerce Commission and ING (NZ) and ANZ that when risk is misrepresented mispriced and inappropriately shown to be something that it is not and when that advice is conveyed by financial advisers or so-called experts we have problems. It is not the role of the Government to regulate risk; risk will always occur. It is just the same as the situation with regard to murder and other such social crimes where the fact that we have laws to regulate those crimes does not stop them from occurring. So we have to be clear that we are here to provide some guidance assurance and confidence to the public who invest their savings in financial companies or other investment products. 
The other issue that has been raised in earlier speeches is one of enforcement. There are moves as many people will know towards having a super-regulator. It is important that the super-regulator has the powers and resources needed to enforce the laws that this Parliament has passed. That is particularly important and we have seen in the last two Budget appropriations more resources being committed to the Securities Commission and other such regulators. I think that all parties support that. The proposed move involves the bringing together in a super-regulator of the different enforcement agencies so that they are not talking above or below one another but are talking to one another within the same body. 
The Hon Clayton Cosgrove also mentioned financial literacy and that is a really key point. When I do my electorate clinics I see some of the issues problems and major difficulties that people seem to have regarding investments housing and the like. Their difficulties are around budgeting financial literacy and understanding where their money goes. We cannot do enough of that type of education and that type of learning not just around basic budgeting but also around financial products. And the issue is not just about disclosure. Another member has already talked about providing for better disclosure but I know people with financial backgrounds who work in the financial industry but who still struggle to get through a 75-page prospectus. I know we have looked at legislation that has simplified prospectuses and simplified disclosure documents but nevertheless it is really asking a bit much to expect ma and pa investors and grandma and grandpa investors to understand complex financial products and financial disclosure documents. 
I want to quickly talk about the process taken with regard to the bill. I thought that the process that we worked through in the committee on this bill was although time-constrained useful and collaborative both across the House and with the industries that made submissions and came to the committee. It was quite useful to have the finance industry and the major players within that industry make contributions as we developed the bill. When we were developing the bill sometimes the disconnection between what we were doing as parliamentarians and the advisers and the industry was such that I kept questioning how measures would work in reality because we did not want to overburden the finance companies and those who work in the industry. The issues were about meeting time frames and about the costs that would be imposed. I think that the credit unions said paying $20000 would be too onerous and there was no ability within their cost structures to pay that for something on which they were not providing financial advice. We asked whether these measures were necessary in the greater scheme of things and we kept asking ourselves that as we worked through this bill. 
I think what we have come to in this bill is very good in terms of carving out the firms that did not need to come under the auspice of this regime but also including those that needed to be regulated because of the history of bad financial advice getting out into the community. I think this bill is very good. However if people out there think that this bill will solve all our problems I would say no. I say that respectfully and I say that truthfully because I know that the finance industry is developing and over time different products will come into being. There are very complex derivative products that may need further regulation. There are further exemption-making powers within this bill and that will certainly allow for the legislation to grow organically over time. I think we have done a really good piece of work. I commend particularly the committee’s chair Lianne Dalziel. I thought she worked particularly hard and guided the committee in the right direction. I certainly commend this bill. 
Hon LIANNE DALZIEL (Labour—Christchurch East) 
: 
 I want to take another call because I am a little disappointed that we have not had any response from the Minister in the chair the Hon Tony Ryall. We have worked very collaboratively on this bill and I do not want it to turn to custard now. I have asked a serious question of the Minister and have not had the courtesy of a response. To be honest it is the Hon Simon Power who should be standing in the Chamber and explaining how the Supplementary Order Paper dovetails into the legislation that we have. I am not referring to anything that is out of order in saying that— 
Chris Tremain 
: I raise a point of order Mr Chairperson. It is taken in good taste that the Standing Orders prevent members from talking about other members who are not in the Chamber. The Minister is at the CER meeting in Australia and is genuinely unable to be here today. 
The CHAIRPERSON (Hon Rick Barker) 
: Firstly that is not a point of order. That is an explanation which is not about the order of the Committee. Secondly the Hon Lianne Dalziel did not say that the Minister was not in the Chamber and was absent. She said it was a pity he was not in the chair and making explanations. Now that is different but anybody who knows the Standing Orders knows very clearly that if the Minister were in the Chamber he or she would have to be in the chair and by joining the two facts together could conclude that the Minister was not. I am not saying that that was wrong but I just encourage the Hon Lianne Dalziel to continue and not to make reference to the Minister being out of the Chamber. But I do not want members to interpret my saying that as having said that the member did because I am saying she did not. 
Hon LIANNE DALZIEL 
: Thank you Mr Chairman. By way of that point of order and I am not referring to your ruling an explanation has been offered and it is one that I was not aware of. I think it is a shame when we have legislation of such significance as this. I am not objecting to the urgency. I have never objected to having urgency for this particular legislation because I know that the desire is to have it passed by 30 June and I have indicated to the Minister of Commerce that the Labour Opposition will support the passage of the legislation. But there is a serious issue to do with two matters in particular that have arisen since the bill was reported back. I have already mentioned the first one which is the question of the Mortgage Brokers Association. The way that this is being dealt with by way of Supplementary Order Paper—which is why I wanted a Minister to stand in the Chamber and put this on the record—is that new paragraph (d) has been added by Supplementary Order Paper 146 to new section 55(1) which is to be substituted by clause 13B. It states: “providing in any case that is specified in the regulations for the purposes of this paragraph services of the kind referred to in paragraph (a) or (b) or both but in relation to any category 2 product specified category 2 products or specified classes of category 2 products.” 
This is the provision that adds into the authorisation provision and I think that having a Minister read this into the record in the Chamber would be useful to the Mortgage Brokers Association. It is a shame that the chair of the Commerce Committee has to do the work of the Minister in the Chamber on this particular occasion. I am a little bit annoyed about that because I think it is discourteous to the Committee not to have the Minister respond to a very technical and detailed Supplementary Order Paper and read into the record which changes are being made. 
A debate is to be had about the methodology chosen by the Minister to address this issue because it requires those operating in the category 2 space to wait for regulations. No others have to wait for regulations in the way that section 55 has been used. So I think we are entitled to an explanation. I think the explanation probably is that it is at relatively short notice and we would like to put a regulation-making power into the legislation so that we can resolve this matter after the fact and do so in a way that indicates to the sector that it will have its needs addressed by way of regulation. That would certainly send a very positive message to the mortgage broking sector. Again I place it on record that I am very happy that it wishes to improve the quality of advice it is providing and that it wants to increase the level of qualifications its mortgage brokers will be providing by lifting those qualifications to the authorised financial adviser level. 
Having section 55 amended in this way may just simply be because of the pressure of time. If that is the case we should have that read into the record. Then there will be comfort going to the sector that the regulations will be forthcoming from the Government in due course and in time for the legislation to be implemented. 
What we do not want to see happen is that the people enrolled for these higher-level qualifications are pulling out of the qualification course because they no longer need to do it. There is a risk of that happening and I have heard that it has happened. Well I think that is pathetic and I do not think that anyone worth his or her salt should even consider contemplating pulling out of a course that he or she has enrolled in. That person has committed to a particular course of action and I think he or she should continue down that path. I want to discourage people from doing that. 
