Securities Trustees and Statutory Supervisors Bill

It is my pleasure to be the first speaker on Part 3 of the Securities Trustees and Statutory Supervisors Bill. Unfortunately I did not have a chance to speak on Part 2, which was most disappointing for me because I had a number of matters that I wished to raise under Part 2. I may take a little bit of liberty and mix in my contribution on Part 2 into Part 3. I expect that Mr Chairperson will accept that. I have spoken only on Part 1, so he may allow me to move around the parts just a little bit. I am sure my colleagues will stick with me as I do that.

The point I would like to raise is that there is an issue about the level to which this bill mixes up subjective and arbitrary judgments and the issuing and varying of licences. I think that probably some of the best examples of that sit in Part 2. But I am sure this is an issue that extends across the bill. If I were to draw the Committee’s attention to a couple of examples of that, I think probably some of the best sit around the issue of looking at the competency, the credibility, or what is called the good character of applicants when applying for a licence or to vary a licence. I would be interested in the Minister’s view or any contribution from the members who sat on the Commerce Committee as to the amount of discussion on what kind of criteria would come under the idea of good character. When we look at other legislation, often we will see that select committees, or indeed Ministers themselves, will set out in draft legislation other ways to measure this idea of good character that is relevant to the legislation. For instance, for an alcohol licensing authority, a measure of good character is whether one has had any alcohol-related offences. For the prostitution reform legislation, where licences were issued, the best way to measure good character was deemed to be whether one had committed any criminal offences, in particular gang-related offences or violence-related offences, because that was specific to the industry for which the individual was seeking a licence.

However, with this bill we see a mixture of measures between whether, for instance, individuals are registered under the Financial Service Providers (Registration and Dispute Resolution) Act or whether they are registered with the Registrar of Retirement Villages—those are very criteria-based judgments to be made. They are set out; they are clear. There are many more subjective ones, which I do not think there is much of a steer on in the bill. I would be interested if the Minister has some views on what they might be and if he could put them on the record, for the sake of Hansard. If other members of the Commerce Committee could give us a little bit of further background on this issue, I would find that particularly helpful.

There is one other issue that I wish to seek some clarity on, and it sits around someone who seeks a review of a commission’s decision on an application. This is an important issue in the bill. What level of disclosure is expected to be given to an individual who is dissatisfied with the commission’s decision? This relates particularly to the issue that the decisions being made might be subjective. For instance, is it expected that the commission would set out decisions on good character in writing to an applicant, if a review of a decision is requested? Is it expected that the commission would disclose any information that might be provided by the Registrar of Retirement Villages? The legislation sets out that before issuing a licence the views of the Registrar of Retirement Villages would be taken into account. So would it be expected then that if there was a request for a decision to be reviewed, that information would be disclosed? That might set out some issues going down the track, for relationship reasons, with the Registrar of Retirement Villages. That is an interesting point on which I would not mind hearing the views of the Minister and indeed others.

I will address Part 3 of the Securities Trustees and Statutory Supervisors Bill, which contains clauses 43B to 50. The bill gives the Securities Commission the power to require a trustee, statutory supervisor, or unit trustee to attest to the commission as to whether the trustee or supervisor is satisfied that an issuer has not breached an issuer obligation in a material aspect. If the trustee, statutory supervisor, or unit trustee is unable to do so, the trustee or supervisor must report details of the issuer’s breach or possible breach to the commission. A duty is imposed on a trustee, statutory supervisor, or unit trustee who believes that an issuer has breached, may have breached, or is likely to breach an issuer obligation to report the breach to the commission and advise the commission of any steps the trustee or supervisor intends to take.

I will go back to the important points we have made about the bill, its complexity, and the fact that it is coming at the wrong time. The bill is premature and does not address some very important underlying issues. Although Labour supports the bill, as members have heard, we want to know—and we would like the Minister, the Hon Simon Power, to address some of the wider issues that the bill has raised and that have been talked about by a number of my colleagues—why it could not have waited to be wrapped up with the Securities Act reforms and follow the establishment of the Financial Markets Authority.

I will refer back to some of the principles that should underline the legislation on the role of trustees and statutory supervisors. I will refer to a speech my colleague the Hon Lianne Dalziel gave on 30 August last year where she referenced five key objectives that should underpin a financial services authority’s legislative framework. The principles are important core principles that relate to the bill and that have reference to every part of the bill, including Part 3. The principles essentially were about market confidence and maintaining confidence in the financial system.

Another principle was public awareness. We have talked about public awareness with regard to financial literacy and promoting public understanding of the financial system, which is of critical importance and is not being addressed in the bill. I am interested to know the Minister’s views on how that will be addressed.

