Securities Trustees and Statutory Supervisors Bill

I rise to speak on Part 1 of the Securities Trustees and Statutory Supervisors Bill. One of the concerns I have regarding this legislation is the same concern that I expressed when we debated its first reading in the House—that is, whether we are following the right sequence, or the right order of play. To my way of thinking, the Review of Securities Law should have come first, followed by the establishment of the Financial Markets Authority, followed by consideration of this bill. This bill should have been wrapped up in the review of the legislative framework.

When the Commerce Committee sat for the first time after the 2008 general election, it was not very long before we had a briefing from the Ministry of Economic Development. I will never forget the briefing we had from the Registrar of Companies, because it really opened our eyes to a lot of the things that none of us had really seen before. It was a stark picture of who was supervising the finance companies that failed. There were two issues of concern: one was the trustees and the other was the auditors. We will still be dealing with those issues in our select committee over the next few weeks.

The issue for me was that we always talk about there being no regulation for finance companies, but that is not true. There was regulation for finance companies; it just was not strong enough. The regulatory supervisors under the former regime were the securities trustees. They were the ones who were responsible for overseeing decisions that were being made by finance companies, and for what was not being advised to the public by way of very convoluted arrangements, inter-party lending, and all sorts of things that should never have been allowed to escape the scrutiny of the supervisors. That is what made me wonder whether this was the right thing to do.

I am kind of agnostic about it. The Labour Opposition will not vote against the legislation—we will let it go through—but I think it is important to remember why it is important to do a proper regulatory impact analysis whenever one is dealing with the regulatory frameworks that have to stand the test of time. What preceded the finance company failures obviously did not stand the test of time, and that is my strongest concern about the approach that we have adopted with this legislation. Labour will not oppose it, but I just think we have to be very cautious.

I would almost say to the Government that it should hold this bill back on the Order Paper. There is nothing wrong with getting the Committee stage out of the way so that it has just a third reading to go, but the Government should just wait until after the exposure draft comes out on the securities legislation, which will perhaps be introduced in October, we now hear. The exposure draft is coming out in August, so my strong advice to the Minister of Commerce is that he hold this bill at the end of the Committee stage and then have a serious rethink as to whether this is the structure to take us forward.

I have some serious doubts as to whether the securities trustees regime is the right one for New Zealand, particularly in light of the legislation that we were debating only a few minutes ago. The Financial Markets Authority will have a new role, and I am just wondering whether we have created an unnecessary tier of supervision when it could be undertaking that role directly.

Labour will not be opposing the passage of this bill, but I make a plea to the Government to think very carefully about whether this is the direction we want to go in. I have no objection to the philosophy of supervising the supervisors, but also I like to make sure that compliance costs are reduced. An unnecessary tier of bureaucracy may, in fact, be just as bad.

I will just develop that theme a little. I agree with the previous speaker, the Hon Lianne Dalziel, that it might be wise to put the Securities Trustees and Statutory Supervisors Bill on the back-burner for a little bit. Labour is not opposed to the idea of there being oversight of those who are responsible for the supervision of securities—securities trustees and statutory supervisors—but I take the Hon Lianne Dalziel’s suggestion that this oversight might fall within the ambit of the Financial Markets Authority rather than a separate entity.

💬 Hon Lianne Dalziel: Or the Securities—yes, the Financial Markets Authority.

The Financial Markets Authority rather than a separate body.

The issues of cost are very relevant. One of the problems we have in New Zealand’s capital markets is that, through compliance costs, the cost of raising capital can be too high. There have been some terrible problems and practices in respect of finance companies, and we had a good discussion about those in debate on the Financial Markets (Regulators and KiwiSaver) Bill, which was discussed previously. There was far too much related-party activity. People were effectively lending moneys to things that they had an interest in, and they were effectively reaping the financial benefit of very risky transactions, if they went well, on the back of relatively low interest rate investments by naive investors. The New Zealand regulatory environment did not protect those investors by making sure they were properly aware of the risks they were taking, and the regulatory settings did not enable the regulators to burrow into what was happening in a way that would have exposed it earlier and would, therefore, have minimised the loss. I am not one of those people who think that we can avoid risk, and I am sure that no one on our side of the Chamber—nor, indeed, anyone in the National Government—thinks that. But we ought to appropriately highlight risk, and in those cases we were not doing so.