As a result of this amendment in Supplementary Order Paper 146 and once regulations have been passed this legislation will enable those operating in the category 2 space to be authorised financial advisers and to therefore meet the requirements set by the Securities Commission for their authorisation in that space. It means that they will be authorised in that space for the products they are dealing with. I think that sends a very positive and powerful message out there to the wider industry in terms of quality standards and that is a very good thing. But it would be helpful to have a Minister in the chair who was prepared to right the record as it were in the manner I am proposing. 
The second area relates to a concern expressed in an email that has been sent to the Minister of Commerce. It was sent on Monday and it was copied to me other members of the committee and other Ministers. It relates to the concern that we still have not quite carved out those who need to be carved out—and we have done quite a bit of carving out with this bill. We wanted to make it clear that some things in the area of financial service are not really financial advice. We identified services performed by those operating as retail assistants for example. They help people to fill out their applications for hire purchase for the goods they have purchased. This is in the credit space gathering information for an application for credit. It was not seen to be covered by this. Other law deals with that subject. That sits very clearly with the Minister of Consumer Affairs and changes need to be made there. 
I should just put on the record that after the comments we have already heard in the Chamber on this bill the Government should support Carol Beaumont’s member’s bill on loan sharks. We definitely need to have some tightening of the regulations in that area. I think that is important and I will make the point that the Government should definitely support Carol Beaumont’s member’s bill when it comes up for a vote. We will certainly be repeating back some of the comments that have been made today about those who are vulnerable in the financial sector and certainly those who are the victims of loans sharks are vulnerable in that sector. 
The concern has been drawn to our attention—and this is on behalf of Farmers Trading TaxiCharge the New Zealand Taxi Federation and Telecom—that we have not quite undertaken the carve-out sufficiently. Concerns are being raised that we have not quite got that exactly right. I would like the Minister to place on record a response to Marketing Law which has raised these particular issues with us. The first issue is that the Act will apply to many industries that were not contemplated by the Financial Action Task Force on Money Laundering requirements and that have not been consulted. We heard its submission in a very positive way. We took it on board. We were very clear that we had undertaken the carve-out so that is why we need to have it on the record that the Minister agrees that we have appropriately carved them out. 
There is a question around access to justice denied to financial service provided. This is around binding rulings of the dispute resolution scheme which is in new section 49D of the bill. This is where the complainant can apply to the District Court for review of the final settlement. The dispute resolution scheme provider can apply for a review but there is no provision for the respondent financial service provider to apply for a review. Even though the District Court is empowered to amend a manifestly unreasonable provision it can do this only on the application of the complainant or the dispute resolution scheme provider. The District Court said that this conflicts with section 27 of the New Zealand Bill of Rights Act which is why it has copied this to the Attorney-General. That section addresses the right to justice for every person. The District Court said that there is no mutuality of rights and the financial service provider legislation will prevail over section 4 of the New Zealand Bill of Rights Act. 
CLARE CURRAN (Labour—Dunedin South) 
: 
 I reiterate what my colleague the Hon Lianne Dalziel said about the importance of the Government supporting Carol Beaumont’s bill on loan sharks. It is a logical progression from this Financial Service Providers (Pre-Implementation Adjustments) Bill. I also reiterate what previous colleagues have said about accountability and that this bill is about providing for accountability on the part of financial advisers just as many other professions are held to be accountable. 
As the law stands anyone can call himself or herself a financial adviser and people do not need to have any qualifications. Advisers do not need any supervision and do not have to belong to a professional body. They do not have to belong to such a body or have a formal way of dealing with disputes. Until 28 February 2008 unless advisers were asked a specific question they did not have to disclose anything other than certain criminal convictions bankruptcy and banning orders. Many of the examples of shonky financial advice have been around the marketing of financial products by people who simply did not know or understand the products that they were marketing. 
Also as has been proved and is being proved in the courts outright lies were being told. We see in the  
Dominion Post  
today a report that more charges are being laid in relation to the Bridgecorp failure case and that Bridgecorp directors Rod Petricevic and Rob Roest are scheduled to appear in the High Court in Auckland this morning to face fresh fraud charges brought about under the Crimes Act. Those charges relate to allegations that the directors lied to investors about Bridgecorp’s financial health in its December 2006 prospectus. It is also alleged that the directors lied to investors by claiming that the company had never defaulted on repaying principal or interest to investors. Today’s charges have been laid by the Crown— 
The CHAIRPERSON (Hon Rick Barker) 
: I caution the member that it is one of the practices of the House that we do not interfere with the courts. I am starting to become a bit worried. You mentioned that a court case is proceeding and I caution you that I do not want to hear any contributions that could be seen to overlap with the activities of the court. It is fair enough to refer to the fact that there is a court case but I am starting to get the hint that you are moving on to some of the substantive issues in the case. 
CLARE CURRAN 
: I will refer to some of the statements that were made by victims of the Bridgecorp collapse that were reported in the  
Sunday Star-Times  
in late 2007 to give an example of the kind of impact that this collapse has had on people’s lives. This has been talked about a number of times in this House and has resulted in this bill. 
The victims included an 81-year-old rest home resident who relied on the interest on her $80000 life savings to pay rest home bills. Another couple aged 93 and 95 were relying on Bridgecorp and Five Star Consumer Finance investments in order to pay their retirement village fees. Another couple aged 67 who lost $160000 across several bust finance companies said “We will never recover from this. We are too old and too tired to fight. We are absolutely devastated feeling that we have been robbed of our life savings by dishonest and unscrupulous investment companies.” Many investors complained that their financial advisors were still spinning them a hard sell despite the collapse and advice from the receivers that the holders of unsecured debentures and capital notes would get nothing. Another quote by one of these people said “(My financial adviser) told me not to believe what the receiver the media and the experts were saying and that we will get most of our money back. I feel that I have been misled by my financial planner. I want them to be held responsible for their negligence.” That is what this bill tries to achieve. 
From 29 February 2008 amendments to the Securities Markets Act of 1988 will change the rules on disclosure by investment advisers but not by other kinds of financial advisers. The Commerce Committee after all of the work that it did on the bill recommended that it be passed with significant changes. The committee received many high-quality submissions and took an unusual step as we have heard a number of times. 
MELISSA LEE (National) 
: 
 The Committee stage of the Financial Service Providers (Pre-Implementation Adjustments) Bill was going so well. As we were all speaking we had agreed that the Commerce Committee worked very well and cooperatively with the sheer volume of paperwork we had to get through. Some 93 submissions came through the select committee and 42 were heard. 
I start off by commenting on the statement of the previous speaker Clare Curran. She said something like anyone can be a financial adviser at the moment. I remind that member that before National became the Government Labour was in Government for 9 years. We had 30 finance companies fail in the last 4 years and the model we are working in is the Financial Advisers Act 2008. Labour passed that Act and we are trying to amend it. 
The committee worked really well. I know Lianne Dalziel worked really hard. She was not in the Chamber when I gave her a compliment but I acknowledge once again the sheer amount of work she did. I thank the officials who are here. I do not know how they did it but they managed to meet all of our deadlines and I appreciate all their hard work. I thank them very much. 
