Financial Markets Conduct Bill

I am very pleased to stand in the second reading of the Financial Markets Conduct Bill. It is wonderful to have our sound system back in operation. The 560-page Financial Markets Conduct Bill is the result of a comprehensive review of securities law and takes into account the work of the Capital Market Development Taskforce, the effects of the global financial crisis, and the failure of finance companies.

The bill seizes a once-in-a-generation opportunity to—

The ASSISTANT SPEAKER (H V Ross Robertson): Order! Order! Would members leaving the Chamber please do so and show some consideration to the member who is trying to address the House. Courtesy is contagious. Thank you.

This bill seizes a once-in-a-generation opportunity to rewrite our securities law, which has been subject to decades of ad hoc reform, and brings an integrated and coherent manner to those pieces of legislation. It will play a crucial role in restoring investor confidence by providing better information and protections for what are termed as mum and dad investors, as well as setting clearer rules for companies looking to raise capital. The reform of our securities law has been subject to extensive public consultation, including the release of a discussion document and an exposure draft bill to ensure that this legislation provides a robust and enduring framework for our capital markets.

As I mentioned in the first part of this speech, which was interrupted, the backdrop to this bill was the global financial crisis and the collapse of finance companies. This had a traumatic effect on the lives of many New Zealanders and impaired the confidence of investors in our financial markets. This bill largely completes a comprehensive programme of reforms in the financial sector that this Government has implemented over the last 4 years. These reforms include the introduction of the financial advisers regime, the licensing of trustees and statutory supervisors, and the establishment of the Financial Markets Authority.

The Financial Markets Conduct Bill completes this comprehensive suite of reforms of financial market regulations. The bill will replace the financial markets conduct regulation contained in a number of statutes, including the Securities Act, the Securities Markets Act, the Unit Trusts Act, and the Superannuation Schemes Act, and aspects of the KiwiSaver Act 2006. This will allow a more coherent regime. The intent is to facilitate the development of a fair and efficient and transparent financial market that will, in turn, promote confidence and the informed participation of businesses, investors, and consumers in those financial markets.

This bill seeks to achieve this by reforming the regulation of how financial products are created, promoted, and sold and the ongoing responsibility of those who offer, deal, and trade in them. I am very happy to commend this bill to the House. There is a tremendous amount of detail in it—as you can imagine, with 560 pages—as we look at the different financial products covered by the bill: debt, equity management, investment products, discretionary investment management services, derivatives, and so forth. So as we proceed through this debate and this bill no doubt we will see some of these matters expanded upon. Thank you.

It has been said that those who do not learn the lessons of history are doomed to repeat them, and the lessons of history, in the case of financial markets regulation, are all too obvious. The doyens of the free market brought to us the circumstances that led to the great crash of 1929-30, and brought to us again the global financial crisis of 2008-09, and the signs, in hindsight, were there for all to see.

In the United States a family pet could get a mortgage for a home. Mortgages could typically be up to 120 percent of the value of that home—that is, you could take out a mortgage for more than the value of your home and get 20 percent cash as well. That toxic real estate debt, which was founded on the fallacy that markets always move in an upward direction, was magnified by blending with collateralised debt obligations, and then expanded by multiples of hundreds through the use of derivatives that were insufficiently or inadequately regulated in that jurisdiction.

That malaise, that contagion, spread across the globe and caused the near freezing of financial markets and the failure of some of the United States’ largest investment banks—Lehman Brothers, Bear Stearns, and the one that John Key used to work for, Merrill Lynch—and the European markets followed very soon afterwards. New Zealand, Iceland, Ireland, and many other countries were not immune. We escaped a Great Depression like the one of the 1930s by the merest whisker. But the ideas that led to that were there for all to see for some time, based on the writings of, amongst others, Milton Friedman, and their adoption in Ronald Reagan’s America and Margaret Thatcher’s Britain, and in Roger Douglas’ and Ruth Richardson’s versions of liberalisation in New Zealand. The fallacy that unregulated financial markets lead to the best of all possible worlds has now been exploded.

