Securities (Disclosure) Amendment Bill, Financial Advisers Amendment Bill

I move, That the Securities (Disclosure) Amendment Bill and the Financial Advisers Amendment Bill be now read a third time. Both bills are part of the Government’s response to the interim report of the Capital Markets Development Taskforce, and are designed to facilitate capital raising without prejudicing investor protection.

The Securities (Disclosure) Amendment Bill provides for a simplified disclosure prospectus that may be used by listed issuers who are subject to continuous disclosure requirements. The offer may be for securities as long as the security being offered ranks equally or preferentially to the issuer’s existing listed securities. The detail and content of the simplified disclosure prospectus will be set out in regulations to be made under the existing regulation-making powers in the Securities Act 1978. Officials have been working on those in anticipation of these bills passing.

Under the regulations a simplified disclosure prospectus will be able to be used only for securities that rank, as I said, equally or preferentially to the issuer’s listing securities. The Securities Commission will monitor and enforce compliance with the simplified disclosure prospectus regime once it is implemented. The commission will have the ability to prohibit an issuer from using this regime. The commission will also have the ability to extend the date of allotment under the simplified disclosure prospectus through a delayed allotment order. These orders could, for example, be made to give potential investors more time to consider new information prior to accepting the offer.

The bill also makes changes relating to categories of persons who are exempt from the disclosure requirements for offers of securities under the Securities Act. These will assist both listed and unlisted companies and will particularly benefit private companies that tend to approach investors for capital directly, often in cases where the investor is well known to the issuer.

The proposed changes will, firstly, allow the offer of securities to be made at the same time to different categories of persons exempt from disclosure requirements without requiring the issuer to prepare a prospectus. Secondly, they will allow incremental investments to be made by those who have invested half a million dollars in the issuer in the past 18 months without requiring the issuer to provide full disclosure requirements.

Thirdly, the changes will clarify that assets held on trust are counted for the purpose of applying the eligible person criteria, meaning that they are eligible for disclosure exemptions. Fourthly, they will allow certification that a person is wealthy and therefore is eligible for disclosure exemptions every 12 rather than 6 months. Lastly, they will require a person who is experienced in investing money to acknowledge that as an experienced investor he or she will not receive disclosures typically required in relation to a public offering.

These amendments do not introduce new classes of exempt investor; they simply make the existing classes more workable. I do not expect that any investors will be disadvantaged by the amendments, and these changes will make it considerably simpler for businesses to raise capital by removing ambiguities or anomalies in the current law. There will, of course, always be debate over whether we have the exemptions in the Securities Act exactly right. There was a lot of discussion at the select committee and during the Committee stage, and at the instigation of the Hon Lianne Dalziel and Charles Chauvel, about the wealthy investor exemption in particular. The debate is about the validity of the assumption that if an investor is wealthy, he or she will be able to make an informed investment decision without the aid of a disclosure regime, because he or she will be able to afford financial advice.

The wealthy investor exemption is relatively new. It was enacted in 2004 as part of the Business Law Reform Bill. The scope of all exemptions from the need to disclose will be a key issue in the current review of the Securities Act, a matter that I know has been raised by the other side of the House. I am looking forward to working through these issues as part of that process.

The Financial Advisers Amendment Bill makes minor amendments to the Financial Advisers Act to remedy errors that have come to light since the Act was passed last year, to ensure the legislation works as intended.

💬 Charles Chauvel: Careless chairing of the select committee!

It has been a long day.

To sum up, the Securities (Disclosure) Amendment Bill’s primary aim is to enable firms to continue to have cost-effective access to capital whilst ensuring investors receive full, accurate, and timely disclosure of information. Both these aims are particularly important in these times and will continue to be a focus of this Government as we consider further regulatory challenges.

I put on record my appreciation of the input from the Capital Market Development Taskforce and its ongoing input to the draft regulations that will be promulgated following the passage of this legislation. In addition, I would like to thank officials for the work that has gone into drafting this important legislation. I also thank members of the Commerce Committee and the committee’s chair for their valued contribution to the development of this legislation. I commend these bills to the House.

I want to go back over a matter that I raised in the Committee stage of the Securities Disclosure and Financial Advisers Amendment Bill, because it is important that people think very carefully about what we are doing in the legislation in this particular area. As I said in the Committee stage, the Securities Act 1978 is investor protection legislation; that is what it was designed to do. The reason we need investor protection legislation to be at the fore is so that confidence in our capital markets can be maintained. If we do not have confidence in our capital markets, then there is a flow-on consequence to those capital markets and we simply cannot develop the depth and the breadth that we need in those markets. The previous Labour Government established the Capital Market Development Taskforce because we believed that it was very important that we had people who work within different parts of the economy actually focusing their minds on the barriers to growing the depth in our capital markets while also ensuring that investor protection is maintained.

The Opposition has taken the position that we support this legislation, not because it comes as a recommendation from the Capital Market Development Taskforce, although I acknowledge the work it is doing, but because we have assessed whether there is any degree of risk associated with the passage of the legislation. We do not believe there is any risk around the recommendations that are made. I know that Government members have stood up and said this is fine legislation that will make a huge difference to the raising of capital in New Zealand, and have said the removal of compliance costs will ensure that people are able to raise capital in a much more cost-effective manner. I think that simply overstates the degree of change that will result from these particular amendments, which is why we are supporting them.

The rest of the world is reregulating; we are deregulating an aspect of the Securities Act. It is really important that we think about the recession that everyone has talked about in the debate on this legislation, what lies behind the recession, and how deregulating actually responds to what was started by an international crisis in the global markets. That global financial crisis was sparked off by either the lack of, or the abuse of, regulatory regimes. That is why every other country in the world is looking very carefully at its regulatory regime. Other countries are not talking about compliance costs at the moment; they are talking about investor protection, because they know that without confidence they simply will not be able to restimulate those aspects of the world economy that have been damaged by their actions. So it is very, very important that we do take this legislation seriously, instead of just simply passing it off as a measure to reduce compliance costs for those who seek to fund-raise in a recession. The Opposition has gone through the legislation with a fine-tooth comb, and that is why we are satisfied with the changes that are being made.

