Securities Trustees and Statutory Supervisors Bill

I congratulate you, Mr Chair, as it is the first time I have spoken since you have taken on this new role. I welcome you back to it. I am happy to repeat my congratulations at a time when the Minister in the chair, the Minister of Commerce, is not distracting you, Mr Chair, from the effusive praise that I am heaping upon you. I could say anything right now and it would not occur to either the Minister or you. I could be breaking every Standing Order in the book. At least now we know that there is a small fault in his ability to multitask.

I will address Part 2 of the Securities Trustees and Statutory Supervisors Bill. I think it was important to spend a bit of time talking about Part 1 because it really sets out the general direction of the bill. I agree with the Commerce Committee’s inclusion of retirement villages under the general scope of this bill, particularly given that in the purpose, the importance of investor confidence has not changed.

It seems particularly timely that we are talking about investor confidence in the current environment. I do not think we can underestimate the importance of trying to improve in New Zealand investor confidence generally. We have seen in our economy the wider impact that a limited view of mum and dad investors on where their money is considered safe or otherwise has led to quite a skewed investor market. People are more interested in investing in bricks and mortar, as a consequence of several shocks that they have experienced over the past decade. It is important that confidence remains a primary purpose in legislation like this, even though it is dealing with a very specific part of investor confidence.

I will carry that matter through in my brief contribution today on Part 2 of the bill. Given that I am the first to address this part, I will give just a very brief overview. Under this part, the bill sets out the requirement to be licensed and to comply with a licence. It removes the automatic statutory approval for the six trustee corporations. It sets out that a trustee or statutory supervisor must hold a licence that covers a debt security or participatory security to which the appointment relates. A licence holder must comply with every condition imposed on that licence. It seems all relatively straightforward and a bit of a given, but, of course, legislation must always be clear in this regard. It is an offence for a person to act as a trustee or statutory supervisor without an appropriate licence, and for a person to represent that a person holds a licence that covers the security without their holding such a licence.

It gets a little bit interesting in clauses 9 to 18 of Subpart 1, which are about decisions on applications for licences. This is where the bill empowers the Securities Commission to license persons to be trustees when it comes to debt securities, statutory supervisors, etc. This is also where the commission has the ability to license persons to be statutory supervisors of retirement villages. The bill sets out that the Financial Markets Authority will take over that role when it is up and running.

Colleagues have already pointed out that we have a concern with the overlap that exists between this bill and other pieces of work in this area. Although we support this legislation, it is our view that we should have considered it as a wider package of the ongoing reform of financial products. In Part 2 we see an example of where that is an issue: there will be a transition period to the Financial Markets Authority, which is not yet established. I would have liked to see this regulation contextually debated rather than us talking about setting it out in provisions in Part 2, and then having to look at a transition period, particularly when the Securities Act review is also not yet complete. It is disappointing that we cannot do it coherently as one wider debate.

I think the issue with these provisions, which the Commerce Committee has drawn out, is that licences are issued for 5 years. The Commerce Committee recommended that this period be extended to 8 years to avoid uncertainty for issuers. Obviously, uncertainty when we are dealing in markets like this is an issue. So if the Commerce Committee thought it was good to extend the period of licences, why do we not hear that rationale in relation to the transitory period, where the Financial Markets Authority will later take over responsibility?

Tēnā koe, thank you, Mr Chair. I also congratulate you on your role as Chair of the Committee and of this particular debate. I intend to take only a brief call to really highlight some of the issues that have led to Labour’s position of supporting the Securities Trustees and Statutory Supervisors Bill. First of all, at the heart of the bill, the Minister of Commerce opened his comments by saying the bill is intended to protect the interests of investors, and we certainly understand that in the current economic climate, and as a result of the collapse of financial markets, we need to improve and strengthen legislation to ensure that investors are able to be protected in terms of their assets, and the investments they make.

At the core of this bill are some essential responsibilities of trustees that the bill comments on and aims to strengthen. Firstly, are trustees capable of performing their role? Can they perform their functions effectively? They should and must be held accountable for any failure to perform their functions as trustees. If we drill into the essence of what this bill is about, we find that it aims to provide protections and put measures in place to achieve those outcomes. That is why Labour is particularly pleased to support the bill’s intent.

In Part 2, in particular, I will comment on two aspects of Subpart 2. Clauses 24 to 26 are around the issue of monitoring and enforcement. Licence holders must report at regular intervals between 6 and 12 months from the issue of the licence, and once every 6 months after that, to the Securities Commission, particularly concerning the licence holder’s compliance with the terms of trust deeds and deeds of participation, and continued compliance with the requirements of eligibility to hold a licence. Anyone who has been a trustee understands that part of their role and function is to implement the terms of the trust deed.