This bill, the Financial Markets Conduct Bill, has bipartisan support. It is an attempt—perhaps not a far-reaching enough one, but an attempt none the less—to re-regulate those financial markets where there was inadequate regulation that contributed to that great recession. The work was started under the Hon Lianne Dalziel in the latter years of the previous Labour-led Government, it has been continued, I think, by the current Government, and it has the bipartisan support of members of this House. It has this support because it attempts to re-regulate derivatives, to provide increased transparency for financial markets, to regulate financial products according to their economic substance and not just their name tags, and to model itself on the more thorough processes of our Australian regulators, the Australian Securities and Investments Commission and the Australian competition watchdog.

It seeks to protect retail investors, it will have duties on issuers for ongoing disclosure, it will set common governance requirements that will apply to all managed investment schemes, and, importantly, it will introduce new criminal penalties in relation to serious breaches by directors of the obligation to act in good faith. These are not simply academic matters. Thousands of senior New Zealanders, in particular, have lost their life-savings, and sometimes their homes, because of fly-by-night charlatans who are now household names and their phoney investment companies, which have taken money off decent New Zealanders and sold them down the river. The directors and the officers of those companies have the global jet-set lifestyle while ordinary New Zealanders have suffered, seeing their life-savings taken off them and frittered away, based on business models that could never have worked—on the one-way model that markets will always appreciate and that therefore the debt will always be covered by securities that are worth more and more. Nobody in their right mind, not even members opposite, believes that markets always act like that.

That behaviour in future will quite likely fall subject to the criminal penalties that are now incorporated in this bill and that have been strengthened by the Commerce Committee. Much of this work comes from the Capital Market Development Taskforce, set up in 2008 by the previous Labour-led Government. It developed a blueprint and an action plan for the development of New Zealand’s financial system to enhance the integrity of those markets, to enhance the competitiveness of those markets, and to provide more confidence for New Zealanders, and it is there to seek the win-win of a capitalist system that is adequately regulated in the public interest. We in the Labour Party do not believe that markets are always bad, but we believe that laissez-faire capitalism is doomed to fail, to eat its own young, to cripple its own markets, and, in the process, to take down the interests of ordinary New Zealanders. And the evidence? Sixty-one New Zealand finance companies have failed in the last 4 years, the latest of which—well, not quite the latest now—was South Canterbury Finance, which failed to the tune of $1.6 billion. When the full story is public—about what happened at South Canterbury Finance and the ministerial involvement of Bill English, Steven Joyce, and others, John Key included, who turned away a recapitalisation deal that would have limited the taxpayer to a loss of $500 million, in exchange for a catastrophe that cost $1,200 million; that is a $700 million stuff-up by those Ministers—heads will roll. It may have been convenient for the Christ’s College mafia, but it was not convenient for the New Zealand taxpayer. The Government is on notice that the next Labour-led Government will thoroughly open the books on that disgusting case of South Canterbury Finance. And it is just one, albeit the largest one, of 61 finance company failures that have, sadly, taken the life-savings from too many New Zealanders.

I want to acknowledge the bipartisan work of the Commerce Committee, led by Jonathan Young and on our side by the Hon Clayton Cosgrove, which has in a number of respects strengthened the draft bill that is now before the House. In particular, I wish to commend the new general offence of giving false or misleading statements, based on section 377 of the Companies Act, plus new specific requirements for market operators of domestic financial product markets and amendments that extend the current bans on persons banned from operating in financial markets. The select committee has done what it could to put even more spine in this legislation, but this work is not finished. Vigilance is required, and as we speak one of the factors that led to the credit bubble of the last 5 years has already started again. In the face of inadequate 20th century monetary policy, as we are hearing from the manufacturing inquiry, we have a property roller coaster that once again is rolling down the tracks—or, we might say for now, rolling up the tracks. How convenient that might seem for a Government that is worried about opinion polls for middle New Zealand, until it reaches the top of the track and starts screaming down the other side. Because one thing is for sure: those who do not learn the lessons of history repeat them. And if there is one lesson of financial markets, it is that what goes up must come down. What goes up must come down. The property market is no exception.