However, there is one area of change in the Securities (Disclosure) Amendment Bill—and the Minister has referred to it—that relates to the wealthy investor category. We do not mind the changes that are being proposed; we think they are pretty sensible. That is why we are happy to support the passage of this legislation, and why we have done so right from the outset. What concerns us is that the wealthy investor category was subject to a specific question in the Review of Financial Products and Providers: Review of Securities Offerings discussion paper, which was distributed in September 2006 and which is still very much at the base of the Securities Act review that the Minister referred to in his contribution to this debate. The issue around wealthy investors that was raised in the paper was: “Should the exemption for wealthy investors be retained? If no, why? If yes, how does this meet the objectives of the Securities Act?”.

I just make the point—and I have made it more than once during the course of this debate—that in the case of people who are deemed to be wealthy, essentially their wealth is somehow seen as a proxy for their experience in investing. The previous section of the Act deals with utterly appropriate mechanisms for exemptions for sophisticated investors. Those investors are professional, they are habitual, and they are experienced. For them to choose to obtain their information in another way, either through continuous disclosure on the stock exchange or through information that they are referred to in a shorter document, rather than a full prospectus, is fine. They know exactly what to look for; they know exactly what the risks are; they have been doing this for some time. They know exactly how to look after their own interests, and, indeed, often the interests of others on whose behalf they may be investing. But possessing wealth is not a proxy for that degree of sophistication, and I had hoped that out of this whole review process the wealthy investor category would go.

I just want to quote from the discussion paper: “We seek feedback on whether this exemption should be retained. The policy behind this exemption is the least principled of all the exemptions.” I think that is simply obvious—that the exemption assumes that if an investor is wealthy, then he or she will be able to make an informed investment decision without the aid of the disclosure regime, because he or she will have the ability to seek professional financial advice. We had the Banking Ombudsman at the Commerce Committee today, and I have to say there were some very wealthy people—before they invested in ING—who are no longer wealthy people. Wealth is not a proxy for experience. My only question about this change is, why make it now? Why use the vehicle of this legislation to change the wealthy investor category, when we are likely to get rid of it altogether? That is really the only point I have made. It is not a huge change that is being made to the category, so I do not mind it. I would just prefer that we got on with the debate about whether to retain the category at all.

With those words I reiterate the comments made by the Minister, and I thank fellow members of the committee for their diligence on this legislation. There was certainly considerable debate on the issues as we dealt with them in a relatively truncated way in order to meet the report-back date that the Minister set. I especially put on record our grateful thanks to the officials, who provided us with excellent support. I commend the legislation to the House.

It is my pleasure to speak today in support of the third readings of the Securities (Disclosure) Amendment Bill and the Financial Advisers Amendment Bill. I also acknowledge the officials who came before us and supported us throughout the legislation. They were always forthcoming with their advice and were very timely in providing additional information.

There was robust debate around a couple of the issues in this legislation, and one of them was the wealthy investor category, which we kept on coming back to. It was something we thought about a lot before we made the decision that we would have that clause in the legislation. This legislation came about in response to the current international financial crisis. It is about how we can raise capital, and how we can get businesses to raise capital more easily when times are tough, which they are, and it is hard to raise capital. It is all about how we can make it easier for these businesses, how we can encourage investors to invest in New Zealand businesses, and how we can get that match together so our companies can grow.

When one goes around the sector and talks to people about obtaining capital, one will hear them talk about the walls in their sector. When they talk about the walls, they are talking about the regulation within their sector and how high the walls are in New Zealand when one goes to raise capital to do something. The walls are so great for companies, especially for those companies that are in growth mode and may not have a lot of skills in raising securities, or have not done so before as a way of getting capital into their organisation. The walls are very high for them to get over and they struggle to deal with the regulation. They get a bit frightened because there is a lot of regulation around them. So it is about looking at the walls around businesses and how we can reduce compliance and reduce regulation but still ensure there is enough regulation there to protect both investors and companies at the same time. That is what this legislation is about.

It is about ensuring that we have growth in our companies in New Zealand. In November last year the Capital Market Development Taskforce released an interim report in response to the financial crisis. I acknowledge the work of the previous Minister, the Hon Lianne Dalziel, in relation to this task force and setting it up. The 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 the capital. This legislation addresses a number of the items addressed by the task force and the recommendations it brought forward requiring legislative change—which is why we have got this legislation—and which are considered to be most likely to make immediate differences for firms seeking to raise capital. That is really important.

It is important that we move very, very quickly in these times to ensure that we keep that flow of money going around and around. So we have picked up the things that we think will bring the most change the quickest—in effect, the biggest bang for our buck. The legislation principally provides for simplified disclosure prospectuses. That was the biggest thing we looked at in this legislation. When a company goes to do an issue it does a prospectus, and if it does an additional issue it has only to do a simplified disclosure prospectus. Continuous disclosure is still in there, so the protection is still there for companies, which is really important. That was the biggest item we looked at in this legislation.

The issue of wealthy investors was one we looked at in terms of how much information those investors need and how well they need to be informed to make these decisions. There was great debate on the point that just because someone has half a million dollars it does not necessarily mean one has the skills to make good investment choices. We looked at that point and took it into consideration, and we thought that at this stage the wealthy investors, or, in effect, sophisticated investors, do have the skills to make that decision. It is my pleasure to support this legislation today.

I rise to speak in support of the third readings of the Financial Advisers Amendment Bill and the Securities (Disclosure) Amendment Bill. I will speak first on the Financial Advisers Amendment Bill.

In Lianne Dalziel’s third reading speech, she spoke about the importance of confidence in these times, and nobody could dispute that that is the case. Confidence is an elusive phenomenon and it is important that this Parliament does nothing to undermine it and everything to bolster it. Certainly, the previous Government tried to do that when it regulated this sector of the market that had previously been unregulated, passing a suite of related measures near the end of its last term. Those measures included the Reserve Bank of New Zealand Amendment Act 2008, which for the first time brought non-bank deposit takers into the supervisory orbit of the Reserve Bank. Previously they had simply been administered by their trustee and no one else. There was also the Financial Advisers Act, which put ethical requirements on the industry for the first time. It was an industry that many New Zealanders had not received great service from. The issue of undisclosed or hidden commissions, for example, had recurred in this industry many, many times. We legislated to ensure that a proper set of ethical standards would apply to those engaged in the giving of financial advice. The final part of the suite of measures to do away with New Zealand’s Wild West image in the finance sector was the Financial Service Providers (Registration and Dispute Resolution) Act.