Having said that in respect of finance companies—the lack of information that was provided to investors, the lack of regulatory oversight of the poor practice within those finance companies, and the failure to pick up related-party investing—I find it galling that some of the people who have ripped off people this time had prior form for having done so previously. Despite the failures in the legislation, I will not let our regulators off the hook completely. With regard to our regulators—and I include the auditors and statutory supervisors of some of these finance institutions—and the regulatory bodies that oversee finance companies, I find it hard to accept that no one looked at the people who had prior form and who had done something similar to rip off investors in earlier incarnations. I would have thought that those people, particularly, should have had the heavy hand, or the intense scrutiny, of the regulator in a way that might have prevented some of the losses.

Having said all of that, we have a problem with the expense of raising capital for new ventures that are not finance company - related ventures. We need to take care that we do not overly regulate that space, because we want to encourage innovative enterprises in New Zealand to thrive. One of the things they need in order to thrive is access to capital, which should be available to them through accessing retail contributions from people who want to invest in their companies. We ought not to make it too expensive for people to produce prospectuses that are easily understood and that properly describe risk. The impediments that we put in the way by increasing their compliance costs hold back New Zealand business in a way that we on this side of the Chamber do not want.

We say in respect of this matter that we just need a bit of a breather now. We are dealing to the big problem in respect of finance companies and it feels like it is relatively under control—is it not, I ask the Hon Lianne Dalziel—in respect of the legislative fixes that are on the way. The finance company things that have gone wrong in previous years are on their way towards being fixed, to the extent that they can be through regulation. I am looking to the Hon Lianne Dalziel because her expertise in these matters is greater than mine. We have to make sure that in terms of the fixes we have in that part of the market, we are not over-regulating the raising of new capital for inherently risky equity investments in respect of new technology businesses.

These businesses need to raise capital to expand. That is a hard ask for these businesses. They have to expand into export markets while they are quite small because the New Zealand market, in respect of some of these niche products, is so small. New Zealanders have these nascent businesses that are being developed to commercialise exciting ideas that can produce export earnings for our country, and at an early stage in the development of those businesses they want to sell those products and services offshore.

That, in turn, requires quite a bit of capital. They need to raise that capital. Banks will not lend it to them. Unless it is secured over real property, banks are not likely to lend capital to businesses, and therefore they have to raise it from new shareholders who are willing to invest. If our rules are so restrictive that we limit the pool of likely investors, we are doing a disservice to our economy. I do not accept that the only people who should be able to invest in high-risk companies are the ones who are already very wealthy, because they are able to lose their money and able to better assess risk. I do not like a securities system that effectively forces everyone to be professional investors, rather than enabling ordinary people in New Zealand to have a stake in the outcome of our commercial enterprise. I want to facilitate that.

I do not want to avoid risk for people. I want, simply and relatively cost-effectively, to describe risk to those people so they can take that decision. If they take that decision and it turns out to be Microsoft, they will be wealthy. If it turns out to be Fortex, Feltex, or a company like that, they will lose their money. People who invest sometimes lose their money. I do not want to prevent people from having the opportunity to raise money to expand these businesses, which we need to improve the breadth of New Zealand’s exports, by having inappropriate securities laws.

New Zealand has a problem in terms of the breadth of our exports. It is true that the rural sector is going gangbusters at the moment, with the highest-ever commodity prices and a relatively low dollar currently, compared with where it was 6 months ago. But that is not enough for New Zealand to bridge the wage gap with Australia. To afford the sorts of social services that we like in our health and education systems in New Zealand, we need to build the breadth of our exports.

In order to build the breadth of our exports we have to enable those companies to raise money. We must make sure that in properly regulating some of the poor conduct we have had in finance companies and other financial intermediaries, we do not stop the small companies being able to access capital from people who are not their family and from people who are not the wealthiest individuals in New Zealand. They collectively could all invest $5,000 each, if they had it, to raise $250,000. It would take 50 investors at $5,000 each to raise $250,000 to get these nascent companies operating and expanding to their next level of expansion. The compliance costs at the moment for raising capital are already too high, partly because of our ridiculous financial reporting rules and the audit rules around them, which need to be simplified. I hope that we take a wee break before we entrench some overly high costs through this particular bill.