We commend this bill. It is good as far as it goes—all 500 pages of it—but vigilance is required because it is in the interests of everyday New Zealanders to know that their life-savings will be safe and secure and subject to laws that guarantee that the criminal and negligent behaviour of fly-by-night financiers will be caught, that they will be prosecuted, and that they will be sent to jail. That does not come too soon for the New Zealanders who have fallen foul of those lessons of history. Thank you.

This bill, the Financial Markets Conduct Bill, is an attempt to deal with some of the challenges of the out-of-control growth of the financial services sector over the last couple of decades. But, of course, it is a longstanding problem. As the previous speaker referred to, the global financial crisis has drawn to the forefront the issue of how we regulate the financial services sector—not just the banking sector, but more generally the financial services sector. The issue that stood behind the global financial crisis was fundamentally one of the expansion of money supplied by the private banks. There was a phenomenal increase in global supply created by the private banks and financial institutions in the lead-up to the financial crisis. That was part of the financial cycle that eventually led to the bust that we have seen most recently. The Bank for International Settlements, in its recent working paper, No. 395, looking at financial cycles, tried to analyse what stood behind the financial cycle that we have seen just come to a bust, looking particularly at the expansion of money supplied by the private banks.

What we have seen since then is an attempt to try to constrain the ability of that dramatic expansion that we saw, and there are strong grounds, if you like—there are strong theoretical grounds—for the basis for constraining the expansion in the supply of money by the private banks. It goes a long way back. Henry Simons, who was, of course, one of the fathers of the Chicago school—the Chicago school is what you might think of as one of the neo-liberal or quite far-right members of the economic theory constellation—said: “in the very nature of the system, banks will flood the economy with money substitutes during booms …”. Simons is very clear that the nature of fractional reserve banking means that during the booms the banks and other financial institutions will flood the system with money. He did not see this as a good thing, and of course the OECD—

💬 Peseta Sam Lotu-Iiga: I raise a point of order, Mr Speaker. I understand where the member is going with this, but this has got nothing to do with the bill at hand here. I suggest the member comes back to talking about the Financial Markets Conduct Bill.

The ASSISTANT SPEAKER (H V Ross Robertson): The member has not been going very long, but it is a narrow debate, and I would ask the member to just try to bring it into context.

It is unfortunate that that member does not understand the connection between the Financial Markets Conduct Bill and the regulation of the financial markets. That says an awful lot about the Government.

So how do we try to constrain those financial markets? That has been the challenge for Government after Government. Henry Simons—unfortunately, the member does not realise—is a very prominent economist who has been very important in economic theory and stands behind a lot of the thinking that sits behind this bill, because that is what economic theory is about. But I would not expect the Government to know about that. Simons said why it was important to constrain the financial services. He said: “Private institutions have been allowed too much freedom in determining the character of our financial structure and in directing changes in the quantity of money and money substitutes.” So what Simons was trying to say was that we need greater regulation, and that has become very clear, of course, during the last decade. Could it ever become clearer in New Zealand, with the collapse of all the finance companies? Of course, it is a larger problem than just the finance—

The ASSISTANT SPEAKER (H V Ross Robertson): Order! I am sorry to interrupt the honourable member. There is a member on my right, and one on my left, and they are actually interjecting on each other, and neither of them has the floor. It is not permitted.

This bill is trying to deal with some of those issues in some ways, but the question is whether it fundamentally deals with some of the outstanding issues we have to address. It works in combination with the financial markets regulators, which is important.

So as part of looking at this bill, we have been looking at what the Financial Services Authority in the UK has been saying—Adair Turner, Lord Turner, who is the departing chair of the Financial Services Authority in the United Kingdom. What has been so interesting about the debate around the regulation of financial services has been the development of how we regulate the growth in private sector money, what the role of public sector money is, and the creation of public sector money, which, of course, has gone under the term of quantitative easing and all sorts of other names globally. So Adair Turner, who is the chair of the mirror regulatory agency of the one that this bill works alongside, has been making some rather extraordinary statements in recent times about the regulation of it. Essentially, he is saying—and Martin Wolf, who is the lead commentator in the Financial Times, has also been making this argument—that although it is fine through fractional reserve banking to allow the private sector banks to create money, there is also a case in certain circumstances for the public to be allowed to create money for public good, as well.