On the back of the global credit crisis encouraging savings to create a greater pool of capital in New Zealand from which credit can be accessed so interest earnings can be retained within New Zealand will enable us to build a stronger economy and a stronger export sector which will be good for New Zealand. This National-led Government is trying to encourage New Zealanders to move from consumption to investment and to bring them from spending money to saving money which will strengthen our economy. We needed good financial advice but we did not quite get it. We are trying to make sure that we have solid financial advice for the mums and dads who made bad choices because they got really bad advice in the past. We need to make sure they have confidence in the advice so they can invest their money and have something for their children and their grandchildren. 
One of the things I talked about earlier was the definition of “financial adviser” but now we are moving on. One of the things we clarified was the whole territorial scope for the financial advisers that this bill covers. When financial advice is given in New Zealand this bill makes sure that those people give good advice—I think I got that right; I hope I am reading this right. I think Lianne Dalziel talked about carving out a whole lot of things. This bill is not about protecting people who are sophisticated or who work in the financial sector and know how to do it. We wanted to know what harm reduction we were going to provide through this bill what mischief we were trying to remedy and who we would be protecting. This bill is about protecting unsophisticated investors who lost a lot of money. Let us hope we do not have that situation once again. 
Hon GEORGINA TE HEUHEU (Minister for Courts) 
: 
 I will make some comments on behalf of the Minister of Commerce that I hope will address some of the issues raised by the Hon Lianne Dalziel. The Commerce Committee made a number of changes to the Financial Service Providers (Pre-Implementation Adjustments) Bill to ensure that the bill is legally effective consistent and works appropriately. Obviously the Government supports the changes made to the bill by the select committee to focus the legislation on the areas we want to ensure are properly supervised. 
Part 1 of the bill is concerned with the provisions of the Financial Advisers Act with two exceptions. The changes to Part 1 of the bill in the Minister’s Supplementary Order Paper 146 reflect matters of detail that have been identified by officials and stakeholders as necessary to give effect to the decisions made by the Government and the committee. It also fixes minor drafting errors. The most notable of these minor changes include firstly clarification of how the certification process will work for wholesale clients wishing to opt into the framework for the treatment of wholesale advice; secondly changes to make absolutely clear that retail staff providing advice on credit in the course of a retailing business is not an activity caught by the Act; thirdly clarifying the manner in which obligations may be imposed on qualifying financial entities; and fourthly clarifying that the Act contemplates that investment planning services may be provided to a class of people as well as specific individuals. 
The Supplementary Order Paper proposes two other changes to the bill that are a little more substantive. The first is to introduce a new regulation-making power that allows transitional arrangements to be made in implementing the new regime. In order to ensure there is an effective mechanism for dealing with any transitional issues the Supplementary Order Paper includes a time-limited transitional regulation-making power that enables the Minister of Commerce to authorise supplementary or replacement transitional provisions. This change will help ensure that the need for urgent remedial legislation to deal with transitional issues is mitigated. 
The other substantive change proposed by the Supplementary Order Paper addresses concerns raised by various parts of the sector that the regime does not allow people to voluntarily opt into authorised financial adviser status. I take this opportunity to clarify that the bill does not prevent any person from becoming an authorised financial adviser where that person has met the qualification criteria. However it has become clear that the Act currently does not allow the Securities Commission to authorise a person to provide services solely in relation to category 2 products. To ensure that consideration can be given to allowing authorisation for the provision of this sort of advice the Supplementary Order Paper enables regulations to be developed to allow the Securities Commission to authorise a person to provide any class of financial adviser services. It should be noted that once the bill has been passed it will be possible to address concerns raised about the ability for category 2 advisers to seek authorisation. 
As a final note the other amendments in the Supplementary Order Paper as already referred to are technical in nature and add details needed to give full effect to the decisions of the select committee. Thank you. 
Hon LIANNE DALZIEL (Labour—Christchurch East) 
: 
 Unfortunately the Minister in the chair the Hon Georgina te Heuheu did not answer the question I had asked which was whether the Government will put on the record that it intends to regulate to allow the Securities Commission to have authorised financial advisers in the mortgage broking space. That is the question we have been asked and I would like the Minister to put the answer on the record. I assume that the answer is yes that the Government is writing in a regulation-making power so that regulations will be passed. I honestly think that we have had such a good process up until now that it would be a shame to ruin it by Ministers being inadequately briefed to contribute to the Committee stage debate. 
The second question I asked in relation to the question of regulating out or regulating in was not answered at all unless the Minister was answering it by reference to some element of Supplementary Order Paper 146. I tried to capture her attention by asking what clause she was referring to but I cannot see which clause it was. I think that if the marketing law people who represent these businesses have gone to the trouble of providing us with their concerns in writing they deserve to have an answer in the House. 
The final point that I was coming to but was unable to address was the question about the binding rulings of the dispute resolution scheme. It is in section 49D in clause 38B of the Financial Service Providers (Pre-Implementation Adjustments) Bill. I have gone through the Supplementary Order Paper and it looks like the complainant has been taken out so just the person responsible for the scheme can apply to the District Court to make an order requiring a member of the scheme to do either or both of the following: comply with the rules of the scheme or comply with a resolution of a complaint that constitutes a binding resolution under those rules. The point that was being made was that there was concern that that conflicted with the New Zealand Bill of Rights Act because there was no mutuality of rights. Has taking out the complainant resolved that problem or does it make it worse? The question we were being asked was whether people should be able to apply for a review of the final settlement. I cannot find out who has the ability to apply for a review of the final settlement and whether the financial service provider has been given that particular authority to apply for a review. 
The trouble is that we have only just received this letter. I thought we would get a more detailed response from the Minister in the chair. Agreeing to have the Committee stage done in an across-the-board way enables us to focus on the different elements of the bill. It is the technical debate. It is where we try to make sure that we have got things right. If we do not have them right in this stage—and I do not want the Committee stage to run into the lunch break—and we move to the third reading we will end up not being able to fix things. Even though there is a regulation-making power in order to resolve things that come up afterwards it will not look very good if we have not addressed these technical matters in the Committee stage. People have gone to the trouble of providing us with some feedback post the report back of the bill. It is not unreasonable that we put on record a response to the concerns they have raised. 
The other matter that I would really like the Minister to address in her comments on behalf of the Minister of Commerce is that at all stages we gave the officials the ability to go back to the stakeholders to get feedback from them and on this technical part of the bill I would like to know whether any other matters raised by key stakeholders are outstanding. Apart from the three that I have raised have any other outstanding matters raised by those important stakeholders whom we have engaged with in a very positive way been addressed in the Supplementary Order Paper? Have issues raised by outside stakeholders been addressed and are there any gaps? Were any other things raised by major stakeholders? I think knowing that would assist the process of this bill. 
STUART NASH (Labour) 
: 
 I agree with my colleague Lianne Dalziel that the Financial Service Providers (Pre-implementation Adjustments) Bill is a technical bill. We are in the Committee stage and some very important technical issues need to be answered. I will address a couple of points made by Government members that I think need a little bit of clarification. 
Melissa Lee said the bill is here to protect people who have lost money. My answer is that it is a little bit too late for a lot of those people. I quote the introduction in the commentary on the bill: “The intent is to ensure that these Acts provide for responsible regulation of the financial services sector and robust consumer protection in order to restore confidence and trust in the financial services sector.” This bill is here to protect every single New Zealander who has any thought of investing money. It is not about those who have already lost money. I hope we do not stand up in this House again at another point in time to talk about another 30 financial institutions or organisations from the financial sector that have cost New Zealanders millions and millions of dollars. 