Of all those measures, the last piece of legislation—for members who are not familiar with it—put in a requirement that all financial providers as defined should be registered, and that they should be part of an industry complaints scheme, so that if people had concerns about their conduct, then there would be an industry body, supported by the relevant subset of the industry, to whom those investors could appeal. Again, it was an attempt to try to put some confidence into the market, because that confidence had not been there previously, thanks to the completely deregulated nature of financial services in that part of the market in New Zealand.

In relation to the financial advisers legislation, members who were on the Finance and Expenditure Committee in the previous Parliament—and each of these three bills went through that committee at that time—will remember that there was a substantial rewrite of the legislation in the committee itself, thanks to feedback from the industry. Effectively, an exposure draft of the legislation had been released. The bill, when it was read a first time, reflected that exposure draft, but then we received a lot of feedback from the industry and from consumers about the provisions of the legislation. As a result of that feedback, substantial changes to the legislation were made in committee. I think that as a result of those changes—even though I say so myself, having chaired the committee—the bill ended up being much better. But it is not surprising, given the extent of those changes and the speed with which they were dealt with—because we wanted to get them through the parliamentary process prior to the expiry of the previous Parliament—that there were one or two mistakes. Those typographical errors will be corrected by this legislation. As I said in my first reading speech, no one should be concerned about the changes being made. They are sensible, logical ones, and they will ensure that the bill is better, as a result of our efforts today. Labour supports the Financial Advisers Amendment Bill.

In respect of the second measure with which we are concerned today, the Securities (Disclosure) Amendment Bill, much has been said by both Lianne Dalziel and Katrina Shanks, who both had the benefit of hearing all the submissions at the Commerce Committee. I will content myself with just a couple of remarks. As we heard, this bill was another confidence-building measure. Lianne Dalziel, as the previous Minister of Commerce, set up the Capital Market Development Taskforce in July 2008, under very different economic circumstances—it was a time of much greater plenty and prosperity—to those in which we find ourselves today. The aim of the exercise was to look at how we could broaden and deepen New Zealand capital markets, given the circumstances halfway through last year. We recognised that there was a problem with businesses in New Zealand being able to access the sort of capital they needed in order to grow. We wanted to make sure that, as part of their contribution to a more prosperous, stable, and fair New Zealand, they had the ability to do that. So the idea was to get a group of experts together, to listen to their recommendations as to how to better facilitate access to capital for business, and then to get on and implement those recommendations.

Well, as history shows, the recession hit, and the current Government decided that it would ask for an interim report from the task force. It received that report shortly after the election last year. This legislation implements some, but not all, of the recommendations of that report. One sensible measure that the legislation will implement was referred to by Katrina Shanks—the waiving of the requirement for a full prospectus in certain circumstances. That makes a lot of sense. Actually, securities law in New Zealand still requires prospectuses in far too many situations—for example, in respect of issuing employee share schemes. In many cases it is just a completely unnecessary exercise, and I hope the law will come to deal with further unnecessary examples of circumstances when prospectuses should not be issued. As has been observed, there is a degree of irony in deregulating in these circumstances rather than reregulating, given the causes of the current financial crisis. But here we are; we are doing that. We are doing that on the basis of the recommendations of the Capital Market Development Taskforce. The recommendations seem to make quite a lot of sense, and for that reason, Labour is supporting the legislation.

Finally, I wish to echo the point made by my friend Lianne Dalziel, which was touched upon by the previous speaker, as well. It is quite wrong to equate the wealth of investors on the one hand with their sophistication on the other. It is not necessarily so that just because people have a lot of money in the bank, they will be sophisticated investors. Some people, for example, may inherit money from an estate and find themselves, in certain circumstances, in possession of quite a lot of money, but, none the less, they may not necessarily be terribly clued up as to how to deal with that money. It is a little bit like the situation in respect of the Disputes Tribunals Amendment Bill, debated earlier, whereby Chris Hipkins made the point that it is not right, for example, to equate the complexity of a matter before a court with its monetary value. Matters relating to quite large sums of money can be relatively simple, in respect of a dispute. Just because a lot of money is involved does not mean that it will necessarily be complex, and just because the investor is wealthy does not mean that the investor will be sophisticated, as, sadly, the history of our finance company collapses in this country, despite the suite of protective measures to which I have referred, demonstrates.

But, having said that, I tell the House that the Labour Opposition supports both measures. Although they are relatively modest bills, particularly the latter one, we hope they will go some way towards continuing to maintain confidence.

We acknowledge the work the previous Government did in this particular area. One of the areas this Government is focused on is a serious and strong priority to get our economy moving again, particularly sectors of our economy that generate growth and jobs. With a decade of deficits ahead of us, it will take a lot more than shifting around what we already have to get things going. It will take an increase, which is growth, and the development of business and industry in New Zealand for it to become more competitive and successful on the international stage.

Because of this situation we need a regulatory regime that will enhance our opportunities. One particular area that New Zealand businesses are finding difficult is the raising of capital to fund such growth and development, especially as we are in a credit crisis. As the previous speaker, Charles Chauvel, commented and as Lianne Dalziel also mentioned, confidence is a very important ingredient for growth and for the opening up of our financial markets here in New Zealand. Many people have been hurt and have lost many thousands of dollars. Confidence is not built upon just the wide smile and smart suit of an issuer of a security or stock; it is built upon the substance of the issuer’s offering, which is reflected accurately, currently, and in plain English for prospective investors.

The Securities (Disclosure) Amendment Bill and Financial Advisers Amendment Bill are proposed within the context of the present global financial crisis and seek to reduce its impact on New Zealand businesses. I fully endorse and support the recommendations made within the legislation, and the changes to the Securities Act that have been recommended through it. Many thousands of New Zealanders have lost a lot of money in the last year or so and are shying away from investment. A regulatory regime that not only makes it easier for companies to raise money but also at the same time continues to make information accurately and currently available to prospective investors is very important in order for their confidence to continue and for many people to again be seen to invest in or release their capital into New Zealand.