What Martin Wolf has been talking about in particular is infrastructure investment. He says it is fine to allow the private sector banks to create money for private benefit, but in terms of the creation of money by the public sector—for infrastructure, for example—that also is a legitimate purpose. This is, of course, what the Green Party was proposing with the use of quantitative easing to help pay for the rebuild of Christchurch. The regulation of the financial services sector, which this bill is part of, has cracked open a very large and interesting debate about the best way to regulate the sector, in terms of trying to limit the growth of credit that is coming out of the sector.

But it has also cracked open, I think, a fascinating debate, which we are struggling to have in New Zealand, about what the role is for public sector - created credit, or printing money, as the Government likes to call it. That debate, I think, is one of the defining debates of our era because, of course, of the problems that have come out of the private sector. So this bill is part of trying to regulate some parts of that sector. It goes alongside the debate we have been having about monetary policy—and clearly there is an overlap between the two—and it goes alongside the debate that Mr Cunliffe also referred to, which is what to do currently in terms of some of the problems in the New Zealand economy. We have another housing boom. How do we control that housing boom without interfering with some of the other financial services in the operation of the economy? For those of you who have not seen it, the Swiss central bank has just announced that it is going to require private banks to keep extra capital on hand for their loans to the property sector. The Swiss also have a housing boom problem, so they are requiring extra capital to be put aside in order to try to take some of the heat out of their housing boom. All of these little pieces of the puzzle—this bill around monetary policy reform, and how to deal with the housing asset bubble—are all parts of the picture. Of course, the exchange rate and how to deal with the high New Zealand dollar is the other part of the picture.

We welcome this bill. There is a lot of good stuff in this bill. We still, however, remain concerned around the issues of criminal liabilities for directors of finance companies. Essentially, this bill weakens the current provisions. There is no other way to look at it, I do not think, in that the strict liability provisions that currently apply to the directors of finance companies and have resulted in a number of directors of finance companies going to jail are essentially weakened by this bill. I think the Commerce Committee did a good job in terms of strengthening the bill in terms of criminal liability, and I welcome the changes there. But in terms of the strict liability for the actions of the directors of finance companies, that has been taken away.

People will be surprised by this. So if you are one of those people who lost money in the finance companies, and then you said “Oh, well, at least those characters got sent to jail.”, the chances are that there is less likelihood that they would be sent to jail under the current bill in front of the House than in the existing legislation, because of the bill getting rid of the strict liability regime. Should the New Zealand Parliament be passing a law that essentially weakens the strict criminal liability regime that currently applies to the directors of finance companies? That, essentially, is what we are doing. The bill, of course, is a lot more than that, and to characterise the bill by just that one element would, I think, be unfair. There is a lot of really good stuff in this bill, but, none the less, when you look at that one element of it, there is, I think, no question that essentially what it does is weaken that provision and make it less likely that the directors of finance companies would end up in jail if they misled investors.

The response from those who support that bill is to say: “Oh, well, you can get some of your money back in civil damages.” The problem with that is that a lot of the directors of these finance companies will hide their assets in trusts, and it would be very difficult for investors to get their money back from the directors of these companies. Clearly, there needs to be some work done to fix up the trust regime—the legal framework around trusts. But it means that under this current Financial Markets Conduct Bill, for those who say “Oh well, you can always sue the directors to get your money.”, actually, the directors will not necessarily have enough money, and the money will be hidden away in trusts so it will be hard to access. Thank you. For that reason, we will not be supporting this bill.

Malo le soifua. Good afternoon. I rise to support this, the second reading of the Financial Markets Conduct Bill. I support it because it is part of a suite of reforms that this National Government has put in place to regulate financial markets. Although I hear the cries of Mr Cunliffe opposite saying that all sorts of things have gone wrong with our finance companies, that man in 9 years of a Labour Government sat on his backside and watched while finance companies burned. He says now, after being a Crown Minister, that we need to regulate, but when the members opposite had the opportunity to regulate this industry and to put it in perspective and put it on the right track they neglected their duties as a Government.