Other principles were about financial stability, contributing to the protection and enhancement of our financial system; consumer protection, securing the appropriate degree of protection for consumers; and—going back to one of the key reasons for the legislation and the other legislation it is associated with, the Financial Markets (Regulators and KiwiSaver) Bill—a reduction in financial crime, reducing the extent to which it is possible for any business to be used with a purpose connected with financial crime. Those principles and objectives should underpin all reforms in this area.

One of the things we have concerns about, which we have expressed on a number of occasions today particularly and in previous discussions on the bill, is that those wider principles are not addressed in the legislation. The legislation is back to front, and it is being passed ahead of other decisions that will impact on the whole regulatory framework.

I move, That the question be now put.

I apologise because I have taken three calls tonight on bills before the Committee and I have not acknowledged you, Mr Robertson, in your new role as Mr Chair. I acknowledge you in that role and I congratulate you.

💬 Hon Simon Power: I raise a point of order, Mr Chairperson. Like many in the Committee, I too am pleased you are back in the Chair, but as members will be aware—

The CHAIRPERSON (H V Ross Robertson): That is not a point of order.

💬 Hon Simon Power: It is a point of order, because it goes to clarifying an issue. The House itself has not actually agreed to have you permanently as an Assistant Speaker, although we have given leave for you to act in that capacity for the next 3 days. That does not take away anything from the contribution you are currently making, and we are all very grateful for the level of competency you bring to the role. But, in fairness, I think we do not want to waste congratulatory messages at this early stage when they pre-empt the House’s taking a decision on the issue more formally.

The CHAIRPERSON (H V Ross Robertson): Thank you, Minister.

💬 Hon Rick Barker: I will speak on the point of order raised by the Hon Simon Power. I say that although his point of order was heartfelt and well meant, there is nothing wrong with the Chamber congratulating the honourable member Ross Robertson more than once on his elevation today. It is not out of order to congratulate him on his temporary position, but that does not mean to say that we cannot then congratulate him later when the position becomes permanent. I think the member making the congratulations is entirely in order, and I am sure the whole of the Committee would join with her in that.

The CHAIRPERSON (H V Ross Robertson): Thank you, gentlemen.

I will speak on Part 3 of the Securities Trustees and Statutory Supervisors Bill, which is really about the Securities Commission’s functions in relation to issuers and operators.

Looking at this part of the bill, I see that it gives the commission the power to require a trustee, statutory supervisor, or unit trustee to attest to the commission as to whether he or she is satisfied that an issuer has not breached an issuer obligation in a material respect. If the trustee, statutory supervisor, or unit trustee is unable to do so, he or she must report details of the issuer’s breach or possible breach to the commission. A duty is imposed on a trustee, statutory supervisor, or unit trustee who believes that an issuer has breached, may have breached, or is likely to breach an issuer obligation to report the breach to the commission and advise the commission of any steps that he or she intends to take.

A trustee or supervisor must also inform the commission if he or she becomes aware of information on the basis of which a trustee or supervisor could reasonably form the opinion that an issuer is unable or likely to be unable to pay its debts, or the value of the issuer’s assets is less than or likely to be less than the value of its liabilities. That really is the gist of Part 3.

I will reinforce why Labour supports this bill. The reform of the ways that trustees and statutory supervisors operate is essential for the prevention of another financial collapse. That is why Labour takes this bill very seriously, and it is why we support it. We need to recognise that across this Chamber there is a shared understanding that there needs to be greater transparency in this area. People will not want to hear this, but that was evident in respect of the Government’s handling of the South Canterbury Finance situation. Just to remind the Committee again—and we all know this to be the case—that was the largest financial collapse in New Zealand history. It highlighted the need to have transparency in the sector. Although we may debate the issue of the South Canterbury Finance situation and its collapse, obviously we agree that there needs to be changes in the sector, and that there needs to be increased transparency.

There were, and there are, serious questions about why South Canterbury Finance was not put into statutory management, and about why the Crown Retail Deposit Guarantee Scheme was extended, despite the negative rating and the state of the audited accounts. Hopefully, as I have discussed, Part 3 of the bill will create some of the transparency we need in order to ensure that we do not head down that path again, that we do not end up in the same situation, and that we do not end up with a lot of New Zealanders asking questions about what the Government is doing, what really happened to South Canterbury Finance, and where the accountability and transparency is. Those were the questions that New Zealanders were left to ask after South Canterbury Finance collapsed.