This amendment legislation seeks to create a better environment for those investors and businesses to raise finance, which is essential for businesses to operate. It also ensures that timely disclosure of relevant financial information is provided by the issuer of a security to a prospective investor. There is always tension between businesses needing to be able to easily raise capital and the timely and appropriate process involved in raising that capital that protects the interests of the prospective investor. It would be fair to say that New Zealanders who have suffered losses through finance companies and through loss of property value are often lost in the technical terms and the minefield of the financial sector. With this legislation we want to achieve a balancing act, giving investors the opportunity to have the information they need without additional cost arising from considerable amounts of information being duplicated.

As the Minister of Commerce, the Hon Simon Power, stated during the second reading of this legislation, “This bill addresses a number of the recommendations made by the Capital Market Development Taskforce in its interim report of November last year. The bill amends the Securities Act 1978 to provide for a simplified disclosure prospectus that may be used by listed issuers who are already subject to continuous disclosure requirements and would otherwise be required to produce a separate disclosure document for each offering. Listed issuers would therefore be required to produce only one disclosure document for a securities offering, instead of producing both a full prospectus and an investment statement. The intention of the simplified disclosure prospectus is not to reduce the amount of information provided to investors but to reduce duplication between forms of disclosure.”

The changes to the legislation have been described by the Commerce Committee as being minor and of a technical nature. These amendments essentially sort out and tidy up some of the issues that need attention in the general oversight of financial institutions in New Zealand. All of this work goes towards increasing confidence in investors, which, in turn, will release capital increasingly to businesses that need it in order to go to the next level of growth that they need to go to and that we need them to go to in order to bring our country through the recession.

The legislation looks at the simplified disclosure prospectus that is to be used by listed issuers who are already subject to what we call the continuous disclosure requirements. The committee had the benefit of assessing one such simplified disclosure prospectus that came to 22 pages in length, compared with prospectuses in excess of 100 pages that are regularly produced for large companies raising capital. We see that there is obviously efficiency and a greater ease in producing information necessary for the raising of capital by these companies. The reduction of unnecessary duplication is one way in which we are reducing the red tape and cost of raising capital.

Overall, submissions on this legislation were in favour of the simplified disclosure regime. Some submitters stated that they did not think the Government has gone far enough with regard to the legislation. The legislation was swiftly prepared in response to address the current credit crisis. The amendments are part of the Government’s response to this crisis and will help ease the credit crunch currently being experienced by New Zealand businesses. The amendments cover both stock market listed and unlisted businesses, meaning that the benefits reach everyone. The reduction in compliance costs will help New Zealand businesses to focus on business rather than on excessive reporting. Investors at all levels will be given easy-to-understand information, allowing them to make better-informed and timely decisions about their investments.

This legislation is more evidence of the Government’s commitment to helping New Zealand through the recession. The amendments made by the Commerce Committee will help the legislation to achieve its objective of facilitating access to capital for New Zealand businesses. It is my pleasure to support the third readings of the bills in the House. Thank you, Mr Deputy Speaker.

I rise to speak in support of the third reading of the Securities (Disclosure) Amendment Bill and the Financial Advisers Amendment Bill. As members have already heard from previous speakers, these bills will remove unnecessary impediments imposed on raising capital in New Zealand. Raising capital for business in these tough economic times has become more difficult, and this legislation goes some way to assisting that situation. It does not mean we are just making things easier for businesses by removing regulatory compliance and putting investors in harm’s way, as some people might like to think. We accept that there are inherent risks in investment, and for some sophisticated investors the removal of some compliance issues does not pose greater risk but certainly assists a company in its endeavour to raise capital.

On the point of investors, the current economic climate has, no doubt, made crystal clear to companies the importance of looking after the interests of investors if they are to succeed as ongoing concerns and successful businesses. The Securities (Disclosure) Amendment Bill amends the Securities Act 1978 to provide an opportunity for an issuer of security to produce a simplified disclosure prospectus, as members have heard from my colleague Jonathan Young. The number of pages will be less than a full disclosure. The issuers are already subject to the continuous disclosure requirements, which I think are very helpful. The reason for the simplified disclosure prospectus is not to reduce the amount of information available to investors but to reduce duplication or multiplication between forms of disclosure. As a person who does not really have finance and security sector experience, unlike some of my colleagues, I like the fact that any relevant or new information is made through continuous disclosure and is freely available to me as an investor if I choose to look it up. As Mr Young said, some of the disclosures can be up to 300 pages long. I doubt that most people would look at them, but the information is there if people need it.

As the chair of the Commerce Committee, the Hon Lianne Dalziel, mentioned, one of the main issues the committee discussed was that of wealthy investors. I like to call them sophisticated investors, because they are not just wealthy but may have experience in investing in numerous securities before. Those investors, who have previously made investments of more than $500,000 or more, are presumed to be able to afford to take the risk, and if they are in fact investing in the same entity then they do not necessarily require the full disclosure statement in the form of a full prospectus. Rather, they may need only a simplified disclosure. That is easier for the company, as it does not have that regulatory wall to get over.

This legislation is in response to the report by the Capital Market Development Taskforce, which was released in November of last year. The report focused primarily on increasing the availability of capital for New Zealand companies and reducing the cost of raising capital. I was present today at the select committee when the Banking Ombudsman, Liz Brown, spoke to us about the ING New Zealand - ANZ investment debacle, which Lianne Dalziel started to discuss. No one disputed the sentiment of the chair of the select committee when she talked about people who invested a lot of money and lost a lot of money. We all feel for them. Certain things obviously went wrong, and some rules and regulations are required to make sure that that does not happen in the future. Having said that, New Zealand companies must be given the market conditions to raise capital and grow in this tough economic climate. As we have heard in previous debates, this is the worst economic situation New Zealand has faced since the 1930s. We must support our businesses to be able to raise capital so they can get on with the job, and provide jobs and opportunities for more people.

It was a Labour member, the Hon David Parker, who said, in the second reading debate, I believe, that this bill tries to grease the wheels of commerce. He also said that it tries to put in place improved rules so that it is possible for institutions and companies that need to raise capital to be able to do so, while at the same time giving investors greater confidence to place their money in those investments. Although I do not often agree with the Labour members, I have to agree with him. There are risks involved in investing; that is a given. Apart from the simplified disclosures, there are also some aspects of the legislation that are brilliant.