What is the suite of reforms? Well, it is the Financial Service Providers (Registration and Dispute Resolution) Act 2008—Mr Chauvel was part of reforming that area of financial markets, and we acknowledge the work that was done across this House—and the Securities Trustees and Statutory Supervisors Act. We also reformed the Financial Markets Authority to give it the resources not just to enforce the regulations that we are putting in place here with this bill but also to enforce regulations across the finance sector.

Why is it important? Not one person today has told us why financial markets and capital markets are important. Businesses, in order to grow, need to access capital. When businesses grow in this country we get more jobs, we get more opportunities for people, and our standard and quality of life across this country improve and get better. That is what economic growth is about. That is what this bill is about. That is why we are reforming the finance sector with this legislation.

Mr Cunliffe also referred to how this bill would put into jail directors who were negligent. Negligent directors do not go to jail. Reckless and fraudulent directors go to jail, but certainly I have not seen, in any jurisprudence across this world, negligent directors being put in jail. It is in this bill—and I will just talk quickly, because I am limited for time, about some of the measures.

We are replacing the requirement for issuers to prepare a prospectus and an investment statement with a requirement to prepare a single product disclosure statement. That is about producing efficient means of raising capital. It is about bringing compliance costs down, which is what businesses out there are telling me on the factory floor, that they want better access to capital. They want more efficient ways of raising capital. They want to be able to produce jobs through having a Government that listens to what they say and that will do some of the things in order to promote growth in this country. So I support this bill, along with my colleagues. It is a very good bill. It promotes efficiency, it promotes jobs, and it promotes opportunities for our communities in this country.

I take a call on behalf of New Zealand First on the second reading of the Financial Markets Conduct Bill. New Zealand First will be supporting this bill, as we noted at the first reading. Certainly, we are in full support of this extensive bill—some 561 pages, a huge amount of legislation here—which has been put together in order to get New Zealand back on the right track in terms of our financial markets and oversight of our financial institutions.

It is somewhat disappointing that it has taken so many years for this bill to be brought through to Parliament. What a shame that this sort of legislation was not in place perhaps a decade or more ago, and then we would not—

💬 Peseta Sam Lotu-Iiga: Whose fault is that?

—well, National was in power in the 1990s and did not do anything about it.

💬 Peseta Sam Lotu-Iiga: You said “A decade ago.”

“A decade or so ago.”, I said. What a shame that through the 1990s and through the 2000s this legislation was not in place, because many very, very good, hard-working New Zealanders, thousands and thousands of hard-working New Zealanders, perhaps would not be in the situation they are in today, having lost their life-savings, or large amounts of their life-savings, because of the shysters and the shenanigans that have gone on in our financial markets in recent years. What a shame it is that many of those affected by those shenanigans that have gone on are the very ones who need the support of their finances now, having retired, having been in a situation where they were looking forward to a safe and secure retirement with their life-savings, only to find that some real shysters in the industry have diddled them out of their life-savings. That is a great shame. It is a sad day. It is a sad period in New Zealand’s history that this did occur. It is very disappointing that many of those involved were able to get away with it and to this day have not been held to account for their actions.

The fact that 61 companies went bust in our financial markets was a very, very poor reflection on the New Zealand cowboy financial market that was operating. The fact that 61 finance companies could take so much money out of this economy, so much investment out of this economy, perhaps is a reflection of why there is so much distrust today in investment in parts of the New Zealand economy. This bill does serve to return a level of security to the New Zealand financial economy, so that people can once again feel that their life-savings can be put somewhere that perhaps can be trusted, and know that when they do require them in the future, in their retirement, they will have been safeguarded.

Therefore, it is good to see that the penalties have been greatly increased for individuals—between $500,000 and $2.5 million in terms of the penalties for individuals—and also for corporates, and that there are jail terms of up to 5 years for individuals for misleading the public, providing misleading statements, or providing misleading financial information. That is good, but it is something that New Zealand First has always been on about. As I said, it was back in the 1990s when the Rt Hon Winston Peters exposed the wine-box saga. He exposed much of what was going on at the time and how in that period of the 1990s we saw the start of this sort of activity going on. The Rt Hon Winston Peters and New Zealand First exposed the wine-box saga back in the 1990s. It is just a pity that more of this could not have been exposed during the last decade.