Here we are with this bill before us. The aspects of it that I have just discussed in respect of Part 3 will, hopefully, ensure that in the future we do not end up in a similar, or in the same, situation. I am sure that Kiwis across the country will be relieved that we are looking at this issue, and that we, across the Chamber, can agree on some things. Labour supports this bill alongside National and other parties, as well. Our support is not without reservation, and we have said that throughout the debate when discussing this bill, but in general we still support it.

I move, That the question be now put.

I have two points that I would like to raise; two questions to the Minister in the chair, the Minister of Commerce, a member of the House who is very knowledgable about the law. The first clause I would like the Minister to make some comment on is clause 45. I have always believed that the heading of a clause should be completely and entirely consistent with the substance of it. The heading of clause 45 states: “Trustee or statutory supervisor must report breach or possible breach of issuer obligation”. But when one gets into the text of the clause, one finds that it has an important qualifier, and that is “reasonable grounds to believe”. Reporting a breach, and reporting a breach where one has reasonable grounds to believe there has been a breach, are two different things. I want the Minister to explain to us whether the courts or some other institution, when they come to interpret this clause in the future, will be guided by the “must” in the heading, without a qualification, or by “reasonable grounds”. I say to the Minister that there appears to be a slight inconsistency there. One could argue that the heading is simply to set out the broad terms, and that all the qualifications are put underneath it. But the heading is a very bald statement.

The second clause I would like the Minister to comment on is clause 48, which I was interested to read. Clause 48 is quite a powerful clause. Subclause (1) states, without qualification, “No civil, criminal, or disciplinary proceedings may be brought against a trustee or statutory supervisor in respect of a protected disclosure.” It does not say what the protected disclosure is in regard to. If a member makes a protected disclosure, then does that mean that the person is therefore immune from any civil or criminal prosecution? If the member has, according to this legislation, made a protected disclosure, then no civil or criminal disciplinary proceedings may be brought against that particular trustee.

If it was qualified that the civil or criminal proceedings were limited to being within the ambit of the protected disclosure that pertained particularly to this legislation, I would say “Fair enough”. But that is not what the law says. It simply says that no civil or criminal prosecution may be brought against the member. These, I think, are quite sweeping powers, and I would not want a court to later interpret that Parliament must have known what it meant when it drafted the bill to say that no civil or criminal proceedings may be brought against a person who has a protected disclosure. If Parliament intended there to be a qualification, then I think we should have said so, but there is no qualification in this particular clause. I think the Minister in the chair should dwell on that and offer the Committee some commentary. After all, when it comes to interpreting legislation, it is not unknown for the courts to go back and look at the Hansard record to see what Parliament meant. If the Minister was to make a clear statement about both of those issues, I am sure there is a possibility that in the future that statement will be referred to and that his learned words will be well sought by the courts. I look forward to the Minister’s response.

There is the voice of experience; the member Rick Barker understands how the Committee stage is supposed to work—clause by clause, and getting into the detail of some of these things. I can reassure the member in respect of his second point. Of course, I could not help myself, as the member would know; when questions like that one are put, I have to rise to my feet and delay this bill even more than I would like to. But a challenge is a challenge, right? If the member had dropped his eyes to subclause (4) of clause 48, he would have seen that the nature of protected disclosure is defined in that clause.

To flick back to clause 45, I say that the member raises an interesting point. As I understand it, amendments to the Interpretation Act take into account the heading of a clause or section, whereas previously that was not the case; it was only the substantive matter in the clause that the courts paid any attention to. Having said that, I point out that clause 45 makes it very clear that if the grounds are met—that is, if the reasonable belief is held—then the trustee or supervisor must, as soon as practicable, make the report. So the matters contained in the heading to clause 45 are, in fact, a brief summary of what is included in the substantive part of clause 45.

The question was put that the amendments set out on Supplementary Order Paper 223 in the name of the Hon Simon Power to Part 3 be agreed to.

Amendments agreed to.

Part 3 as amended agreed to.

Part 4 Miscellaneous and amendments to other Acts

The question was put that the amendments set out on Supplementary Order Paper 223 in the name of the Hon Simon Power to Part 4 be agreed to.

Amendments agreed to.

Part 4 as amended agreed to.

Clause 1 agreed to.

Clause 2 Commencement

The question was put that the amendment set out on Supplementary Order Paper 223 in the name of the Hon Simon Power to clause 2 be agreed to.

Amendment agreed to.

Clause 2 as amended agreed to.

Bill to be reported with amendment presently.

House resumed.

The Chairperson reported the Legal Services Bill without amendment, the Financial Markets (Regulators and KiwiSaver) Bill with amendment and that the Committee had divided it into five bills, and the Securities Trustees and Statutory Supervisors Bill with amendment.

Report adopted.