Financial Service Providers (Registration and Dispute Resolution) Bill

Before I speak to the Financial Service Providers (Registration and Dispute Resolution) Bill I acknowledge the valedictory speeches of Mark Blumsky, Katherine Rich, and Clem Simich, who all set a very good tone in terms of their speeches, and who were not afraid to acknowledge their political opponents. They were excellent contributions to the House.

For the first part of my speech I will focus on clause 3, and then I will turn to clauses 5 and 6. Clause 3, “Overview”, provides the reasons why we are enacting this legislation. Members of the community who are listening to this speech will remember that three bills form part of a portfolio of legislation that has been put in place to provide greater protection for consumers. The Financial Service Providers (Registration and Dispute Resolution) Bill is the third of those bills. Clause 3 provides us with an overview and states: “This Act requires financial service providers to be registered.” So the bill forces all financial service providers to be registered, and it makes sure that they are all members of a disputes resolution service.

The key area where the Māori Party got a little bit confused between this bill and the Financial Advisers Bill was in the fact that this bill has a wider scope, and nowhere is that more confirmed than in clause 5, which defines the meaning of a financial service. It widens the scope of who will need to be part of the register and who will need to register with a dispute resolutions service. Clause 5 states that a financial service includes any service that has a financial adviser service, that acts as a deposit taker, that is a registered bank, that keeps, invests, administers, or manages money, that operates a money or value transfer service, and that issues and manages a means of payment—for example, credit and debit cards. Thus, one starts to get a feel for the fact that the scope of this Act is a lot wider than the scope of the Financial Advisers Bill.

Although the scope of this legislation will include a number of financial organisations, a number of them already have dispute resolution services that are set up and operating effectively. The officials thought that a couple of dispute resolution services were not operating effectively, but this legislation forces organisations to be registered and to be involved with a dispute resolutions service. If these organisations do not have one set up within their industry grouping, they will be forced under the legislation to join a reserve scheme. That is an important part of the bill.

I also want to focus on clause 6, “Application of Act”. What we tried to do here was to replicate the clauses that were in the Financial Advisers Bill so that those organisations that were exempted from that bill would also be exempted from this bill. Clause 6(2)(a) provides that lawyers and chartered accountants who were always exempted from the Financial Advisers Bill, pretty much from the word go, will remain exempted in this legislation, and will remain covered by their own legislation and their own disputes resolution services within their own professional bodies. In respect of clause 6(2)(ba), one group that lobbied quite hard to be excluded from the legislation was tax agents. They felt that they provided a similar service to that of chartered accountants, who had their own body and code of conduct, and who had their own disputes resolution service. Tax agents really felt they were being treated unfairly and separately from chartered accountants. I think that all of us on the Finance and Expenditure Committee—and certainly the Minister—thought it was wise to keep tax agents separate from the bill.

Interestingly, I have to declare a conflict of interest in respect of clause 6(2)(bb), as I have businesses in the real estate industry. Real estate agents have been exempted from this legislation largely because the advice they tend to give is secondary to the actual act of buying and selling a property, and also because they are covered by their own legislation. Now that there is a separate Real Estate Agents Authority there is a disputes resolution service for members of the public in those instances.

I continue in the Committee stage here, but I would like to acknowledge the very good valedictories we enjoyed before from Mark Blumsky, Katherine Rich and Clem Simich. We will miss those members, not only in our caucus and in our party but also in the House.

I will concentrate on a couple of clauses. Clause 42 was of interest to me at the Finance and Expenditure Committee, and even as we have it now as new clause 42B. It is about the territorial scope of this bill. Again, it is one of those particular clauses that at the select committee we made sure was totally aligned with, and very much the same as, those in the Financial Advisers Bill. But at the select committee we had some interesting discussions about this one, and even towards the last minute I think it was being constantly improved. I just note that, because there are many theoretical examples in which people could fall outside this bill. Under the title “Territorial scope” the clause states: “This Act applies to the provision in New Zealand of a financial service by a person who is in New Zealand, regardless of where the financial service provider is resident, is incorporated, or carries on business.” We had a lot of discussions, actually, because we had the theoretical example of someone—as the bill was originally drafted—who could whip through Auckland airport and make a few phone calls, and we were not sure whether that person would be covered. So the provision has been tightened, but, again in this new clause, and in the same clause in the previous Financial Advisers Bill, it is a very difficult part, and almost a glaring hole in both bills. Although I am not offering a solution to it, I am identifying the problem.

