Norman Russel: Financial Markets Conduct Bill — First Reading 
Norman Russel: Financial Markets Conduct Bill — First Reading 
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Dr RUSSEL NORMAN (Co-Leader—Green) 
: 
 I rise to speak on the Financial Markets Conduct Bill on behalf of the Greens. I think we probably should start this with a bit of an apology on behalf of the New Zealand Parliament to all those people who invested in finance companies. This Parliament failed you; it is a simple fact. We did not regulate the finance companies and we should have. 
A lot of people—retail investors—invested in finance companies and lost vast amounts of money and this Parliament over many years let that happen. This Parliament failed to regulate the finance companies in a way that it should have and the result is that many many New Zealanders have lost their retirement savings and many New Zealanders worked day and night for decades in jobs saving money for no purpose in the end. It is as if we took away a chunk of their lives by not regulating the finance companies properly which is our job because we are legislators. So day and night people worked in jobs put money aside in finance companies because they thought they were saving for the future and they assumed that this Parliament was doing its job—that is to regulate the finance companies so that investors would not lose all their money. But this Parliament was not doing its job and that is the sad truth. So this bill is a response—in some respects but it is more than that—to that failure by the New Zealand Parliament. 
 I think there is a lot to like in this bill in terms of the attempt to establish a kind of comprehensive framework around financial services and financial markets particularly obviously protection for retail investors but not only retail investors. But there are some questions around it that I think really come to the surface when we are looking at what we are proposing to do in this bill. The fundamental one is that we are essentially weakening the penalties around directors of finance companies. It is hard to believe that this bill weakens the penalties applied to the directors of finance companies if they mislead investors but that is actually what the bill does. Currently we have a strict liability regime. If you put out a product disclosure statement that misleads investors you can end up in court under a strict liability. It is not about intent; it is just that you end up in court and get convicted of that. 
In this bill we are proposing to replace a strict liability regime with one where essentially you come under the criminal provisions of this bill only if it can be proved that you were deliberate in misleading people or that you were reckless. So we have moved from a situation where as we have seen with some of the recent prosecutions the directors of companies that put out misleading prospectuses and misled investors—resulting in the loss of retirement savings of many many millions of dollars for many tens of thousands of New Zealanders—had strict liability for their actions if they signed off misleading prospectuses. Under this bill they will have only civil liability—that is they will not go to jail. They will not face jail time unless it can be proven that what they did was deliberate or reckless in signing off a misleading prospectus or a product disclosure statement as it is called. The question we have to ask is whether that is right. Is that good policy? 
Is it right that we should say that to tens of thousands of people? They have essentially lost great chunks of their lives where they worked for hour and hour on end in order to put nest eggs together to save money. Basically they gave that money to a finance company based on someone whom they respected signing off the statement saying that it was true. They gave the money to a finance company and then all of that time and all of that work that that person put in was essentially taken from them. It was taken from them when those finance companies went belly up. We took a whole bunch of their time and a whole bunch of their work has just gone up in smoke. Hour after hour they worked late maybe doing overtime—however it was that they got their money together—for their retirement nest egg and we have just burnt it and the directors of the company who signed off that misleading prospectus effectively took that time away from those people. 
We are saying OK if you signed off on that statement and you took the time from those people’s lives—time that they could have been spending with their kids doing something they liked maybe instead of working—you are not going to suffer any criminal time. There is not going to be any time taken from you. You are not going to go to jail because we are now changing the law so that there are no longer criminal provisions just civil ones unless we can prove that it was deliberate or reckless. We are saying that you can take that time from those people—essentially remove the time that they have—but under this bill unless we can show that it was deliberate or reckless you are not going to suffer any jail time. There is just civil liability and civil provisions. Is that right? Is that ethically right? I think that is the question we have to ask in addressing this bill. 
For that reason the Green Party will not be supporting the first reading of this bill because we are not convinced that it is right. We are interested in having the debate at the Commerce Committee and we recognise there is a lot of good stuff in this bill—no question about it. But on that basic ethical question—is it right what Parliament is proposing to do with this bill—I think we have to say at the moment that we are not convinced that it is and we are pretty sure it probably is not. That change from a criminal strict liability to a civil liability—unless you can show it is reckless or you can show that it was deliberate—we think is a very very important change and we are not convinced that it is the right change to make. 
The other question is whether it will help the capital markets. There is no question that systematising the regulation of these markets is valuable and so we can see that the bill does make a contribution. But if a key part of the capital markets is the retail investors who together add up to quite a lot of money does this give the retail investors the confidence they need to re-enter the retail investment market? When they see—when they come to understand and eventually they will—that what we are proposing to do is actually weaken the penalties for directors of finance companies I do not believe that their confidence in the retail investment sector will be improved. 
Part of it is understandable: people want to punish someone. You could argue that these people these retail investors are behaving in an emotional way because they want to send people to jail and strip their knighthoods and all that kind of stuff. And OK that is fair enough but it is also true that if a system is to have teeth—if the system is to have real teeth—and to make sure that it actually has the effects that we want that is the reason why we put jail time in bills. There are all sorts of bills where you can end up in jail. If you steal from someone relatively small amounts of money as a burglar then you can end up in jail. If you steal from people many many millions of dollars because you sign off on a misleading prospectus so that a whole bunch of retail investors lose their life savings and many millions of dollars we are now saying you will not go to jail unless we can prove that it was deliberate or reckless. 
There is actually some commentary in the media about whether in the most recent cases actually that test would have been met and I am not going to speculate on whether it would have or not. But if we are saying to retail investors as a Parliament that we are now weakening the penalties for those who take your money by offering misleading prospectuses I am not convinced that that really does help our capital markets in terms of encouraging small retail investors to get involved. This same kind of test and the provisions around this test also apply to insider trading and the penalties around insider trading. Are there criminal penalties? Well it depends. You have to be able to prove that it was deliberate or it was reckless. Market manipulation is the same. So the same kinds of tests are being applied in a similar way right across the different kinds of provisions of the bill and I think that makes sense to apply them in a consistent way. The question is whether it is the right test that we should be applying to those who are doing these things. 
The other part of it I think that is interesting is around the compensation. There are some good aspects around trying to actually enable compensation in this bill. The thing is that often when it came to the finance company collapses there actually was not a lot of compensation to be offered. Although this bill may result in better ability for people to get compensation out of the system after the collapse of something like a finance company whether that really helps the retail investors at all is another question. Often the money is not there or there is not very much money there; it is all gone. So although the compensation provisions are good whether they will really help retail investors I do not know—it is not so clear. 
So from the Green Party’s point of view those are our concerns about the bill. We will not be supporting it at the first reading. We will be engaging with it at the select committee because I think that those questions go to the heart of this bill and the heart of the confidence that people have when they invest their money with companies like the finance companies. Thank you.