Another thing I would like to talk about is what Peseta Sam Lotu-Iiga said. He absolutely hit the nail on the head but he got it wrong—and I know that sounds like an oxymoron. Sam said that friends of his with a financial background find it difficult to wade through 75 pages of a prospectus. That is the hub of this whole argument. If friends of his with a financial background cannot read a prospectus in order to advise clients or prospective customers what the hell were people without any financial background whatsoever doing advising people where to put their money? They had no place doing that and ordinary Kiwis trusted them. I say to Sam that if people cannot read a prospectus they should not be investing and they in no way should be acting as a financial adviser to anyone. Prospectuses are put out by law. It is the law that people who offer securities to the public have to put out a prospectus. Every item in that prospectus is required by law—unless the offerer adds additional information. Nearly every single bit of information in that prospectus has been deemed by Parliament to be necessary information when making an investment decision. I say to the member that if his friends have trouble wading through a 75-page prospectus and they are financial advisers they should look at upskilling or look for another job or better understand how to read prospectuses or take a little bit more time before they advise their clients on where to invest their hard-earned money. 
The commentary states that the bill is “about protecting unsophisticated investors.” Those are the words used. Unsophisticated investors go to sophisticated financial advisers to seek advice. Their expectation which I do not think is unreasonable at all is that the financial adviser will have read the prospectus will understand the offering will understand the pitfalls in any investment that the prospective client is thinking about investing in and will be able to advise about the pros and cons. The member needs to advise his friends to get a little bit more education and to take a little bit more time to understand a prospectus. 
The other thing I would like to talk about is risk. Peseta Sam Lotu-Iiga also mentioned that it is not the role of the Government to legislate for risk. Well I take a little bit of issue with that. The development of risk and the understanding of risk are fundamental to the growth of the Western economy. I recommend any reader to a book called  
In the Lap of the Gods 
. It is the history of risk and was written by a man who is a Harvard professor and understands this issue better than anyone in this House ever will. It is a very good explanation in layman’s terms of how the art of assessing risk came about and was developed. It is difficult to regulate for risk but it is vital if we are to get the whole global economy up and running again. This financial crisis has come about due to the misinterpretation of risk or not understanding risk. For example Moody’s which is a credit-rating agency was giving a triple A rating to organisations that were carrying items on their balance sheets that were incredibly high-risk. So not even Moody’s was able to effectively assess the risk of a lot of the offerings. What is taking place is that Governments around the world including our own—and this bill is part of it—now understand that assessing risk and legislating for poor risk are an important part of getting the global economy up and running. 
There is something called the risk-free rate of return. US Treasury bonds are classed as the safest thing any investor can invest in because if the US Government cannot honour Government bonds we are in a hell of a lot of trouble. So that is the risk-free rate of return. Theoretically everything that pays a risk premium over and above US Government bonds has a certain level of risk attached. But I would argue and I have argued that the risk associated with incompetent negligent or unprincipled financial advisers is not a risk that investors should be forced to take on. However it was a risk associated with the financial services sector before this regulation came into place. It is not a risk that people should be asked to assess. 
Peseta Sam Lotu-Iiga 
: Nick Leeson. Bernie Madoff. 
STUART NASH 
: The member makes a very good comment. We should be aware that it was not just people operating out of the back of tin sheds who caused the crisis. People in glass towers were advising ordinary Kiwis on where to invest their money and they got it incredibly wrong—ING (NZ) is a classic case of that. So this bill is not just about regulating the fly-by-night guys; it is about regulating the whole industry. It was not just the fly-by-night guys who got it wrong. The ability to assess risk is vital in terms of having a robust economy. 
I said in the first reading of this bill that different groups of people have lost their money in finance companies and the difference is basically about savers versus investors. Investors are those who have knowledge or should have knowledge of risk and who seek advice from different sources and then make decisions. They are investors and they are after the highest rates of return they can get after assessing their risk. But then there are savers. Savers are people who acknowledge that they do not know much about risk at all. Therefore they seek advice. I am not a lawyer; I seek advice from a lawyer. I am not an accountant; I seek advice from my accountant. People who are savers are not financial investors; they are savers. Therefore they seek advice. It was those people who went to financial advisers and lost all their money—and they may have gone to only one adviser. They had no ability to assess risk. They were like Sam’s friends; they could not wade through a 75-page prospectus. They had no idea of how to assess risk. The prospectuses were there to give financial advisers the ability to assess risk. Savers went to those people because savers do not know how to price risk. They do not know how to price risk; investors are supposed to. Savers pay others to assess risk and they expect competence diligence and honesty. I ask whether that was too much to expect. Was it too much to expect? The answer is that no it was not. 
So this legislation amends a couple of Acts put forward by Lianne Dalziel to ensure that savers who want to put their money away but have no idea how to do it—they do not want to put it in a bank but are seeking a decent rate of return—and who go to a financial adviser will get honesty will get competence and will get diligence. As in any industry there will be unfortunately the odd rogue or two. But this bill promotes registration so that there will be recourse for people who are given incompetent or negligent advice. As with anything though risk is very important but we must come up with a process that allows us either to understand that risk or to go to people who understand that risk. I reiterate that prospectuses are there to allow financial advisers to assess risk and then to offer advice in a timely and correct manner. 
This is very important legislation for a whole lot of people. It will I am hoping allow confidence to slowly return to the investment advice sector and that is why I think it is fantastic legislation. Lianne Dalziel did a wonderful job. The Hon Simon Power by championing this bill has picked up the ball and run with it. As Lianne said it is a bit of a shame that the bill was not introduced under urgency a year ago. 
JONATHAN YOUNG (National—New Plymouth) 
: 
 I acknowledge a very good point the previous speaker just made—that this is a very important piece of legislation. I think that the next 12 to 18 months will be a very important time for New Zealand investors and savers and also for the financial advisory industry or sector. We will see not only people coming into compliance but also those who choose not to comply but perhaps leave this industry as well which will give great confidence I believe to investors and savers in New Zealand. I think that one of the most important aspects of that is not just the securing of people’s confidence but the fact that that releases capital into our economy. We know that that is incredibly important. I acknowledge what Melissa Lee said: not only is it releasing capital but also it is retaining interest savings and earnings in this country as well rather than losing those overseas. 
A cornerstone of the Financial Advisers Act is that the professionalism of financial advice is best encouraged by ensuring that it is delivered by competent and ethical individuals. I would say that by and large the majority of financial advisers are applauding this legislation. It ensures and testifies to their integrity their ethics and their competence for the public of New Zealand. We know that through the failure of finance companies over the last number of years many of these financial advisers—some who are my personal friends—have felt that their reputations have been tarnished. But I am sure those people who do their very best in all diligence will find that this sort of legislation will support their integrity. 
We know because I gave the quote in my earlier speech what Professor Mayes said—that New Zealanders are average when it comes to financial literacy which is a problem not just here in New Zealand but in many nations. But here in New Zealand a lot of financial companies collapsed prior to the global financial crisis that occurred which tells us that we had issues. We had had issues within our financial sector for some time and prior to the financial crisis they were obviously starting to affect and hurt many many investors. We know there was a period when the nation of New Zealand went into recession prior to the financial crisis as well so many aspects of our economy needed attention. 