Having said that, I say that we agree with the intention of the bill. We are just suggesting that maybe it could sit on the Order Paper once it goes through the Committee stage, awaiting an exposure draft of another piece of work that has been done by the Minister, which might be able to tidy up these things at the same time.

I will talk to Part 1 of the Securities Trustees and Statutory Supervisors Bill. I reiterate what my colleagues have said about our supporting the legislation, but also the importance of taking a bit of a breath around it and perhaps taking a sensible and logical approach to how it is progressed into law.

I will expand on some of the comments made by the previous speaker, my colleague the Hon David Parker, around the inappropriate securities regulation and the risk of it affecting capital coming into the country and the ability of new businesses to attract capital. It is extremely important that we have consistency on practice across our legislation and across our intent in terms of the signals we are sending to business. On the one hand we have this bill. We are saying we should take a deep breath, leave it sitting on the Table, and wait for the rest of the legislation to come through, so that it has some logic around it. But, on the other hand we have another piece of legislation before the House, the Telecommunications (TSO, Broadband, and Other Matters) Amendment Bill, which is putting in place a 10-year regulatory holiday. This regulatory holiday is essentially open slather, and allows one part of the industry to get a benefit in order to progress a Government policy.

The industry that my colleague David Parker referred to is critical to our country’s future. The new innovation, high-tech industry is currently worth nearly $20 billion to the New Zealand economy, and of that $20 billion, $5 billion is export earnings. It is absolutely critical that we put in place legislation—this is where the Securities Trustees and Statutory Supervisors Bill is relevant—that has coherence in terms of the policy direction and the signals that this Government is sending to the market place. Those export earnings are critical. If we are to progress as a nation, we need to look at how our innovation and our innovative creative industries and technological industries can maximise leverage in terms of building on that export base. Therefore, the ability to bring in new capital is critical.

We have referred a few times to the fact that Labour will support this legislation because it forms part of the ongoing reform of financial products and providers, which was started by Labour and has been continued by the National Government. I pay tribute and give credit to my colleague Lianne Dalziel for progressing this bill and all the other legislation that it is linked to, because it is carrying on that very good work. Lianne Dalziel’s work has set the groundwork for that. I also commend the Minister of Commerce, Simon Power, for his sensibleness in the way he has progressed the legislation, although we ask that he listens to what we are saying around putting this bill on hold.

The bill, as we have heard, removes the automatic right for the six previously statutorily approved trustees to supervise issues of debt securities in some investment schemes. It introduces a licensing regime for trustees that are to be run first by the Securities Commission and then by the Financial Markets Authority. That is why we are saying the Government should put the legislation on hold. Under that new regime all trustees, statutory supervisors, and unit trustees must be bodies corporate and their directors and senior managers must be of good character.

Retirement village statutory supervisors have been included in the regime, in recognition of the similar role that they play to trustees in monitoring the financial position of retirement villages. There was quite a lot of discussion in the Commerce Committee about retirement villages. We heard a number of people express the view that the Retirement Villages Act 2003 already provides sufficient protection for retirement village residents. However, the committee decided that retirement villages should be included to ensure that residents receive the same protection as people with financial interests in securities. Most of the submissions related to the costs, and the committee recommended that the Government’s costs be reviewed.

The bill also contains a number of provisions designed to ensure that trustees, statutory supervisors, and unit trustees comply with their obligations. The Securities Commission may seek pecuniary—

Sitting suspended from 6 p.m. to 7.30 p.m.

Thank you—

💬 Hon Simon Power: He’s back.

He is back. I think I earlier passed on my congratulations to the new Assistant Speaker, Ross Robertson, but also I welcome back the Minister in the chair, the Minister of Commerce. It is great to have him in the Chamber while we talk about this bill.

I will quickly recap on what I was saying. Although Labour supports this bill, we have expressed our reservations about the need for it to be passed right away, and the importance, as we see it, of parking it while other measures we know are coming are put in place in respect of the Financial Markets Authority. We think it is precipitous to pass it as it stands at this point.

One of the things that my colleague the Hon David Parker talked about earlier tonight, on which I particularly agree with him, is the possibility and the spectre that this legislation raises of the stifling, I suppose, of the potential ability of companies, particularly those with export capacity in our new technology areas and innovation sector, to raise capital in this environment. That possibility needs to be looked at.

