Securities Disclosure and Financial Advisers Amendment Bill

I move, That the Securities Disclosure and Financial Advisers Amendment Bill be now read a first time. At the appropriate time I intend to move that the Securities Disclosure and Financial Advisers Amendment Bill be referred to the Commerce Committee for consideration, with the committee to report finally to the House on or before 30 April 2009.

This bill is another part of this Government’s response to the current international financial crisis. The most immediate financial sector issue has been the breakdown in credit markets, which has resulted in credit rationing restricting, to some extent, New Zealand firms’ access to capital. This bill will assist in removing unnecessary impediments to raising capital, while continuing to ensure the timely disclosure of relevant information to prospective investors—a balance that is very important to get right.

Across the OECD, Governments are working with financial regulators to shore up financial institutions in response to severe liquidity shortages and a breakdown in lending markets. However, any steps to improve access to capital must be balanced against the interests of investors. We must not make the mistake of relaxing the rules to the point that we undermine investor confidence, which is already under strain. I would ask the select committee to address this balance directly at the time that it considers submissions.

In November last year the Capital Market Development Taskforce released an interim report in response to the financial crisis, and I acknowledge the work of my predecessor, the previous Minister of Commerce, the Hon Lianne Dalziel, in setting up that task force. That report made a number of recommendations on how securities law could be improved to increase the availability of capital and reduce the compliance costs of raising capital. This bill addresses a number of the task force recommendations requiring legislative change that are considered to be most likely to make immediate differences for firms seeking to raise capital.

The bill principally provides for “a simplified disclosure prospectus”. It may be used by listed issuers who are already subject to continuous disclosure requirements but who would otherwise be required to produce a separate disclosure document for each offering. This new type of prospectus will enable stock exchange - listed issuers to offer designated debt and equity securities without the need to duplicate information they have already publicly disclosed under their continuous disclosure obligations. The simplified disclosure regime applies only to those securities being offered that rank equally or preferentially to the issuer’s existing listed securities, and may not be used for the issue of securities such as units in, say, a unit trust or managed fund.

The detail and content of the simplified disclosure prospectus will be contained in regulations to be promulgated under the regulation-making authority of the Securities Act 1978. Information material to the offer that has already been released under continuous disclosure will appear in list form. The simplified prospectus must also include a signed statement from directors to the effect that the issuer has complied with the requirements of continuous disclosure, and that they can confirm that all information material to the offer has been disclosed. It is my bet that this matter will receive some attention at the select committee, and I look forward to hearing the views put forward, and the advice of the committee, on that specific point.

The Securities Commission will monitor and enforce compliance with the simplified disclosure prospectus regime, once it is introduced, and will have the ability to prohibit an issuer from using the regime. The commission will also have the ability to extend the date of allotment under a simplified disclosure prospectus when the commission thinks it is desirable for an extension order.

In addition, the bill proposes other, relatively technical changes to categories of persons who are exempt from the disclosure requirements for offers of securities under the Securities Act. The cumulative effect of these changes will be to make it easier for all businesses, listed or unlisted, to raise capital. For example, changes to the categories of persons who are exempt from the disclosure requirements for offers of securities under the Securities Act will apply to both listed and unlisted companies, including small and medium enterprises. This will particularly benefit private companies—which traditionally seek capital by so-called shoulder-tapping of known investors directly—that fall into an existing exemptions category, such as when they are well-known to the issuer. Investors will not be disadvantaged by these amendments, because exemptions from disclosure requirements apply only to investors who already possess the information necessary to make an assessment of the offer, are capable of obtaining the necessary information, or, indeed, have sufficient experience in the market not to need the standard level of disclosure.

The bill also provides an opportunity to correct an error in the Financial Advisers Act 2008, which was passed by the House in September 2008, and to make a number of other minor, tidying-up amendments.

Let me reiterate that the Government’s primary objective in this bill is to ensure that firms have cost-effective access to capital, whilst ensuring that investors receive full, accurate, and timely disclosure of information. I should also add that I am also considering with some urgency a number of other non-legislative recommendations proposed by the Capital Market Development Taskforce, including possible changes to the stock exchange listing rules and the securities disclosure regulations. In the medium term, I will undertake a full root and branch review of the Securities Act, looking at whether the regulatory scope is sufficiently clear. The review will also consider whether the overall regulatory design is optimal, and will examine the efficiency and effectiveness of the institutional arrangements currently employed. Specifically, this will include the role of corporate trustees. The Securities Commission itself and the Registrar of Companies will also be part of that review.

The House can be assured that it is this Government’s intention to provide solutions that not only will minimise the harm to our economy in the short term but also will help to turn the tide over the medium term. These reforms will help to ensure that a well-balanced and strong financial sector emerges from this financial crisis in which regulation is effective, competition is encouraged, and, significantly, investors are protected.

This bill has been developed quickly as part of this Government’s response to the global financial crisis, so I invite directly the select committee to consider whether this bill meets the objective of easing capital requirements whilst at the same time significantly balancing the securing of investor protections. It is the Government’s view that it does, but we look forward to advice in the report back. I also encourage both the industry and investors to remain actively involved in the development of the bill through the select committee process, to ensure that the legislation is workable and effective in achieving its objectives.

I place on record my appreciation of the work of the Capital Market Development Taskforce in identifying the policy issues that this bill attempts to remedy, and I thank the officials of the Ministry of Economic Development for their swift response in drafting this bill. I commend this bill to the House.

Debate interrupted.