It is very good that the hard work has been done on this bill. As Melissa Lee commented in her speech 93 submissions were received from different interested groups and individuals. We heard 42 of those and we had tremendous support from the officials. I give my congratulations on the work they did and I thank them for the long hours they put in. I think the legislation pushed everybody to the limits of their understanding and beyond that. We received tremendous support and comment from the industry as well. I thank all those who came and brought submissions and who had a part to play in the forming of this legislation which I believe will give a very secure future in going forward for the investment industry and for investors and savers in this country. I was very privileged to be part of the Commerce Committee and I acknowledge the hard work particularly of the chair and deputy chair as well as from Charles Chauvel and Katrina Shanks who in a sense formed the core working-group of people who had a larger level of expertise; members such as I appreciated so much what they were able to bring and that enabled us as a committee to work together very well. I am very happy to commend what we have here to the House. Thank you. 
Hon STEVE CHADWICK (Labour) 
: 
 I have enjoyed sitting listening to the debate. Predominantly the members of the Commerce Committee are reporting back on this bill today. But I felt rather sad actually when I heard a member opposite Melissa Lee talk with that rhetoric about what Labour had done over the last 9 years. Many of us— 
John Hayes 
: Nothing. 
Hon STEVE CHADWICK 
: Well that is not true. The member is a relatively new member. I think that the member firing those barbs across the Chamber when he has just come into the Chamber after we have had 2 hours of fantastic debate and agreement shows his naivety. No one opposes this bill. 
While we are talking about the Minister of Commerce bringing this bill into the House in urgency today I will point out that it is 18 months since the National Government took the reigns of power. That is a long time because Lianne Dalziel as the then Minister of Commerce introduced the first discussion document in 2006. Let us look at the environment at that time. Four years ago we started to feel nervous about the financial market and about investment companies. Since that time 30 companies have gone to the wall and collapsed so it is only in the last 4 years that that environment has started to cause some great unrest. The then Minister of Commerce moved very quickly to get a discussion document moving around the financial and investment sector. As a result of that she introduced two bills into Parliament which were supported by National. That is not doing nothing and it is not sitting back and watching the crash and burn of the financial sector. I wanted to put that on the record and to acknowledge Lianne Dalziel’s contribution. 
I was an electorate MP at the time that the Blue Chip disaster started to occur and I found that investors were travelling over from Tauranga because of the representation there at the time. They came to my office in Rotorua desperately seeking some help. They were not what I would call mum and dad investors. They were sophisticated investors. They had invested up to $100000 but I believe that they had a degree of naivety in the way that they were conned by Blue Chip at the time. The Minister came to a meeting in Tauranga and met with these investors. There was a whole roomful of them. They wanted the Minister to do something there and then to save and protect their money and now they have other avenues of redress to try to recoup some of those massive losses of life-savings which was incredibly sad. 
The Minister moved quickly with the implementation of the Financial Advisers Act and the Financial Service Providers (Registration and Dispute Resolution) Act in 2008. At the same time in that environment the Labour Government was looking at regulating other professions such as the police and we had also carried out a major legislative reform programme on health professionals. Financial advisers were another sector that was ripe for the plucking at that time in that environment. I just wanted to put that on the record. 
I thought it was sad to hear the rhetoric we have heard from National after the consensual way in which the Commerce Committee has worked. That was reflected today by the technical experts in this debate who were clearly on the Labour side of the House. I appreciated the contribution from Sam Lotu-Iiga who put up a perspective and also Melissa Lee. But the actual technical expertise sat with the previous Minister of Commerce who is now sitting on the Opposition benches. I wanted to put that right. 
I am not now an electorate MP but people are bringing their concerns to me as a list MP about loan sharks. That is a category another class that I urge the Government to have a look at. I think this is evolutionary legislation. This bill is amending legislation to allow the implementation of the regime. But I also believe that the Government now has to look at the principles of Carol Beaumont’s member’s bill. Loan sharks are another category that has to be regulated and we have to move quite swiftly on this matter. This bill was the perfect tool to bring in those considerations in the Committee of the whole House through a Supplementary Order Paper. What a missed opportunity that will be. The Labour members in Opposition will be holding the Government to account on that issue. 
Dr ASHRAF CHOUDHARY (Labour) 
: 
 First of all I acknowledge the good work that the previous Minister of Commerce Lianne Dalziel did in this area. I have known her for a number of years and she is Labour’s financial guru. A number of bills in this area were started by her and she is now the chair of the Commerce Committee. I have had the opportunity on at least two or three occasions to sit on that committee. I must acknowledge that Lianne Dalziel single-handedly runs the nitty-gritty of the finance matters in that committee. I have heard even the Government MPs acknowledge the hard work that Lianne Dalziel does on that committee. I also acknowledge that other colleagues such as Sam Lotu-Iiga and other friends have done good work on the committee. 
I will speak briefly about the people who are subject to some of the if you like abuse by financial advisers. I live in Auckland and my colleagues Pansy Wong Melissa Lee and Sam live there too. We are aware of some of the concerns that the ethnic communities—the Pacific communities and the Asian communities—have particularly about this area. Those concerns comprise two parts. One concern is about financial illiteracy if you like. I am aware that a lot of people in Auckland have very little literacy in the area of finance and economics. They are often at the receiving end of wrong information and wrong advice and they get ripped off. At the other end there are unfortunately people in the same communities who have some financial knowledge and literacy but who exploit their own people. I have heard a lot of stories about a number of people who have been exploited by so-called financial advisers. Often they are ripping off their own people in their own communities which is very sad. 
The Financial Service Providers (Pre-Implementation Adjustments) Bill is a technical bill to tighten up the provisions in the current legislation and clearly it is designed to help the people who are at the receiving end of wrong advice from financial advisers. I am very pleased that these issues are being tidied up particularly given the fact that there are loan sharks out there and particularly financial advisers who are ripping off people and selling mortgages that are unaffordable to some of the people who do not understand all the details about those issues. Also in the savings area elderly people who have some savings want to put them in the right place. 
I welcome Ross Robertson to the Chamber and also my colleague Su’a William Sio. They have just arrived probably from Auckland. They have been doing a good job out in the community particularly in the area of the vulnerability of our people. [ 
Interruption 
] I say to John Hayes that I feel he should acknowledge the good work that Lianne Dalziel has done. This is only his second term in the House and he probably does not know about all the hard yards that have been done in the past. I say to John that we should give credit where it is due. Hard work has been done in the past and we should acknowledge that. John Hayes has done some work on foreign affairs; I think we can acknowledge the work that he has done over the years. 
There are risks involved and I think we need to particularly help the people in our communities who have very little knowledge and understanding of financial matters. This bill is designed to help those people. I support this bill. Thank you. 
Hon LIANNE DALZIEL (Labour—Christchurch East) 
: 
 It is becoming increasingly frustrating to those of us who would like to have some answers from the Minister in the chair the Hon Pansy Wong placed on the record of the House. It is important that the questions that were raised post the report back are answered. We have had a truncated process. We have had really good progress in the Commerce Committee and it has been ruined by the Committee stage where I do not think we are being treated fairly. We need to have answers to those questions because this is the last time that those questions can be addressed. 