Before the dinner break I was talking about one of the significant issues that appear in this bill: the issue of whether retirement village statutory supervisors should be included within the ambit of the bill. I put on the record again—the Minister might like to comment on this—that this is another reason why this bill should perhaps be parked for a later date after the Committee stage. As I and my colleagues have said, we support the bill, but this issue is another complex issue that needs more consideration.

We considered carefully whether it was appropriate to bring retirement village statutory supervisors within the bill’s ambit, as we are aware of the view that the Retirement Villages Act 2003 already provides protection for retirement village residents. This part of the bill received quite a lot of attention and quite a lot of consideration by the select committee, and a number of submissions were made on it. On balance, we supported the inclusion of retirement village statutory supervisors in the licensing regime, because excluding them meant that residents of retirement villages would receive less protection in certain aspects than people with a financial interest in a security. We considered that that would be anomalous and undesirable.

The Retirement Villages Act is inadequate on its own, because it lacks the sanctions against poorly performing statutory supervisors. The monitoring and sanction regime proposed by the bill would address the types of deficiencies identified in the 2009 report by the Retirement Commissioner.

A number of submitters raised concerns about the additional compliance costs that would be associated with this bill. But it is outside of the scope of this bill to address that issue, which is one of the reasons why we think that the bill, due to its complexities, should be parked on the Table.

Part 1 of the Securities Trustees and Statutory Supervisors Bill establishes the purpose of the bill, which is “to protect the interests of security holders, and”—as the member pointed out—“of residents of retirement villages, and to enhance investor confidence in financial markets and retirement villages,”. As members will be aware, a little-used provision in the Standing Orders that relates to cognate bills has, as we discovered some time ago in another piece of legislation, enabled us to mesh this bill and the Financial Markets Authority legislation together for the purposes of their first, second, and third readings, but, alas, not in the Committee stage, so we are dealing with this bill separately from the other legislation at this time. But the idea behind that little-used provision is that the substantive debate about each of those bills is so inextricably linked to the other that it would waste the House’s time to deal with them separately. Those matters so overlap that it makes sense to deal with them together at their first, second, and third readings. However, because that is not able to be the case in the Committee stage, we are dealing with this bill separately now.

There is a Supplementary Order Paper in my name that replaces references to the Securities Commission with references to the Financial Markets Authority to reflect the fact that they are being dealt with as cognate bills. It also inserts references to the KiwiSaver Act to include non-restricted schemes within the licensing regime. A non-restricted scheme is a KiwiSaver scheme whose manager is the issuer of interests in that scheme, rather than the trustee.

The background to this legislation is simple. When I first became the Minister of Commerce, one of the issues I was most concerned about was how the front-line regulator had behaved—or not behaved, for that matter—during the collapse of so many finance companies. I extracted the work done on trustees and custodians from the broader Securities Act review, and said that I would bring it forward and deal with it ahead of that review. If it is the Committee’s wish that the bill passes through the Committee stage tonight, then we will be able to do that in a prompt and efficient way.

One of the things I asked early on of officials in respect of this particular role of the trustees, though, is: what if we did not have them? What if the front-line regulator role that they had played was just removed from the equation? The reliability of the front-line regulator to talk to investors about product and how it was classified, and to protect—“protect” is a strong word—or oversee and supervise the investment was the relevant job of the trustees. I came close to asking that question in a legislative sense. In other words, what value does it add for the investor to have the corporate trustee in the model?

Things had to change. The passive role that the trustees had adopted up until recently was not going to satisfy me or this Government or, I imagine, for that matter, any party in the House that they were adding value and oversight to investors’ decision-making. In fairness to the Trustee Corporations Association, they came to me and said that they were prepared to change the way they did business. This bill is a result of those discussions. The Commerce Committee has looked at it carefully, and I was persuaded at the last minute that it was worth keeping them and it was worth proceeding with this legislation. The select committee has done a good job of getting into the detail of those issues. But the sticky issue for the Committee, and, frankly, for the Government as well, was the issue of retirement villages. I understand that this issue causes some consternation to members of the industry, but the truth is this: if a security is being issued by way of a licence or some other instrument for those living in a retirement village, they deserve the same protection as those who are purchasing a plain security, or a security as we know it, in terms of the capital markets or, for that matter, private markets. If the money and the instrument are being overseen by a front-line regulator, then they also deserve the protection of legislation in the context of retirement villages. The Government moved, and I note that the select committee has recommended continuing the inclusion of retirement villages in this legislation.