In regards to the Financial Advisers Amendment Bill, the Commerce Committee made a recommendation that we need to ensure that we remedy the oversight in the Financial Service Providers (Registration and Dispute Resolution) Act, as well. We had some really interesting discussions. We are trying to close some loopholes and provide better security and better confidence for the people in New Zealand who want to invest. In the section that amends the Financial Service Providers (Registration and Dispute Resolution) Act, some financial advisers are now exempt from registration. We have heard many members speak in the House about this bill. It is about providing confidence to the market to raise capital. The increased risk in this time of recession means that this is a good bill and is supported by all parties. I do not have any more to say; I commend this legislation to the House.

I rise to take a call in the third reading debate of the Securities (Disclosure) Amendment Bill and the Financial Advisers Amendment Bill. I do have mixed feelings, especially after listening to what the Banking Ombudsman said at the Commerce Committee hearing this morning. The whole issue is about how to strike a balance between investors’ confidence and assisting businesses to access capital.

On the bills’ third reading debate it is appropriate for me to take this opportunity to thank our officials and parliamentary counsel for the great work they have done in putting together valuable views that originated from submissions on this legislation, and for assisting the Commerce Committee in reporting those valuable recommendations to this House. My learned colleague the Hon Lianne Dalziel has no doubt done a great job in her capacity as the chair of the Commerce Committee. I will certainly miss the days when we deliberated on those submissions on the legislation.

The bills are intended to make raising capital more efficient through reducing costs to issuers while ensuring that the level of information provided to potential investors is not reduced. In other words, the bills are designed to remove impediments to raising capital without undermining investor protection. During the current economic downturn it is even more important to make sure that investors’ protection is stringent. Labour supports those proposals that are the outcome of recommendations made by the Capital Market Development Taskforce in November 2008. The Labour-led Government launched the task force to identify ways to improve access to capital. When launching the task force in July 2008, the Hon Lianne Dalziel said that improving the investment environment was a key part of the Labour-led Government’s economic transformation strategy. She said “to deliver wealth and jobs New Zealand firms need ready access to affordable capital. The task force will identify ways to make this happen”.

I take this opportunity to thank the Capital Market Development Taskforce. Originally, the task force had a year to produce its specific outputs, but in response to the global financial situation it produced an interim report in November 2008. It outlined a package of proposals designed to boost access to capital for New Zealand businesses and reduce the cost of raising capital. The chair of the task force, Rob Cameron, noted in the interim report that in response to the current financial crisis, access would be a key issue in the survival of many businesses.

In summary, the Securities (Disclosure) Amendment Bill addresses firstly the Securities Act 1978 in order to provide for a simplified disclosure prospectus that may be used by listed issuers who are subject to continuous disclosure requirements, and, secondly, it addresses the Act in relation to the categories of people who are exempt from the disclosure requirements for offers of securities under the Act.

The Financial Advisers Amendment Bill, on the other hand, amends the Financial Advisers Act 2008, which was passed by the House of Representatives on 23 November 2008, through the correction of a minor error in the assent version of the Act and a number of other minor tidying-up amendments. The Commerce Committee, of which I am a proud member, received 18 submissions from a variety of sectors. Generally those submissions on the bill welcomed the introduction of the simplified disclosure regime and supported the bill’s proposed amendments to the Securities Act that related to categories of people who are exempt from the disclosure requirements for offers of securities under the Act.

Regarding the simplified disclosure prospectus, there is currently duplication of the information released by listed issuers under the continuous disclosure obligations and the documents required at the time that make a securities offer. All public offerings, regardless of whether the issuer is listed on a registered securities exchange, such as the New Zealand Exchange, must comply with the disclosure and other requirements of the Securities Act 1978. In the case of any offering by an issuer who is already listed on a registered exchange, two disclosure regimes apply. Those two are the continuous disclosure requirements for listed companies, and the disclosure requirements for a public offering. The proposal in this bill is for listed issuers to produce one disclosure document for a securities offering, instead of producing both a full prospectus and an investment statement.

The intention of the simplified disclosure prospectus, as I mentioned in my previous speeches, is not to reduce the amount of information provided to investors, but simply to reduce duplication between forms of disclosure. In that respect, as many submitters rightly stated, the regime should and would promote effective disclosure to investors in a streamlined form. However, Labour members of the Commerce Committee have concerns about the wealthy investor category, as the Hon Lianne Dalziel said earlier. Although we do not oppose the specific amendment, we are concerned that changes are being made to the wealthy investor exemption, when that exemption may be repealed as part of the review of the Securities Act. I note that in the relevant review of financial products and providers, the discussion document described it as the least principled of all the exemptions.

To conclude, I have mixed feelings about the third reading of this legislation, especially after listening to what the Banking Ombudsman said at the Commerce Committee hearing this morning. It is very important for us to strike a balance between investors’ confidence and how New Zealand businesses can access capital. It is great to be able to support the legislation, and I congratulate the Minister again on adopting this great initiative. Thank you, Mr Deputy Speaker.

It is a pleasure for me to speak in support of the Financial Advisers Amendment Bill and the Securities (Disclosure) Amendment Bill. Previous speakers have acknowledged the work of the officials and the advisers on this legislation. I would like to acknowledge my own colleagues. I was not able to be personally involved in a great deal of the deliberation on this legislation, and I would like to thank my colleagues on the Commerce Committee for working in my absence. I cannot claim to have played a major part in the development of this legislation.

Raising capital for firms is fundamental to the New Zealand economy. It was interesting to hear my colleague Melissa Lee talking about the role that the Hon Lianne Dalziel played when she launched the New Zealand Capital Market Development Taskforce, and said: “To deliver wealth in jobs, New Zealanders need access to capital.” What this legislation seeks to do is put in place a series of regulations that make it easier for companies to raise capital. In particular, it provides for a simplified disclosure prospectus that may be used by listed issuers. They are companies that are listed on the stock exchange and are subject to the continuous disclosure requirements. It enables them to raise money from potential investors without having to go to the trouble and expense of a full-blown prospectus. I think it was my colleague Melissa Lee who referred to the fact that a full-blown prospectus might number over 100 pages, whereas a simplified disclosure prospectus might come to only 20 pages.