I have asked reasonable questions I believe. They were submitted to the Minister of Commerce on Monday by the representatives of Farmers Trading TaxiCharge New Zealand the New Zealand Taxi Federation and Telecom. The questions are about those parties that are not contemplated to be covered by the legislation. All we need is a very clear statement in the Committee from the Minister that the issues in Part A of the email are addressed and also the questions in Part B which are new to me. They certainly are not the ones that I recall being raised at the select committee. I do not really mind how the Minister deals with them whether they are addressed by amendment or by way of explanation but it is important that they are dealt with. This is the last chance to get the legislation into its final technical form for the third reading later this morning. I do not want the Committee stage to go through until this afternoon which is the alternative. We can just keep taking calls until we get the answers. 
The second issue I will raise which I have not spent any time on is the qualifying financial entity model. When I was the Minister of Commerce we designed the qualifying financial entity model in order to provide a structure of responsibility that would sit around those who were employees and also—as this legislation highlights—those who are nominated representatives of the qualifying financial entities. The way it was designed to be structured was that if people were advising in the category 1 space only for products of their own and otherwise advising generally in the category 2 space then they would not have to be individually authorised as financial advisers. 
A number of the banks came to see us at the select committee and they put a tremendous amount of effort into helping us get this legislation right. One of the influences at the select committee was that we kept coming back to the essential question of what the risk was that we were trying to address. One banking case was outstanding and that ruined it for the rest of the banks. Here is the front page of the  
New Zealand Herald 
 this morning as we debate in the Committee stage and final stages of this bill: “$45 million: Investors win record fair trading payout for misleading claims”. This was the advice that we had received at our committee over and over again. People were duped into believing that the risk they were confronting was nowhere near the level of risk that was actually being imposed on them. They were told in many instances that it was as safe as keeping the money in the bank. 
I think that ANZ has let the side down as it were in terms of the banking industry. The banking industry in New Zealand has come out virtually unscathed from the global financial crisis in terms of what has happened with the deregulation of the industry in the international environment because here it was very well prudentially supervised by the Reserve Bank with very strict rules around it. Of course those prudential rules now apply to the non-bank deposit sector. No we did not apply those rules in time but I do not know how one could have applied something in time when one was starting the consultation process on the provisions for the non-bank deposit takers and the review of financial products and providers only in the year that the first three collapses occurred and when one had announced the result of the Cabinet decisions on those matters 1 month before Bridgecorp collapsed. You know I must have been the unluckiest Minister in history I guess to have held the portfolio at that time. But I think it is unreasonable to play the blame game and actually nobody has really done that. 
The previous Labour Government inherited a regulatory wasteland. It took us a long time to put lots of regulation in place and we made a lot of regulations in the financial sector. When it came to the crunch both parties in the House agreed to work together and that is the way we have proceeded. We proceeded that way when we were in Government. We had a letter from the now Prime Minister of New Zealand addressed to the then Prime Minister of New Zealand offering that support. I think that it is not necessary to play the blame game because both of the main parties are responsible as regulators in the parliamentary sense for getting this right and I think that they have worked very well together in order to improve the legislation. 
The qualifying financial entity model was designed to provide a true incentive for organisations to take full responsibility for the training and delivery of financial advice at an institutional level that is appropriate to the needs of customers. We have all sorts of protections written into the law but essentially a qualifying financial entity risks losing its status as a qualifying financial entity if it gets it wrong. I think that is an incredibly powerful incentive and that is why I was very much in favour of finding a mechanism to ensure that the banks and other institutions could take responsibility for what they were doing on the job when it was their own product. We said no to outside products and I think we said no to outside products for a good reason. The headline news in the  
New Zealand Herald 
 is an example of that very good reason. I think there is a risk when we have part-branded products as with the ING (NZ) product from ANZ. We have the real risk that the people who are telling people what to do with their money do not see the degree of risk that those people are actually confronting. 
I would like the Minister in the chair—I am getting a bit depressed about this now—to answer some of my questions. I do so genuinely because it is not a question of satisfying me in my position as chair of the select committee. We have referred the bill back to the House. We have done our work at the select committee. But given that we have virtually rewritten every single clause of the bill if people are still raising some concerns since the report back then this is the right place and the right time to raise them. If the Minister could just read into the record what the answers to those questions are it means that we know where we are going in terms of the future and it means that those who have raised the concerns will know that they have been heard and responded to by the Government. As I said I have read into the record what I understand to be the case in respect of one of those questions but other questions still remain unanswered. I think it is very important that we have those questions answered at this last opportunity before the legislation moves into its third reading where we will be unable to correct it any further. 
That is a reasonable summary of where I am up to. I am not saying that this will be my last call; I actually hope that it is. I hope that the Minister is able to provide us with the advice that I am seeking on behalf of others. I am getting a warm indication that some work is going on that will assist the Committee in the progress of this bill and I am well pleased to see that. Thank you. 
Hon DAVID CUNLIFFE (Labour—New Lynn) 
: 
 I rise to take a brief call in this Committee stage of the debate. I do so for several reasons. The first reason I do it is because many of my constituents in New Lynn are among the thousands of New Zealanders whose life savings have been stolen from them by shonky finance companies. For too many senior citizens for people who have worked all their lives on modest incomes who have scrimped and saved to put aside the pennies and build up a nest egg for their retirement who may not have a high degree of financial literacy or specialist education and who are reliant on the good faith of those who have held themselves out as the intermediaries of the finance sector their life savings have gone. They have been stolen. 
John Hayes 
: Under whose administration? 
Hon DAVID CUNLIFFE 
: If the member opposite disagrees with this analysis then he should say so; otherwise he should listen. It is absolutely reprehensible that the companies that are now filling the front pages of our newspapers like ING (NZ) owned by a major New Zealand bank have now left many thousands of senior citizens bereft of most of their savings—in that case even after the Commerce Commission has had to weigh in. While Mark Hotchin the poster boy of irresponsible greed is building a palace on Paritai Drive—well I say “building”; he has not paid his contractors so building has stopped—tens of thousands of investors have seen their savings disappear. 
John Hayes 
: Crocodile tears. 
Hon DAVID CUNLIFFE 
: These are not crocodile tears. I grew up in a family that did not have money to spare and that could not have saved the way the way these people save. I know what it is like to go without. A lot of my constituents are going without because of the greed the profligacy and the venality of these people. 
It is fair cop though to recognise two things. Firstly there is now a bipartisan effort under way in this Parliament which this bill represents to clean this mess up once and for all. I commend the Government for carrying forward the work that the Hon Lianne Dalziel and the previous Cabinet commenced. Now in the best of all worlds I believe it is fair to say that in hindsight we could have moved somewhat quicker on some of these matters but some of the issues were masked by the property bubble that existed in New Zealand as it did worldwide and hindsight is always 20/20. But I tell you what this Labour Opposition believes this is a hugely important issue and we will not stop until this mess is cleaned up. 
I will give a personal view now. I look forward to the day when it is impossible for financial advisers to receive a fee from a company for a financial product they are advising on. They should be paid a fee for service in the same way as doctor or an accountant is paid. They should not be disguised salespeople for wholesale finance companies or the purveyors of financial products. If in practice they are then they must be held to the highest standards of transparency so that their obligations are transparent. 