This, funnily enough, was the first step we took for investor protection. It is now inextricably linked to the Financial Markets Authority, which in itself is inextricably linked to the wider Securities Act review, but progress is being made and I am grateful to members of the committee for their assistance on that.

I thank the Minister of Commerce for getting up and clarifying those issues. It is good to see the Hon Simon Power take a call on this bill because, as we heard from Simon Bridges a while ago, 40 percent of the legislation that has been put through by the National Government has been in the name of Mr Power. It will be sad to see a hard-working Minister leave, and we all wonder why the Hon Simon Power has decided to leave. I suspect that he is sick and tired of carrying the rest of his colleagues.

As the Minister mentioned, it may be a little bit confusing for those people who have followed this bill. In the first reading debate we talked about the Securities Trustees and Statutory Supervisors Bill, then we brought it together with the Financial Markets (Regulators and KiwiSaver) Bill, so now in one speech we are talking about two quite large bills. As the Hon Simon Power said, it is quite unusual to wrap two bills together. However, we did that because the bills were quite similar in their intent.

At the moment in the Committee stage we are talking about just the Securities Trustees and Statutory Supervisors Bill. I come back to Part 1, and I agree with something Mr Power said. As we know, many, many New Zealanders were rorted of their life-savings due to what I believe was negligence, perhaps incompetence, and I will not go any further than that—[Interruption]—yes, let us say negligence—on the part of a lot of the trustees or statutory supervisors managing the financial companies, etc. What was needed to return confidence back to the market, and to give New Zealanders confidence that they could come back to the market, was legislation that would ensure that trustees and statutory supervisors could effectively perform the functions of trustees and statutory supervisors.

Clause 3 sets out the purpose and states: “The purpose of this Act is to protect the interests of security holders, and of residents of retirement villages,”. That is most important, and I say that because there is a very wide perception out there—and I am one who holds this perception—about the interests of security holders. I do not know much about residents of retirement villages, but certainly the people who have come into my office, and the people I liaise with who lost their life-savings, had the perception that they were not well looked after by their statutory providers. I continue reading clause 3, which goes on to state: “and to enhance investor confidence in financial markets and retirement villages,”. It then sets out three means for doing so: “by—(a) requiring persons who wish to be appointed as trustees or statutory supervisors to be capable of effectively performing the functions of trustees or statutory supervisors;”.

It may seem that that is common sense. Of course we want the people who have been appointed as trustees or statutory supervisors to act in a competent manner, but what happened was that they did not perform in a competent manner. They did not undertake their duties. I must say here that I do not want to stereotype every single trustee or statutory supervisor, because no doubt there were some who did their work with diligence—

💬 Hon Simon Power: Very good ones.

Yes, there were some very good ones, so I do not mean to bring every single statutory supervisor or trustee into this. When I am maligning certain companies, I think a lot of people know who or what I am talking about. A number of them have appeared before the courts, a few of them have been sentenced, and some have yet to come before the courts and, hopefully, be judged by a jury of their peers. What we need to do for every single New Zealander who has lost faith in our capital markets is ensure that confidence exists.

There is risk every time people invest, in any sort of investment, and a prudent investor understands that risk and will manage that risk. That is why they get a rate of return over and above the risk-free rate of return. If we wanted no risk whatsoever, we would invest in US Treasury bonds or something like that, or put the money in Kiwibank—something with absolutely no risk. But there are organisations that pay an interest rate above the risk-free rate of return, and the question then is about pricing risk. It is up to investors to understand that and manage it. One of the risks I believe they should not have to take into account is the risk of negligence or incompetence on the part of the statutory supervisors or the trustees. That is a risk that is never taken into account, because it is incredibly difficult to quantify.

I am pleased to take a call on the Securities Trustees and Statutory Supervisors Bill. I appreciate the Minister in the chair, the Minister of Commerce, taking part in the discussion, as he did earlier, and his explanation of the link between this bill and the Financial Markets Authority legislation. They are pretty inextricably linked. That is pretty hefty legislation that we will be getting to, hopefully, later on this evening. Certainly, I appreciated the explanation of the cognate legislation and the navigation through the intricacies of parliamentary process.