That is a very important role. I have often had discussions with people who undertake the role of the trustee and struggle with getting their heads around the terms of a trust deed and what their actual responsibility is. That takes some self education on their part to read the trust deed and, secondly, to understand their full obligation as trustees in implementing the intent of that trust deed. So ongoing monitoring and enforcement in this area can only be a good thing.

The other issue I will comment on is the variation and cancellation of licences and the removal of trustees, in clauses 30 to 43 of Subpart 2 of Part 2. The bill enables the commission to vary a licence before the expiry of the licence, without the consent of a licence holder. I understand that one important reason for this is the way in which “material change of circumstances” is defined. I would appreciate some clarification from the Minister in terms of what leads his thinking around this particular change, and clarifying for my own part, as I was not a member of the select committee, how he envisages that this will improve aspects of the roles of trustees. For my part, again, I would appreciate that clarification from a Minister who certainly has his head around these types of issues, the level of detail, and the intent of the change.

Part of this change identifies that apart from extensive powers to vary licences, the bill also gives the commission powers to remove trustees and cancel licences. Again, just by way of asking a question of the Minister, I ask whether he foreshadows that this could be problematic; if not, and I am raising an issue that is completely off on a tangent, then I would be happy to be corrected. But it seems to me that there is quite a huge power there to be given to the commission to be able to remove trustees and cancel licences, but I can only suspect that that is in direct relevance to the way in which the trustee may not have carried out their duty and obligation with regard to the rest of the Act. I see the Minister nodding. In some part, by some great fortune, my inclination was correct on that.

This then certainly demonstrates, and confirms to me, that the Minister has given deep consideration to the changes required in this sector and they have been well-thought-through. I have appreciated his insight into the way in which the financial markets can be better regulated for the benefit of investors, and, ultimately, to ensure that there are greater regulations around the roles of trustees to be able to conduct their particular function with the utmost regard and responsibility to the role they have as trustee.

With that said, I think that members of our team have identified some questions, and we have appreciated the opportunity to continue to raise matters of interest. But can I say, from a layperson’s point of view, although this is a hugely technical bill, and I am not a member on the select committee, I do understand that people out there in our communities want a strong level of protection. I am delighted that the select committee gave some consideration to including retirement villages in this, because, quite simply, the Retirement Villages Act 2003 does not address the issues and the role of trustee, as this bill does. So although I understand that the submissions that came to the select committee were in part somewhat of two minds, after deep consideration by the Commerce Committee, its ultimate decision to include retirement villages, will, I think, protect those good old folks, those senior citizens, who are in retirement villages and have a particular interest in the ongoing management of the place where they reside. Kia ora.

The Hon Nanaia Mahuta raises an interesting question as to the issues—[Interruption] No, it was good. It was a good question as to why the obligations that the Securities Commission can inquire into do not relate to trustees but to licensees. There are a couple of reasons. The first is that licensees will have broader considerations to take into account—that is, statutory obligations that they may otherwise have that do not relate to the direct relationship between the trustees and beneficiaries or investors, which may occur as part of the mutual relationship that develops between those two parties. So what happens is that the “licensee” obligation, as opposed to the “trustee” obligation, imposes a wider obligation on those people who act in the capacity of statutory trustees, and also draws in the statutory obligations that they might have under other pieces of legislation that the Financial Markets Authority may or may not have interest in, as opposed to just the relationship between the trustee and the investor.

The CHAIRPERSON (Ross Robertson): The question is that the Minister’s amendments—

💬 Clare Curran: Mr Chair—

The CHAIRPERSON (Ross Robertson): Is the member calling? Members must call, and I refer members to Speaker’s ruling 25/5. Sometimes it is a bit hard to hear and it is important that members call.

💬 Clare Curran: My apologies, Mr Chair, but I did call. Perhaps I need to use more projection.

The CHAIRPERSON (Ross Robertson): I call the honourable member.

I will do my best to shout into the microphone more often. In respect of Part 2 of the Securities Trustees and Statutory Supervisors Bill, I would like to refer in particular to the provision that applies to retirement village statutory supervisors. I would like to return to that issue, particularly given the fact that the Minister of Commerce is the Minister in the chair. I refer particularly to the provision that the retirement village statutory supervisors come within the ambit of the licensing regime that is established by the bill. This, I think, does remain an important issue, and a slightly thorny issue, if I can use that expression. It is one of the reasons why we still continue to question this.

I am still grappling with the complexities of the issues that came before us at the Commerce Committee. Clauses 9 to 18 empower the Securities Commission to licence persons to be trustees in respect of debt securities, statutory supervisors in respect of participatory securities, and trustees in respect of unit trusts. The commission may also licence persons to be statutory supervisors of retirement villages. We note that the Financial Markets Authority will take over this role when it is up and running. That is one of the reasons why we have questions—particularly given the submissions that came before the Commerce Committee and the kinds of thorny issues that arose around the impact on the residents of retirement villages—and one of the reasons why we thought this issue and this particular legislation should be parked at the select committee.

