Parker David: Securities Trustees and Statutory Supervisors Bill — In Committee 
Parker David: Securities Trustees and Statutory Supervisors Bill — In Committee 
[Volume:671;Page:17708] 
Hon DAVID PARKER (Labour) 
: 
 I will just develop that theme a little. I agree with the previous speaker the Hon Lianne Dalziel that it might be wise to put the Securities Trustees and Statutory Supervisors Bill on the back-burner for a little bit. Labour is not opposed to the idea of there being oversight of those who are responsible for the supervision of securities—securities trustees and statutory supervisors—but I take the Hon Lianne Dalziel’s suggestion that this oversight might fall within the ambit of the Financial Markets Authority rather than a separate entity. 
Hon Lianne Dalziel 
: Or the Securities—yes the Financial Markets Authority. 
Hon DAVID PARKER 
: The Financial Markets Authority rather than a separate body. 
The issues of cost are very relevant. One of the problems we have in New Zealand’s capital markets is that through compliance costs the cost of raising capital can be too high. There have been some terrible problems and practices in respect of finance companies and we had a good discussion about those in debate on the Financial Markets (Regulators and KiwiSaver) Bill which was discussed previously. There was far too much related-party activity. People were effectively lending moneys to things that they had an interest in and they were effectively reaping the financial benefit of very risky transactions if they went well on the back of relatively low interest rate investments by naive investors. The New Zealand regulatory environment did not protect those investors by making sure they were properly aware of the risks they were taking and the regulatory settings did not enable the regulators to burrow into what was happening in a way that would have exposed it earlier and would therefore have minimised the loss. I am not one of those people who think that we can avoid risk and I am sure that no one on our side of the Chamber—nor indeed anyone in the National Government—thinks that. But we ought to appropriately highlight risk and in those cases we were not doing so. 
Having said that in respect of finance companies—the lack of information that was provided to investors the lack of regulatory oversight of the poor practice within those finance companies and the failure to pick up related-party investing—I find it galling that some of the people who have ripped off people this time had prior form for having done so previously. Despite the failures in the legislation I will not let our regulators off the hook completely. With regard to our regulators—and I include the auditors and statutory supervisors of some of these finance institutions—and the regulatory bodies that oversee finance companies I find it hard to accept that no one looked at the people who had prior form and who had done something similar to rip off investors in earlier incarnations. I would have thought that those people particularly should have had the heavy hand or the intense scrutiny of the regulator in a way that might have prevented some of the losses. 
Having said all of that we have a problem with the expense of raising capital for new ventures that are not finance company - related ventures. We need to take care that we do not overly regulate that space because we want to encourage innovative enterprises in New Zealand to thrive. One of the things they need in order to thrive is access to capital which should be available to them through accessing retail contributions from people who want to invest in their companies. We ought not to make it too expensive for people to produce prospectuses that are easily understood and that properly describe risk. The impediments that we put in the way by increasing their compliance costs hold back New Zealand business in a way that we on this side of the Chamber do not want. 
We say in respect of this matter that we just need a bit of a breather now. We are dealing to the big problem in respect of finance companies and it feels like it is relatively under control—is it not I ask the Hon Lianne Dalziel—in respect of the legislative fixes that are on the way. The finance company things that have gone wrong in previous years are on their way towards being fixed to the extent that they can be through regulation. I am looking to the Hon Lianne Dalziel because her expertise in these matters is greater than mine. We have to make sure that in terms of the fixes we have in that part of the market we are not over-regulating the raising of new capital for inherently risky equity investments in respect of new technology businesses. 
These businesses need to raise capital to expand. That is a hard ask for these businesses. They have to expand into export markets while they are quite small because the New Zealand market in respect of some of these niche products is so small. New Zealanders have these nascent businesses that are being developed to commercialise exciting ideas that can produce export earnings for our country and at an early stage in the development of those businesses they want to sell those products and services offshore. 
That in turn requires quite a bit of capital. They need to raise that capital. Banks will not lend it to them. Unless it is secured over real property banks are not likely to lend capital to businesses and therefore they have to raise it from new shareholders who are willing to invest. If our rules are so restrictive that we limit the pool of likely investors we are doing a disservice to our economy. I do not accept that the only people who should be able to invest in high-risk companies are the ones who are already very wealthy because they are able to lose their money and able to better assess risk. I do not like a securities system that effectively forces everyone to be professional investors rather than enabling ordinary people in New Zealand to have a stake in the outcome of our commercial enterprise. I want to facilitate that. 
I do not want to avoid risk for people. I want simply and relatively cost-effectively to describe risk to those people so they can take that decision. If they take that decision and it turns out to be Microsoft they will be wealthy. If it turns out to be Fortex Feltex or a company like that they will lose their money. People who invest sometimes lose their money. I do not want to prevent people from having the opportunity to raise money to expand these businesses which we need to improve the breadth of New Zealand’s exports by having inappropriate securities laws. 
New Zealand has a problem in terms of the breadth of our exports. It is true that the rural sector is going gangbusters at the moment with the highest-ever commodity prices and a relatively low dollar currently compared with where it was 6 months ago. But that is not enough for New Zealand to bridge the wage gap with Australia. To afford the sorts of social services that we like in our health and education systems in New Zealand we need to build the breadth of our exports. 
In order to build the breadth of our exports we have to enable those companies to raise money. We must make sure that in properly regulating some of the poor conduct we have had in finance companies and other financial intermediaries we do not stop the small companies being able to access capital from people who are not their family and from people who are not the wealthiest individuals in New Zealand. They collectively could all invest $5000 each if they had it to raise $250000. It would take 50 investors at $5000 each to raise $250000 to get these nascent companies operating and expanding to their next level of expansion. The compliance costs at the moment for raising capital are already too high partly because of our ridiculous financial reporting rules and the audit rules around them which need to be simplified. I hope that we take a wee break before we entrench some overly high costs through this particular bill. 
Having said that I say that we agree with the intention of the bill. We are just suggesting that maybe it could sit on the Order Paper once it goes through the Committee stage awaiting an exposure draft of another piece of work that has been done by the Minister which might be able to tidy up these things at the same time.