I reiterate that Labour is supporting this legislation. As my colleague Stuart Nash just said, this legislation is designed to restore confidence in our financial markets, and to make sure they operate in a way that enables people who are investing to have real confidence that the thing that happened, unfortunately, to tens of thousands of New Zealanders in the crash of a lot of our financial institutions is not repeated. Many of our citizens, particularly older citizens, lost their life-savings, and were put in a position where they were unable to re-earn those savings. As younger people we might have a second or third chance, but as an older person we do not have that chance.

I am particularly pleased that the Labour Party is able to support the legislation. I thank the Minister, the Commerce Committee, and the officials for working so diligently to bring it together. It is complex legislation.

We are supporting the legislation because it forms part of the ongoing reform of financial products and providers that we started under the Labour Government. It is now being continued seamlessly under National, and I am pleased that has happened. I think both parties, as do all people in this Chamber, agree on the need to make the financial markets much more secure for ordinary New Zealanders.

To reiterate, the purpose of the bill is to protect the interests of investors and enhance investor confidence in financial markets by requiring people who wish to be appointed as trustees or statutory supervisors to be capable of performing the functions of trustees or statutory supervisors. The crux of the issue is that that has not happened in the past. People have not performed that function adequately, and as a result the situation over the last couple of years was able to arise. The bill enables trustees and statutory supervisors to be held accountable for any failure to perform their functions effectively. In effect, it puts the onus on those people to ensure that the institutions that they represent, or the trusts they are involved with, perform effectively.

As I said before, some of the preparatory work was started under the Labour Government. This bill was introduced in December 2009. It is now 16 months since then, and I am really pleased that the bill will, I hope, go through its remaining stages fairly smoothly tonight and in its subsequent reading.

The bill will provide a regime that supervises, in effect, the supervisors. It looks after those people who are entrusted with supervising the various trusts and trustees of institutions. Although the role of trustees was included in the review of financial products and providers undertaken by the Labour Government, there are still further concerns about the model of supervision they provided. Those concerns were raised, as I said, by the string of finance company collapses.

I go back to what the Minister in the chair, the Minister of Commerce, said about the reason for linking the bills together and his justification for that. As he knows, Labour is supporting the Securities Trustees and Statutory Supervisors Bill, but we are arguing—I think quite justifiably so—that this particular bill is being progressed prematurely. That is because it could have waited to be wrapped up with the Securities Act reforms and the establishment of the Financial Markets Authority. The Minister might not agree with that idea, but my colleague the Hon Lianne Dalziel talked a lot about the logic of it earlier.

As the Financial Markets (Regulators and KiwiSaver) Bill is also being progressed at the same time, it might minimise some of the confusion when the bill becomes law, but it is concerning that the Securities Act review deadline has been delayed until 2011. A number of my colleagues have talked tonight about the Financial Markets (Regulators and KiwiSaver) Bill in relation to the things that have not been addressed yet, the importance of addressing those things, and the order that they are done in.

I take the opportunity while the Minister is in the Chamber to quickly recap something I said earlier about the issue of taking responsibility. He referred to that issue with regard to the Financial Markets Authority, which is the new authority replacing the powers of all those agencies. He talked about all the agencies having a staring competition—those are the words he used—and those agencies not taking responsibility for all of their various responsibilities. In terms of taking responsibility and practising what one preaches, I draw a comparison between that example and the mishandling of the South Canterbury Finance collapse, which was the largest financial collapse in New Zealand history. It is one of the reasons why we are talking about this legislation, and it is why both pieces of legislation are before the Committee. The issue of taking responsibility is really critical.

A number of my colleagues have also talked about that issue tonight. After various trusts connected with Allan Hubbard, as well as Hubbard himself, were put into statutory management by the Government, South Canterbury Finance was unable to have the confidence of investors that it needed, which contributed to its demise. There are serious questions about why South Canterbury Finance was not put into statutory management, and why the Retail Deposit Guarantee Scheme coverage was extended despite the negative rating and the state of the audited accounts.

Labour supports the Securities Trustees and Statutory Supervisors Bill. I wish we could make the names of our bills a bit simpler—

💬 Hon Member: Just for you, Clare!