Anything that will help to raise capital and give access to capital to companies has to be good for the New Zealand economy. But it needs to be done with certain protections. I thought it was very interesting to hear the Hon Lianne Dalziel focus on the wealthy investor exemption this afternoon. This is the exemption that allows so-called wealthy investors to accept a lesser level of disclosure on the grounds of their wealth. Lianne made the point that simply because someone is wealthy does not mean that he or she is necessarily a sophisticated investor. I think she makes a very good point. She was the first of the speakers this afternoon to refer to the fact that the Banking Ombudsman appeared before the Commerce Committee this morning, and subsequent speakers have also referred to this.

Of course, the Banking Ombudsman came in to give us evidence in respect of the so-called ANZ-ING affair. This was where ING launched a number of funds, but two in particular, its diversified yield fund and its regular income fund, were marketed to investors on the grounds that they were low to moderate risk. Some 13,000-plus investors who invested in those two funds have lost considerable sums of money. ING, to its credit, offered the opportunity for people to sell their interest in those funds, but only at a considerable loss. So I pass on my grateful thanks to ING for at least putting up a proposal, because for a number of people who lost money in finance companies there was no such proposal. But there are a number of deficiencies, not least of which, in my view, is that ING is probably offering approximately half of what it should be. During the course of the morning I had the opportunity to meet many members of the ING-ANZ Frozen Funds Action Group, and I acknowledged the role that its founder, Gerard Prinsen, from Wellington, has played. Over the course of the morning I learnt about an investor who was very successful. He had a business, and when it came time to retire he had a sum of about $2.5 million. That is a very substantial sum. That investor was encouraged by ANZ to invest $1.8 million—three-quarters of the total—of his $2.5 million in the regular investment fund, or the RIF fund. There is no doubt that he was persuaded to do so by his ANZ investor. So if ever we wanted evidence of what the Hon Lianne Dalziel was saying, we could not get a better illustration, in my view. He was a very successful investor who reached retirement age, sold his business, had $2.5 million to invest, and was persuaded to put three-quarters of that—$1.8 million—into one of those funds.

One of the reasons I was keen to hear evidence from the Banking Ombudsman this morning was that there are some 13,000-plus people who invested in this fund, and most of them have accepted an offer from ING to buy their units. Most of them—some 95 percent, we are told—have accepted an offer to buy their units, but they are doing so at a considerable loss. Those funds, the diversified yield fund and the regular income fund, were frozen in March of last year, when their reputed value was, respectively, 70c and 80c. People were told that their money was being frozen, that they should not worry about it, that their assets in the fund would be looked after, and that they should leave it to those in charge of the fund. Then some 12 months later, those people were apologised to, and told that their funds were now only worth 20c. The initial offer was 20c, and was subsequently increased to 60c and 62c. That is still well short of the 80c that the funds were frozen at in March 2008, and obviously well short of $1, which was the face value of those units. By accepting that offer to sell back their units at either 60c or 62c, some 95 percent of the 13,000-odd investors in that fund have surrendered all of their rights. They surrendered their rights to benefit from any future legal action or from any action brought by the Commerce Commission under the Fair Trading Act.

A small subset of those investors, some 2,800 who took direct advice from the ANZ Bank, have the ability to lodge a direct complaint with the Banking Ombudsman under the Banking Ombudsman scheme. Sadly, some 11,000 people who took advice or bought their product through another channel do not have that same access. Those 2,800 people who do through the Banking Ombudsman scheme are lucky. The Banking Ombudsman told us this morning that she had received some 520 complaints. Of those 2,800 people, about a fifth—20 percent—have lodged a complaint with her. Of the 129 complaints that she has decided on, about 110 have been found in favour of the complainant, either wholly or partially. So there is a very clear message from the Banking Ombudsman. If one lodges a complaint, it is more than likely, depending on the circumstances, that it will be decided in favour of the complainant.

It concerns me that only 520 of the 2,800 people who invested on the basis of ANZ’s advice have so far lodged a complaint. Sadly, under the terms of the settlement they reached with ING, they have only 8 more days in which to do so. They have only until 31 July. I hope that out of the evidence presented by the Banking Ombudsman today, and the media coverage of it, more people who took the advice of ANZ—like the gentleman I referred to earlier, who I am told this morning had invested $1.8 million of the $2.5 million he received from the sale of his business—actually lodge complaints. I found it interesting that, so far, that gentleman has not lodged a complaint. It might surprise members to hear that. He is being advised to lodge a complaint, and he has until 31 July to lodge a complaint, but after that date, he will forfeit those rights.

That is clear evidence of what Lianne Dalziel said to the House this afternoon: simply because someone is wealthy does not necessarily make that person a sophisticated investor. A level of wealth does not equal sophistication. People rely on advice. They rely on banks. In our society it is accepted that banks are the pinnacle of financial institutions. Beneath them come other institutions, such as finance companies and the like. But people rely on banks, and they should be able to act confidently on advice from banks. If we are to address the capital market needs of our economy, we have to put in protections that give people the confidence to invest. It is absolutely critical for the life of our system. Thank you.

I rise to speak on the third reading of the Securities (Disclosure) Amendment Bill and Financial Advisers Amendment Bill. As outlined by the speakers before me, this legislation amends both the Securities Act 1978 and the Financial Advisers Act 2008. It is intended to respond to the current international financial crisis by removing unnecessary impediments to capital raising, while ensuring the timely disclosure of relevant information to prospective investors. It also makes a number of minor changes to tidy up the Financial Advisers Act.

Before I go any further I will comment on something the National member Jonathan Young noted in his speech earlier. He said that business confidence is what matters right now. I could not agree more. But I also note that the legislation being put before us by this Government is really a small measure towards improving confidence. It is ultimately tinkering around the edges—as are most of the bills that have been put before us in the House this year—and does not deal with or address the real issues confronting us right now.

This legislation is the first I have been able to participate in from start to finish as a new member of Parliament. As a member of the Commerce Committee I was able to see the process in how the legislation has been shaped. What has amazed me most has been all the hard work that has gone into the legislation that is before us now. I thank all the submitters to the bill, all the officials who advised on the bill, and all members of the Commerce Committee, particularly its very capable chair, the Hon Lianne Dalziel. As the Minister of Commerce at the time, she announced the Capital Market Development Taskforce in November 2008. The task force has shaped the legislation before us. Labour, at the time, launched the task force to identify ways to improve access to capital. Originally, the task force had a year to produce its report, but in response to the global financial crisis it produced an interim report in November 2008.