This relates to the common theme of what I was speaking about earlier—the globalisation of everything. For example, we could make up an example right now: someone living overseas could offer an interest-free loan to people in New Zealand. If New Zealanders went offshore to solicit that money, or to get advice to get such funds, etc., took ownership of those funds outside of New Zealand, and then came back and in some way utilised those funds for themselves or others without getting advice, and if various regulatory bodies had problems with those particular transactions, then they would fall outside the gambit of this bill. The same applies for the Financial Advisers Bill.

I am not offering a solution to that. I do not think there is one, unless we tighten up our agreements with other jurisdictions. Some authorities are quite tight—Australia in places, and other places in Europe—and of course any dodgy activities happen in places that are commonly known as tax havens, or that have somewhat lower thresholds of regulatory integrity than we expect here in New Zealand. Sadly, there have been examples in the past. A while ago people from Thailand were calling down to New Zealand, offering to New Zealanders wonderful deals on equity trading and all sorts of commodity gains, and unfortunately some New Zealanders were taken in by the scams and sent funds to Thailand. Those people had no recourse whatsoever; there was no civil or legal recourse. Even under this bill there is no recourse whatsoever if a New Zealander transacts funds and sends them overseas to some unusual pyramid scheme or to what is basically a simple rip-off.

Again, I am not offering a solution to that but just identifying this practice as a potential problem, because those who are of a mind to exploit others and rip them off are also of a mind to look through regulations such as these, look for the holes, and find them. They could be New Zealanders deciding to transact from outside New Zealand, or they could be people pushing something down into New Zealand from an offshore entity with which New Zealand does not have strong arrangements. Unfortunately, we will probably see ongoing examples of that activity. Between now and earlier, when I spoke on the second reading of the bill, I note that I saw a headline going across the news wires that the FBI—a major regulatory body in the United States but not even a financial regulatory body—was reviewing the activities of Lehman Bros, Freddie Mac, and Fannie Mae, for potential or alleged mortgage fraud. That was very interesting.

I have a question to ask of the Minister concerning clause 62, which is under the heading “Annual reports and information requests by Minister”. The clause states: “The person responsible for an approved dispute resolution scheme must supply to the Minister, within 3 months after the end of the financial year applying to the scheme, an annual report containing prescribed information about the scheme …”. I ask about the time period, which is kind of touched on there. We see, by the words that were struck out by the committee, that we originally said the report had to be supplied “by 1 July each year, … in relation to the 12 months ending on 31 March in that year.” I ask the Minister whether the provision relates to the financial year of the particular scheme, because, of course, there can be many end dates for financial years—31 December, 31 March, 30 June, or even others. Because I see that the Minister has to report back to the House, I ask whether there would be any interest by the Minister to have reports presented all in one go. From the time of the first annual report back to a Minister—let us say 3 months after 31 December—to the potential last one, which is 3 months after 30 June and is therefore 30 September, one can see there is quite a long time between drinks—a long time between annual reports to the Minister. I would be interested in that explanation, because I see that that provision is sitting alongside the 5-year review of the scheme in relation to the robustness of the regulations we are putting in place tonight.

Finally, I tell the Committee that clause 59 relates to the obligation to publish rules about any approved dispute resolution scheme. I understand that the wording of this clause comes from other legislation, but something does not read quite correctly to me in subclause (b), which states that the rules must be published “on an Internet site in an electronic form that is publicly available (at all reasonable times).” Well, first of all, “on an Internet site” means that it is electronic; it cannot be anything but electronic. And I would just like to question what is meant by “at all reasonable times”. Reasonable time for one entity, for the Minister, or for the public can mean many different things. I fully realise that the common-sense test there is about being available all the time. The net is wide open somewhere 24/7, and back-up sites are available, so most sites, particularly for these financial services, are cached somewhere and are available 24/7. It is not the availability on the Internet site that would be the problem; it would be a power cut or something like that. But the rules would still be available on a site somewhere in the world. That is just a little bit of a quirk, and I wonder whether the Minister had thought about that or whether there had been any advice on that. Otherwise, I will just leave it on the Table as something to consider. Thank you.