Just from a plain English point of view, and from a financial literacy point of view. That is another issue that has been raised in this Chamber a lot tonight, so it is not actually a joke. The issue of financial literacy, and the ability of the ordinary person out there to understand the importance of this legislation and the other legislation we are talking about tonight, is actually really critical. Understanding and de-jargonising our legislation is quite a critical issue. I hope the Minister will support me on that.

Labour supports the bill because reform of the ways that trustees and statutory supervisors operate is essential for the prevention of another financial collapse. We have talked tonight—and on various other occasions when debating this legislation—about how all of these collapses happened, why they happened, and what we are doing about it. We want to prevent more collapses happening. That is why the issue of taking responsibility is so important. There needs to be greater transparency in that area, as has been evident from the Government’s handling of the South Canterbury Finance collapse.

I move, That the question be now put.

There is still some more to discuss on Part 1 of the Securities Trustees and Statutory Supervisors Bill before moving on to Part 2, so I thought I would stand to take a call. It is a bill I am particularly interested in. I have been having quite robust discussions with my colleague Nanaia Mahuta on this particular bill.

To start off, as I have just come to the Chamber, I will state very clearly Labour’s position on the bill before I get into the specifics and the detail in relation to Part 1. Just in case members are in any doubt, I say that Labour will be supporting this legislation, as it forms part of the ongoing reform of financial products and providers started by Labour and continued by National, although we consider it to be premature as the Financial Markets Authority is not yet established and the Securities Act review is not complete. The legislation is being passed ahead of other decisions that will impact on the whole regulatory framework, and that is a concern for us.

We acknowledge that this bill addresses a number of the weaknesses in the current supervision regime for corporate trustees and statutory supervisors. It establishes a licensing regime for the trustees and supervisors of securities and retirement villages. The regime will be administered by the Securities Commission until the Financial Markets Authority is established. We support the bill, but not without concerns. As I said, it is being passed ahead of other decisions that will impact on the whole regulatory framework.

I will get into the specifics in relation to Part 1, because I am sure that is what you want me to do, Mr Chair. Part 1 contains the preliminary provisions; it contains the purpose and the interpretation. Looking at the purpose of the bill, we see that the bill purports to protect the interests of investors and “to enhance investor confidence in financial markets … by—(a) requiring persons who wish to be appointed as trustees or statutory supervisors to be capable of effectively performing the functions of trustees or statutory supervisors;”. We find that purpose very interesting. As I said, my colleague Nanaia Mahuta and I were having quite a detailed discussion about this. The bill also intends “requiring trustees and statutory supervisors to perform their functions effectively;” and “enabling trustees and statutory supervisors to be held accountable for any failure to perform their functions effectively.” That really is the gist of Part 1 and the purpose of the bill.

The law is being changed to provide for a regime that supervises the supervisors. Although the role of trustees was included in the Review of Financial Products and Providers undertaken by Labour, further concerns about the model of supervision they provided were raised by the string of finance company collapses. Concerns included perceptions of trustees’ lack of independence and capability.

The bill contains a number of provisions designed to ensure that trustees and statutory supervisors comply with their obligations. The Securities Commission may seek pecuniary penalties and compensatory orders against those who fail to comply. Under the bill, trustees and statutory supervisors are required to report to the Securities Commission any breach or potential breach of any issue or obligation, and notify the commission of the steps they intend to take as a result. It also requires that they report to the Securities Commission when any issuer they supervise is likely to become insolvent, and that they notify the commission of the steps they intend to take as a result. It also requires that when requested by the Securities Commission they attest as to issuers’ compliance with issuer obligations. In circumstances where they cannot so attest, they must state the reasons why.

The bill is being progressed prematurely. We could have waited to wrap it up with the Securities Act reforms and the establishment of the Financial Markets Authority. However, since the Financial Markets (Regulators and KiwiSaver) Bill is also being progressed at the same time, this may minimise some of the confusion when the bill becomes law. It is concerning that the Securities Act review deadline has been delayed until 2011.

I move, That the question be now put.

Motion agreed to.

The question was put that the amendments set out on Supplementary Order Paper 223 in the name of the Hon Simon Power to Part 1 be agreed to.

Amendments agreed to.

Part 1 as amended agreed to.

Part 2 Regulation of trustees and statutory supervisors

The CHAIRPERSON (H V Ross Robertson): I say to members that this is debate on clauses 6 to 43A, and I expect members to address those provisions.