The report outlined a package of proposals designed to boost access to capital for businesses and reduce the cost of raising capital. Getting access to capital is important for businesses to grow, and in a recession it has become even more important that we enable access to capital. This importance was noted by Rob Cameron, the chairman of the task force, who said: “In response to the current financial crisis, access to capital would be a key issue in the survival of many businesses.” Enabling businesses to grow will keep people in jobs.

I have already said today, and I will say it again, that there are around 471,000 businesses in New Zealand, and 97 percent of those businesses are small businesses employing fewer than 20 employees. As I also mentioned in the Chamber last night, unemployment in Dunedin has doubled in the last 3 months and has risen 161 percent in the last year. As the member for Dunedin South it is important that I stand here and advocate for greater support from the Government for putting people into work.

This legislation attempts to respond to the current international financial crisis by removing unnecessary impediments to raising capital, while ensuring the timely disclosure of relevant information to prospective investors. It is worth noting that the recession has created a need for strong Governments to act. It is a pity we do not have one here. Under a Labour Government the deposit scheme was put in place to give New Zealand depositors confidence that their money would be secure in the event that an approved financial institution failed. The finance industry, as we know, is at present facing huge distortions in the cost of money and is paying interest rates for money that because of falling demand or tightened credit approvals it cannot, or will not, lend. This legislation attempts to enable some of this capital raising to occur by endeavouring to remove unnecessary impediments. I hope that the legislation does enable some capital raising.

As we have learnt, over 310,000 New Zealanders are currently reliant on Government support, and we do not want that number to continue to grow. But if the trajectory of recent weeks continues, there is no doubt that predictions of the numbers of unemployed growing from currently 53,000 to 90,000 by 2010 will instead be realised by early next year. Securing funding today is arguably the most critical issue for businesses as they come to terms with the current global economic downturn. That was the theme echoed in the submissions received by the Commerce Committee. The intention to streamline equity funding for listed issuers through the simplified disclosure prospectus proposal, instead of an investment statement, is one measure put forward under this legislation.

I will turn back to finance companies that were down and out until the previous Labour Government’s deposit guarantee revived confidence in the sector. Until that guarantee scheme we did not see a recovery to the debenture downturn being faced by most of the sector. It is important for many New Zealanders, particularly in the retail finance sector, that this legislation is properly considered as getting it right.

As a relatively new member I have enjoyed participating in this debate. Labour supports this legislation but has a particular specific concern with one part of it, which has been referred to by all of the speakers on this side of the House. As members have heard, this concern is with the wealthy investor category. Labour members of the committee were particularly concerned about that category. We have heard from the committee chair, from Charles Chauvel, and from Raymond Huo about it. As we have also heard from other speakers, being wealthy does not necessarily or automatically make one informed or sophisticated about investing. Although not opposing the specific amendment, some of us are concerned that changes are being made to the wealthy investor exemption when that exemption may be repealed as part of the review of the Securities Act, noting that the relevant review of the financial products and providers discussion document described it as “the least principled of all the exemptions”. It is important that this concern is taken note of.

Going back to the priorities that this Government should be looking at, it is important that we are protecting the most vulnerable and that everything that is being put before this House is about confidence and also about job creation. But what we have seen under this Government instead has been cuts to the funding of New Zealand Trade and Enterprise grant programmes, slashed research and development tax credits, the slashing of the Fast Forward Fund, and putting community skills training programmes on the back-burner, which are all about undermining confidence. No one is blaming National for the recession, but people expect a coherent plan focused on compliance costs, rather than on investor protection. Building confidence in general should be the focus of the Government right now.

As a nation we do not save enough. Initiatives such as KiwiSaver were designed by the previous Labour Government to help address the imbalances in our economy. As I mentioned earlier in this debate, the global pressures have had an impact on the recovery of household savings, which should contribute to an improvement in New Zealand’s external balance over the next few years. But measures that focus on ensuring that our savings regime is protected, such as KiwiSaver, investing in infrastructure to create jobs, and introducing measures to protect investors are some of the things that this Government should be focusing on.

Finally, amending the Securities Act 1978 and Financial Advisers Act 2008 is a significant undertaking. I make the point that what is ironic about this legislation is that similar recommendations were consulted on in the review of the financial products and providers and are included in the current review of the Securities Act. Labour supports this legislation. I have enjoyed working with the Commerce Committee on seeing it through the House. Again, I thank the officials who supported us in the endeavour, and the submitters who provided us with their analysis of the issues.

It is a pleasure to rise and speak on this legislation again. This is about the third time I have spoken on this legislation, and I have been following the conversations today and earlier conversations. Again, this is neat legislation that reduces compliance costs and helps to get New Zealand growing again. It helps us to raise capital a little bit smarter, a little bit cheaper, and a little bit faster, and that has to be a good thing. As many speakers have said today, the legislation is about widening and deepening our capital markets.

I must go on and talk a little bit about some of the good work that has been done by the Commerce Committee, which I do not have the pleasure of being a member of. I know that the chairman of that committee has done a reasonably good job. It is surprising to hear me thank that member, but I think she did a good job on this legislation. The Capital Market Development Taskforce, led by Rob Cameron, did a very good job, as well. He is my former employer, so I would be remiss in not saying that Mr Cameron did a good job.

💬 Hon Lianne Dalziel: Did he set up the stock exchange as well?

Who knows? I think a good job was done all round on this legislation, and I think no one will dispute that reducing the cost of raising capital is a good thing.

I would like to spend a bit of time talking about practical examples that may arise around reducing some of the costs of raising capital. The initiatives in this legislation will do some really good things and have some unintended consequences that will be really good. I would like to touch on that.

Typically, when one raises capital, it costs $10,000 to $50,000 to do a prospectus. I have gone through this process myself both in a personal capacity and in a professional capacity. That is $10,000 to $50,000 that one does not really want to spend on a lawyer or an accountant for the body one is working for. There are number of approved advisers helping people do prospectuses and investment statements. Imagine how much money may be saved as a result of that reduced compliance cost. I have a feeling that about 100 companies a year, at an absolute minimum, go through a process that this legislation might apply to.

If we think about those 100-odd companies and about the $10,000 to $50,000 per company in costs that might be saved, we can see an amount somewhere in the region of $1 million to $5 million per annum that some legal firm might not get. That money could be reinvested back into productive parts of the economy, particularly in those areas where those firms that are going through either rapid growth or capital shortage may need it.