As I have said, there were a number of submissions on that point. We did support the inclusion of retirement village statutory supervisors in the licensing regime, because to exclude them meant that the residents of those retirement villages would receive less protection. Although we think that is anomalous and undesirable, we are also concerned about the potential impact on the residents of retirement villages. As we know, those people are on fixed incomes, and the importance of determining what additional costs that regime may impose on retirement village residents was important, because those costs could be passed on to the residents.

We still remain somewhat conflicted by the impact of the new regime and why we think that that issue still needs more consideration, which is another very good reason why it should be parked. I repeat that we support the legislation, but we have concerns about that issue. I want to continue to reiterate those concerns around the potential and direct costs to retirement home residents.

I speak as the member of Parliament for Dunedin South. There are a number of retirement homes there, and I think the impact of anything that will raise costs for those residents is pretty important. It is possible that a licensing regime would increase the number of statutory supervisory firms in the market. That would lead to increased competition, which could affect base rates charged by statutory supervisors and lead to an overall reduction in fees. So there is that possibility, but there is also the possibility that it could end up increasing fees, and that is one of the reasons why Labour remains concerned about this.

I move, That the question be now put.

Before I get into the detail of Part 2 of the Securities Trustees and Statutory Supervisors Bill, I need to remind the Government and anyone who is listening that Labour supports this bill. Reform of the ways that trustees and statutory supervisors operate is essential for the prevention of another financial collapse, and there does need to be greater transparency in this area, as has been evidenced by the Government’s handling of South Canterbury Finance—

💬 Jo Goodhew: Stick to the bill.

I will bring it in—I need just to remind the Committee that it is relevant to what we are discussing today, and that the collapse of South Canterbury Finance was the largest financial collapse in New Zealand’s history.

I turn to the provisions of Part 2. The bill removes the automatic statutory approval for six trustee corporations. A trustee statutory supervisor or unit trustee must hold a licence that covers the debt security, participatory security, or unit trust to which the appointment relates. A licence holder must comply with every condition imposed on a licence. Part 2 outlines that it is an offence for a person to act as a trustee, statutory supervisor, or unit trustee without an appropriate licence and for a person to represent that a person holds a licence that covers a security, without holding such a licence. We think that is very important on this side of the Chamber.

The bill empowers the Securities Commission to licence persons to be trustees in respect of debt securities, statutory supervisors in respect of participatory securities, and trustees in respect of unit trusts. The commission may also licence persons to be statutory supervisors of retirement villages. The Financial Markets Authority will take over this role when it is up and running. I think that goes back to what we were concerned about before, that maybe this is a little bit premature considering that there are other things coming up that are relevant to what we are discussing in this bill.

Part 2 sets out the criteria under which licences may be granted, provides that licences must be issued for a period no longer than 8 years, and provides that licences may be varied. The bill as introduced provided that licences are issued for 5 years, but the Commerce Committee recommended that this be extended to 8 years to avoid uncertainty for issuers, operators of retirement villages, and also licence holders. The commission may issue or vary a licence only if it is satisfied that: “(a) the applicant is—(i) a body corporate that is incorporated in New Zealand; or (ii) an overseas company (as defined in the Companies Act 1993) registered under that Act: (b) every director and senior manager of the applicant is of good character:”, as defined in clause 15. The Commerce Committee recommended including a regulation-making power to provide for the matters the Securities Commission and the Financial Markets Authority must take into account in making a good-character assessment. Then, finally, the applicant either “(i) is registered under the Financial Service Providers (Registration and Dispute Resolution) Act 2008; or (ii) complies with section 13(a) and (b) of that Act:”, as stated in clause 15(1) and (2). Clause 15(3) sets out in detail the factors the commission must take into account in deciding to issue or vary a licence, including things like the skills and financial resources available to the applicant, governance structure, and other things.

The monitoring and enforcement aspects of Part 2 are quite interesting. Licence holders must report to the Securities Commission at regular intervals between 6 and 12 months from the issue of the licence, and then once every 6 months after that date, particularly concerning the licence holders’ compliance with the terms of trusts, deeds, and deeds of participation, and continued compliance with the requirements of eligibility to hold a licence. The bill provides that the commission may require a licence holder to submit an action plan if the commission is satisfied that the licence holder has breached, or is likely to breach, a trustee obligation, or if a material change of circumstances has occurred.

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 2 be agreed to.

Amendments agreed to.

Part 2 as amended agreed to.

Part 3 Commission’s functions in relation to issuers and operators