I also want to mention in my role as finance spokesperson a macroeconomic implication of this mess and that is that New Zealand has a huge savings deficit. It is killing us. It is the primary reason that our current account is bleeding red and it cannot be solved until we get the savings rate up. New Zealanders are asking what they can save in and with. They say they cannot put their money on the stock exchange because some of them do not understand stocks. They are told they should not put it into real estate for good reason so they put it into finance companies and those companies burnt them. They stole their savings. This bill is essential from a macroeconomic point of view as well as from a fairness and ethics point of view. We need to get our rate of savings up. We need to have high standards of integrity and transparency for the good of the investor and the good of the country. Thank you. 
H V ROSS ROBERTSON (Labour—Manukau East) 
: 
 Kia ora tatou. No reira te Whare e nga iwi e nga reo e nga hau e wha. Tena koutou tena koutou tena koutou katoa. 
In respect of the Financial Service Providers (Pre-Implementation Adjustments) Bill one can only say that it is about time. The National Government has been in office for nigh on 18 months and only now is it bringing forward this legislation. I have to say to the Committee that as Labour’s spokesperson on senior citizens I am appalled at the slowness of the implementation of this legislation. One could say it is too little too late. Even so I have to acknowledge that at least the Government has at last moved on this legislation. Time and time again as I go around this country advocating for and addressing small-business people and Grey Power groups one of the things that I am told about is their concern about the slackness and the sloppiness of the financial sector. 
Why is this legislation necessary? It is simple. It is to protect unsophisticated investors many of whom are elderly and rely on the additional income of an investment to give them some sense of security and comfort in their old age. Why has it taken so long? I have to acknowledge the work of my colleague and friend Lianne Dalziel. She brought legislation into the House in 2008 and she did so because the Government at the time—the fifth Labour Government led by the Rt Hon Helen Clark—recognised that more needed to be done in the financial adviser regime. Thank goodness things are now starting to move. 
The elderly are our most vulnerable and unsophisticated investors and they need proper financial advice. This bill should ensure that robust advice is available for all who need it. I acknowledge the support of the honourable member Sam Lotu-Iiga who endorsed the views of members on this side of the Chamber: it is about time. 
Investors who have lost money in around 50 mismanaged finance companies—including Bridgecorp Hanover Finance St Laurence and Strategic Finance—are up in arms and so they should be. These people want answers from the Minister of Commerce as to why only one finance company has been singled out and put into statutory management. 
The CHAIRPERSON (Lindsay Tisch) 
: I am sorry to interrupt the member. If there are going to be discussions I ask that they be taken outside the Chamber. 
H V ROSS ROBERTSON 
: Thank you Mr Chairman; I appreciate the indulgence of the Committee. Only one company has been put into statutory management—only one. Mr Hubbard a senior citizen down in the South Island has been singled out. Why has he been singled out when others under similar circumstances have been allowed to go into moratorium and receivership? Investors out there tell me that they believe that this move by the Government proves that authorities have been negligent for too long. Investors are asking why it has been only Mr Hubbard. Although it is agreed that statutory management may be necessary to protect the parties in the Hubbard case they ask why it has been only Mr Hubbard. The authorities have evidence that many finance companies have committed offences. Not one of the failed finance companies has been put into statutory management since the finance collapse began yet obvious malpractice has occurred. Who loses out? The unsophisticated investor; the person who is not aware. Many of them are senior citizens whom I represent in this House. 
John Hayes 
: You didn’t look after them for 9 years; you dropped them in it. 
H V ROSS ROBERTSON 
: I did look after them. Thank you. 
Hon LIANNE DALZIEL (Labour—Christchurch East) 
: 
 I feel that I ought to follow up the contribution from Ross Robertson with a mea culpa because if anyone was supposed to put the finance companies that failed in 2006 2007 and 2008 into statutory management it was me. My colleague was inadvertently criticising the former Minister of Commerce. So I thought it was important that I stand up and reclaim my integrity in this matter. 
In respect of the Hubbard case I state for the record and it has been stated by the Minister—and I do not think it is appropriate for us to debate that matter at this moment—that the only way that the Minister of Commerce can put a company into statutory management is on the recommendation of the Securities Commission. There is no right in law for the Minister to operate in isolation of that recommendation and once the commission makes that recommendation there is a requirement really on the Minister to act on that recommendation. That is the appropriate way—my colleague is assisting from the side here. It is the appropriate course of action. 
Charles Chauvel 
: I’m always right. 
Hon LIANNE DALZIEL 
: Of course. 
Charles Chauvel 
: Always assisting. 
Hon LIANNE DALZIEL 
: He is always assisting. But the point I am making is that the reason it has to be that way is that the investigative powers of the Securities Commission have got to be called into play in order to provide a Minister with the advice that is required before placing a company into statutory management. A range of different processes can be put into place in relation to a company that is failing. Statutory management is the most extreme of those. There are also of course receiverships and there has been the development of the model of moratoria. It is the moratoria that have deeply concerned me and I know that members of the Commerce Committee share this concern. I note also that John Boscawen from the ACT Party has raised concerns in this regard. 
I think that one of the problems we have in dealing with this legislation in isolation from what is to come next is the amalgamation of the regulatory functions of the Securities Commission the Companies Office and some aspects of the stock exchange into the new regulator that the Government is proceeding with. I am supportive of that and I think it is a very good move but it has meant another delay in the release of one of the most important discussion documents that we are waiting for and that is the review of the Securities Act. I think that piece of work will bring the whole lot together and this bill is an important component of it. 
People forget—and I know that we chip each other across the Chamber—that the Review of Financial Products and Providers produced nine documents that followed on from the Task Force on the Regulation of Financial Intermediaries. The financial intermediaries document was consulted on when I was not the Minister of Commerce. It was consulted on in 2005. At the end of 2005 I picked up the portfolio and I think one of the first Cabinet papers that I took through Cabinet was the results of the report of the Task Force on the Regulation of Financial Intermediaries. That is when the beginning of the process on financial advisers occurred in terms of the legislative timetable. Then the Review of Financial Products and Providers produced nine documents covering the myriad different components of what makes up our financial sector. It was a considerable amount of work. I think if we had gone straight to regulation in 2006 we would have been rightly criticised for not doing sufficient consultation with those affected. 
I am not shying away from the fact that we would all have liked to see things pan out differently. I must admit that as the Minister of Commerce I had many sleepless nights. There were many times when I woke up in the morning wondering what the lead item would be on  
Morning Report 
. 
CHARLES CHAUVEL (Labour) 
: 
 I want to take just a brief call to go into some more detail on the concerns adverted to by my colleague Lianne Dalziel earlier. Before I do so I remind the Committee of the whole House of the history of this legislative process. The two original pieces of legislation the financial services legislation and the financial providers registration legislation were enacted by the House in 2008. That process was beset by deadlines as this legislation has been. It would be a shame if given all the work that all parties and all members particularly those on the Commerce Committee have put into this legislation we were to fail to get it right at the last hurdle as it were. So I ask the Minister in the chair—I see it is the Hon Pansy Wong—whether she could address the two issues that have been raised with a number of parliamentarians in an email from Rae Nield. 