It is incredibly difficult for those companies to raise money in any shape or form during the early stages when they need either working capital or financial capital to buy plant and equipment. I have worked alongside many friends who are entrepreneurs, and I know it is very hard to raise capital. People try to find an angel investor, a venture capital fund, or some other organisation, and the last thing those people want to do, as entrepreneurs, is spend money. Every dollar they spend on lawyers or accountants is a dollar they will not spend reinvesting in their business so that it will rapidly grow. We have had some fantastic examples of companies in New Zealand that had very small amounts of seed capital or initial capital but have gone on to do amazingly great things.

I want to talk further about some examples of the $1 million to $5 million that will be saved from lawyers and accountants out there. I am sure they will not thank us for taking away some of their fees—there will be one or two fewer legal or accounting bashes, because they have a bit less income. But that money will instead be available for investing in early-stage companies.

I spoke briefly about a couple of those early-stage companies in earlier readings of this legislation. I want to touch on one of them, and that is Trade Me. Trade Me went from one guy operating out of his Holden HQ in the back his garage to being a successful company that sold for about $700 million. Throughout that process there were about 16 or 17 shareholders, if I recall correctly, who brought in expertise and capital. Around only $1 million of total capital was actually invested in Trade Me, for a resulting outcome of $700 million.

If, through this legislation, we can free up somewhere between $1 million and $5 million by reducing compliance costs, then that money could be invested in early-stage companies like Trade Me, instead of being spent on our good friends the lawyers and accountants of New Zealand. One or two of those companies could go on to be a success and make $600 million or $700 million for their shareholders, and that is what we as the Government are concerned about. We want to get New Zealand growing faster, and we want to get productivity up. I think that is a wonderful thing. Seeing more of those things in Government is something that we are very keen on doing. The Government wants to raise productivity and get more bang for the buck in terms of those early-stage companies.

I want to talk a bit about some of those wasted costs and about some of the highly successful New Zealand businesses that reprioritise some of those costs. Typically, if one is a partner in a legal or accounting firm, one would want to rake in somewhere between $1 million and $5 million per year in fees. In this legislation we are probably talking about putting one partner in a legal firm or a couple of partners in an accounting firm out of work. They will probably have to reprioritise themselves out of being a lawyer or accountant writing prospectuses and do something a lot more productive. Who knows; they might end up having an epiphany and doing some amazing things.

In one story I read recently, someone who was working in an accounting firm went on to set up a company called Working Style. It is a wonderful company. It is the sponsor of the All Black suits, and it is a wonderful example of what might happen, as it was founded by an accountant. Maybe an accountant will be freed up from doing these prospectuses, and he or she might go on to found a company. Who knows? That gentlemen or lady with all that extra time—there are more and more ladies in the accounting profession now, I have found—could go out and create a new company. That would make New Zealand grow a bit faster and be more productive. In this day and age, when access to capital is very hard to get, those people may find a new lease of life.

Another interesting thing is not just the cost of raising capital or the saving of money with reduced prospectuses; it is much more than that. One of the biggest things is speed. There is no point getting capital to people if it is 3 weeks or even 3 days too late. Many companies fail not because they cannot make money in terms of profitability but because they cannot get any cash. At a time like this, with the credit crunch we have globally, the ability to access cash is critical. This legislation will allow companies to get cash faster.

💬 Dr Cam Calder: Extraordinarily good!

What extraordinarily good legislation! The unintended positive consequences of legislation like this are amazing. I do not think people have cottoned on to that.

Yes, this legislation will reduce compliance costs and reduce the need for companies to spend that $10,000 or $50,000. But, equally, it will mean that things will go faster. If venture capital investors want to have the ability to invest, they can not only do it at a cheaper rate but they can do it faster. They do not have to sit and wait for their lawyers or accountants to come back with 50,000 drafts of a 150-page prospectus or investment statement. They could probably get it done in an afternoon.

Companies that want access to capital from investors will, because of the exemptions in this legislation, get access to their funds faster. That might mean we save one or two companies that might be close to the edge, because they will be able to access funds faster, instead of going through major capital raising and all the required paperwork. How great would that be! Those are amazing unintended positive consequences of this legislation. If we can save one or two companies from going bust, that would be amazing.

I want to touch quickly on another provision in the legislation, which has been talked about, and that is the wealthy investor exemption. Well, I have been a wealthy investor—one finds a small fortune by starting with a large fortune! If a wealthy investor starts with a small fortune and does not know what to do, I can tell members that he or she will end up with no fortune very quickly. This legislation gives those wealthy investors the ability to front up and say that they are signing away their rights to have access to additional information. I want to leave it there. This is great legislation with amazing levels of unintended positive consequences, and I commend it to the House. Thank you.

The ASSISTANT SPEAKER (Eric Roy): The question is that the motion be agreed to. Those of that opinion will say Aye. Those of the contrary opinion will say No. The Ayes have it.

I raise a point of order, Mr Speaker. I seek your guidance. The bills are being voted on jointly, but the Green Party would like to have a different vote on each bill. Is there some way of being able to do that?

The ASSISTANT SPEAKER (Eric Roy): It would have been helpful if the member had alerted us to that and called for a party vote.

I did not realise the bills were going to be taken together.

The ASSISTANT SPEAKER (Eric Roy): In that case the member would be best to seek leave to have the vote put again.

I seek leave to vote on the Securities (Disclosure) Bill separately.

I raise a point of order, Mr Speaker. I understand that the Green Party member wants to vote separately on the two bills.

The ASSISTANT SPEAKER (Eric Roy): Yes, that is what the member has just sought leave for.

No, the member sought leave to repeat the vote on the Securities (Disclosure) Bill, but the actual vote was on the two bills together.

The ASSISTANT SPEAKER (Eric Roy): I think that is helpful. I ask the member to include in the seeking of leave that the vote be put again and that the two bills be voted on separately.

Thank you, Mr Assistant Speaker. I could not have put it better. I seek leave to have the votes taken separately and voted on once again.

The ASSISTANT SPEAKER (Eric Roy): We are clear now as to why leave is sought. Is anyone opposed to that course of action? No one is opposed. Leave is granted.