In terms of this bill, New Zealand First is supporting it through its next stages. We hope it will not take too much longer for this bill to be enacted through this Parliament. It was first brought to Parliament in October 2011. We are now in February 2013. Like everything, it does take some time through this Parliament, but the longer it takes to actually be enacted and be put into place, the longer New Zealanders—good, hard-working Kiwis—are put at risk. So we urge all members of this House to support the bill. We are disappointed to hear that the Green Party is not supporting it, but we know that it does have the numbers to be put through this House. We would urge that it move with haste, and that the Finance and Expenditure Committee move at pace with this. We would welcome this bill coming back to the top of the parliamentary agenda as soon as possible, so that we can move on this and safeguard the interests of New Zealanders and their financial investments. New Zealand First is supporting this bill.

Sat sri akaal, Mr Speaker. Thanks for the opportunity to speak in support of this Financial Markets Conduct Bill at its second reading. This bill is another bill that is going in the right direction, giving confidence to investors and the financial market.

This Government has been working hard to bring all this legislation that can build the confidence of investors and the financial market. Investors and the financial market are both important to this economy, because businesses look for investments and the small savers, the mums and dads, look for a financial market where they can invest their money. It is important that we have all those measures in place, so we can have that confidence.

I would like to touch briefly on the NZX50, which had been constantly dropping since 2007. As soon as National took over as Government in 2008, under the leadership of the Rt Hon John Key, the financial market has been constantly going up. Last month we saw that it has come back to the same level that it was at 5 years ago. That shows the financial market has confidence in the work of this Government, which is placing all the policies to ensure that we have got a good system in place so that these financial markets can help. I support this bill, and I hope that the other bills that are coming on the Order Paper will also create more confidence in the financial market. Thank you.

I would like to speak to the second reading of this bill, the Financial Markets Conduct Bill, with pleasure. This bill is an example of a select committee in this House, in this Parliament, doing its job and ensuring that it is putting in place solid legislation. And believe me, this piece of legislation is pretty solid. It would probably be one of the most solid pieces of legislation, in physical terms, that has passed through this House. I would like to know whether there is another bill that is bigger and, if so, how long it took to get through the select committee process.

Before I go on I would like to acknowledge all of my colleagues across the House who sat on the Commerce Committee, particularly those from the National Party, my colleagues in the Labour Party who did the grunt work at the select committee, and certainly the officials, who did an extraordinary amount of work on this bill. I would like it noted that I do not say that about every piece of legislation that comes before this House that I have had some input into, but I must say that there was an extraordinary amount of work that went into it.

I think it is also important that we have a look at where this bill came from and what led to it. It may have taken a long time to get to this House—probably too long—but it did come from the work that was done by the previous Labour Government, which set up that financial markets reform process. I will say that every time I speak on one of these bills in the House, because that was the genesis of the work that has been done that has brought this bill before us today. The fact that it is not being supported by the Green Party I think is a great shame, because no bill is perfect—no bill is perfect. Certainly, there were things that probably could have been improved, but it is a damn sight more of an improvement than what has been the case in this country for far too long.

As my colleague David Cunliffe said earlier, we must remain vigilant—we certainly must. If we do not pass this bill in this House, hopefully in the next week or so, what would we be doing to address the major issues that have led to those 61 financial companies collapsing in this country, and the thousands and thousands of ordinary New Zealanders who have had their lives disrupted in such terrible ways?

I will go back to that financial markets reform process that happened under the previous Labour Government. My colleague Lianne Dalziel set up the Capital Market Development Taskforce in 2008. That was 5 years ago. It is a long time for this bill to get to this point, to develop that blueprint and action plan for the development of our financial system. Out of that, even under a National Government, in the last term of Parliament, the Commerce Committee did an awful lot of work conducting an inquiry into those financial company collapses. We have seen these people, these thousands of New Zealanders who have been so badly affected, come before that select committee. We have seen the whites of their eyes and the tears in their eyes as they told us the effects that the collapses had had on them.