Rae Nield has sent this email to Simon Power Chris Finlayson Heather Roy Lianne Dalziel me and John Boscawen. I have made a copy available to the National Party backbenchers who serve on the Commerce Committee and to the officials so that they can be clear about the concern. I want to say before I address the two issues that Rae Nield has a very successful legal practice in this area and she submitted to the committee on each piece of legislation. We found her submissions helpful and found that they had force. If she is raising a concern at this stage we must take this last opportunity we have to address it; otherwise we would have to come up with specific amending legislation later in the piece. I signal on behalf of the Labour Party that if the Government needs to take a moment to address the issue—if there is a need to do some last-minute drafting—we will not put any obstacles in the way of that course being adopted or object to any leave application for that purpose. 
The two concerns are that the legislation as reported back from the committee may apply much more widely than intended; that instead of it being restricted to those industries contemplated by Financial Action Task Force on Money Laundering requirements it may go more widely than we intended as a result of the industry not being consulted properly because of the time frames I referred to earlier. There was mention of this point in the submissions to the select committee and at the time the select committee did say to the submitters who raised it that we certainly did not intend to do that. If we have done it inadvertently I think we need to address it. 
The remaining specific issue on this point is that despite the broad coverage of the two pieces of legislation inclusion within the regime is by regulating out not by regulating in. There is arguably still a degree of commercial uncertainty for those businesses that may have been incorporated. The examples in the message that we received are retailers with gift cards prepaid mobile phones and mobile phone billing services taxi billing services and other categories of financial services. Obviously the intention was not to embrace those categories of industry. They would be surprised to be included in this legislation and there is no obvious public policy benefit in including them. So although it appears that there is now provision to make regulations to detach registration from compulsory dispute resolution scheme membership which is in clause 33A and for completely exempting services or classes of service which is in clause 37B for registration and clause 79 for the disputes resolution scheme membership—and for dividing into separate classes clause 37B for registration—these will not in themselves necessarily provide for trader certainty. Traders caught in the broad definitions of the legislation are included unless exempted. They are exempted only if they are not covered by the Financial Action Task Force on Money Laundering as far as registration is concerned and only if the Minister is satisfied that the cost of compliance is unreasonable or not justified by compliance. 
We need to hear from the Minister in the chair whether the bill has inadvertently caught this broad group of traders because if it has most of them will not know it. If they do not know it they will not know that they need to apply for an exemption and the Minister then will not be able to say whether it is too costly for them to comply. 
The second concern that has been raised—and I would be grateful and I am sure the rest of the Committee would be too if the Minister could address this as well—is the issue raised by new section 49D in clause 38B. Under this provision which essentially relates to the binding nature of rulings in the dispute resolution scheme a complainant can apply to a District Court for a review of any final settlement and the dispute resolution service can apply for such a review but there is no provision for the respondent financial services provider to apply for a review. So although the District Court in question could amend a manifestly unreasonable provision it could do that only on the application of the complainant or the provider of the dispute resolution scheme. 
I think it is correct to point out that at least on its face that is a breach of the New Zealand Bill of Rights Act particularly section 27 which guarantees access to justice to every person—every person including obviously legal as well as natural persons. The other issue that is worth adverting to is if that is a breach given that it has come in the bill as it has been reported back from the select committee there will not have been a chance to have it vetted by the Crown Law Office and be the subject of a report from the Attorney-General as to inconsistency. 
If the respondent does not carry out a non-pecuniary order from the dispute resolution system it is committing a criminal offence incurring a fine of up to $200000. I think that shows how serious this potential breach is. I think that if the committee had been confronted with this point fairly and squarely it would have asked the officials to suggest an amendment and strongly urged the House to rectify the apparent error so that all parties to a disputed resolution order could go on to a District Court and have the alleged error heard and if proven rectified. 
Those are the two points that it would be helpful to hear from Pansy Wong on. 
Hon PANSY WONG (Minister for Ethnic Affairs) 
: 
 I thank members for their contributions and questions. I have a collection of four questions; I will try to address them slowly. I think they are good questions and we welcome them and will do our homework to address them. 
I will tackle the first one. I understand it was raised by the Hon Lianne Dalziel and is about the concern that retailers who engage in credit sales may be caught by the initial financial services legislation. She asked whether we have made an amendment to make sure they are not caught under the Financial Advisers Act. The amendment is on Supplementary Order Paper 146 under “Clause 7: new section 13”. I hope that addresses the member’s good question. People whose principal activity is not financial services will not get caught under the new legislation. That is the first question. 
The second question is whether organisations like Telecom TaxiCharge and the like have to be registered as financial advisers. At this stage the Minister of Commerce would consider that and make a decision. There are two parts to the exemption: one is whether they need to register and the second is whether they need to be involved in the dispute resolution scheme. The Minister would make a policy announcement on whether they can be exempt from both of those whether they can be exempt from one or whatever. We undertake to address that issue. We really want to reflect on the matter and to make sure it is right. I understand that if we do need to do anything it can be done by regulation so it would not unduly hold up anything. I acknowledge the effort on both sides of the Chamber. We aim to make the legislation work. Nobody wants to hold up anything unnecessarily but we also want to get it right. 
I understand the third issue that was raised with me is the ability of advisers to opt into the scheme. The Minister has undertaken to consult with stakeholders because we want to make sure that if we go ahead with the provision which will be in the form of regulation we get it right. We are looking at a time frame of around 2 months. We want to do consultation; we want to make the regulation right. So that is the third issue. 
The fourth issue is what Charles Chauvel just raised in terms of new section 49D in clause 38B: why have we crossed out the words “or a complainant”? Section 49D is not aimed to be an appeal section. The purpose of that particular clause is to enforce decisions on people who have a case taken against them—it is an enforcement section. The reason that we crossed out “or a complainant” is that we believe that enforcement action is more effective if it is not taken by the complainant. So it is not dealing with the appeal right; it is more about enforcing a decision that is made under dispute resolution. We thought the power would be better exercised by people who operate the scheme rather than by the complainant. So there is absolutely no intention to create mischief. I emphasise that that section aims to enforce the dispute resolution result and we think it is better that the person who runs the scheme enforce it. It is not conferring an appeal right. 
Hon LIANNE DALZIEL (Labour—Christchurch East) 
: 
 Not that I am used to having the last word on these matters but I thought I would refer the Committee to the fact that the Government released the discussion document on the Securities Act review yesterday. I am told it is 200 pages long. It seeks views on which financial products are to be regulated and how; tailoring of disclosure requirements to better suit a retail investor audience; improving governance of managed funds which are a key product for retail investors; and possible additional powers for the new financial markets authority. Submissions close on 20 August. I commend the Government for the release at last of the Securities Act review. I appreciate the Minister for Ethnic Affairs taking the time to respond to those questions; I think we are better informed and I think those who have raised concerns will now have some comfort that they have been addressed by the Government. 
The question was put that the amendments set out on Supplementary Order Paper 146 in the name of the Hon Simon Power be agreed to. 
Amendments agreed to. 
Parts 1 and 2 schedule and clauses 1 and 2 as amended agreed to. 
The Committee divided the bill into the Financial Advisers Amendment Bill (No 2) and the Financial Service Providers (Registration and Dispute Resolution) Amendment Bill pursuant to Supplementary Order Paper147. 
Bill reported with amendment. 
Report adopted.