I rise to continue where I left off previously, which is on clause 6, “Application of Act”. I made the point, when debating the Financial Advisers Bill, about non-profit organisations and their exclusion now from the Act. New Zealanders will be interested to know that initially non-profit organisations’ budget services were part of a dragnet inclusion in the Financial Advisers Bill, and there was a debate about whether they would be included in this Financial Service Providers (Registration and Dispute Resolution) Bill as well. Now we have reached the point where we have excluded them specifically, which is good.

That is a point that New Zealanders need to be careful of, and it comes very much to the fore in terms of where National is at with its wider economic policy. Our five principal policies cover ongoing reduction in personal taxation, a real focus on education, looking at the line-by-line item of Government expenditure, making sure there is value for money in everything that is delivered through the Government, and investment in infrastructure to try to promote growth in our economy so that we can actually deliver additional services to the people of New Zealand on an ongoing basis. But a real driver for us is that fifth point around that sort of creeping bureaucracy that we see, and that we so often are questioned about by people in New Zealand who say we talk about bureaucracy and its impact on New Zealanders, but ask what we are actually talking about. What we are talking about is reflected in new paragraph (cd) of clause 6(2), which excludes from the Act non-profit organisations that provide free financial services. Initially they were included in the Financial Advisers Bill, and were potentially part of this financial service providers bill. That meant that voluntary organisations providing free financial services around the country were going to be potentially included, and would certainly be included in the Financial Advisers Bill, with the raft of additional regulation that was going to be wrapped around them. That meant their members would have to become accredited, registered, and have ongoing professional development. There were all sorts of varying costs around doing that.

We are not talking about people who are advising mums and dads who have earned $300,000 and are looking to invest their life-savings for their retirement. We are talking about volunteers in our communities who are looking after those who have fallen on tough times and who maybe are on a benefit and have only a couple of hundred dollars a week to go on. Some of those people, whom Mr Harawira was talking about earlier, struggle with their budgets big time. They need some help. They need to know that $50 is going on clothing, that $120 is going towards their rent, or whatever, and they need budget advice. The problem with this creeping regulation in clause 6(2)(cd) is that it has the potential to exclude many of those people, and for them to walk away from providing those voluntary services. Quite frankly, that is just crazy. We need those people in our community.

Those members of the community, who put their hand up day after day, and who put in their own time, do not expect one cent from the help they give. Sure, they might not be qualified accountants, they might not be qualified budget advisers, but by heck do they deliver a service to our community! Every day they go out there; they have people come to them, and those people value the service they receive. We cannot afford to let the legislation that we draft down here in Wellington bog down and capture these people in a dragnet, wrap bureaucracy around them, and wrap compliance costs around them to keep them out. It is very good that we have reached this point now. So non-profit organisations will be exempt from this legislation; they will not be wrapped up in it, and that is good.

I move on to Part 2 in terms of registration and the purpose of Part 2. It is to “establish a compulsory public register of financial service providers …”. A compulsory register will be developed. It will be an online register, which is documented in Subpart 4 where it talks specifically about the register of service providers. Clauses 23 and 24 in particular deal with that. It will be an online service, similar to the service run by the Companies Office, and it will be run by the Ministry of Economic Development, I understand. I am hoping that this service will be as straightforward as the online service provided for the registration of companies around the country. That service is world leading; I stand here and acknowledge that. The Companies Office online service for the provision of registration for companies is world leading, and acknowledged as such. One can log on to that service very easily, one can register one’s company, directors, and start-up capital, and one can very quickly walk away with a company. It looks as though the Inland Revenue Department will now provide the department’s tax numbers together with that information, as well.

I just hope that the service for the online registration of financial service providers in this bill will be as efficient as the service provided by the Inland Revenue Department, and that it can facilitate the easy provision of registration to make sure that we capture the necessary information.

That is all I would say at this point in time, Mr Chairman; thank you very much for this opportunity.

The question was put that the amendments set out on Supplementary Order Paper 254 in the name of the Hon Lianne Dalziel and the following amendment in her name to clause 66, be agreed to:

to omit from subclause (4) “subsection (3)(c)” and substitute “subsection (3A)(c)”.

Amendments agreed to.

Clauses 1 to 75, and schedules 1 and 2, as amended agreed to.

Bill reported with amendment.

Report adopted.

Third Reading