One of the effects, one of the things that I want to address that is in this bill, is the criminal liability regime that has been put in place, which is an enormous step forward. It may not have gone far enough. In fact, we have argued that it has not gone far enough. My colleagues Lianne Dalziel and Charles Chauvel have recently said that people who are convicted of offences like burglary tend to be treated much more harshly than those who destroy huge amounts of wealth through reckless and dishonest business practices. Through this piece of legislation, what we need to see is that the people who are behaving in such terrible ways, the white-collar criminals who have been getting away with the practices that have led to these collapses, no longer get away with them. We need to see not only those people being fined extensive amounts of money but also some people being taken before the court and sent to prison as a result of it. That will be the deterrent for these sorts of practices.

Although this bill replaces a number of pieces of legislation, including the Securities Act, the Securities Markets Act, the Unit Trusts Act, the Superannuation Schemes Act, and the non-tax part of the KiwiSaver Act—there is an enormous amount of detail in this bill—I want to talk about one particular part of it. It is around the liability regime, the criminal liability, where the key change in the bill is to make the offerers of products and the directors of companies criminally liable for inaccurate statements about products and disclosure documents. There has to be fairness in every piece of legislation. I think everybody would agree with that. Therefore, in order to prove that, the Crown would have to prove a guilty mind. But the fact is that—and this was an issue very dear to my heart in discussing this bill—one of the things that we heard from those people who came before us in the financial services collapse inquiry was that it was the people fronting these companies, the people who went on television and vouched for these companies, who were basically providing trust for people who were making these investments. The investors trusted these people because they were so-called respected members of our community, they were celebrities. They were people who were promoting the companies and therefore getting the investments. I wanted to be reassured that those people would also be accountable—they would also be accountable. They may be making a large amount of money for getting before a TV camera for a television advertisement and saying: “This is a great company. You should invest your money in it.”, and then they are able to get away with it if that company collapses. I wanted to be reassured that that would not be the case, because it was that kind of advertisement that was leading people to make these investments. Well, that is in this piece of legislation. It may not be immediately apparent to someone who is wading through it, but it is in this piece of legislation. It is incumbent on people—celebrities, former politicians, or whoever gets up and takes money from these financial companies—that they should know that they are also liable should they make false promotional statements about the veracity of the information that they are providing to the public and about the brand that they develop for these companies. That is one of the critical aspects of this bill for me, and that is because of the interface between the public—the mum and dad investors, the ordinary people of New Zealand who are investing in these companies—the directors of these companies, the people who should ultimately be held accountable, and often the people who get up and use their name, their celebrity status, to actually promote them.

There are many, many other parts to this legislation, and no doubt as we get through the Committee stage we will be able to get into the detail of it. About 13 main changes were made to this bill through the select committee. It is important that the public of New Zealand know that it exists, because the other major issue is financial literacy and the fact that people also have a need to improve their financial literacy in order to understand what they are actually investing in.

This side of the House certainly does support this bill. We know that it is not perfect, but we think it is a very, very important improvement on what has not been there before. We want to see the accountability in the courts for some of these practices. I commend this bill to the House.

It is a pleasure to take a call on this Financial Markets Conduct Bill. It will be a short call. I would just like to say that I also acknowledge my colleagues who were on the Commerce Committee. I listened very carefully to my colleague David Cunliffe’s speech. I think you are guilty of oversimplifying a very complex matter—

The ASSISTANT SPEAKER (H V Ross Robertson): Order! You are bringing the Speaker into the debate.

I am sorry, you are right, Mr Assistant Speaker.

I also listened to the comments made by Andrew Williams. I found it quite incredible when he started criticising both National and Labour Governments, especially in light of the fact that his own leader was a member of the Labour Government—a senior member, who could have had the opportunity to address these sorts of issues—but that is probably in line with the ill discipline in the New Zealand First caucus.

National has stepped up to restore investor confidence. This bill helps achieve one of National’s four priorities in its second term, which is to build a more competitive and productive economy. I am very happy to stand in support of this bill. Thank you.

I call the honourable member Dr David Clark.

It is a pleasure—

The ASSISTANT SPEAKER (H V Ross Robertson): The Rev. Dr David Clark.

Very kind of you. It is a pleasure to take a call in the second reading debate of the Financial Markets Conduct Bill. Unlike the previous speaker, Mark Mitchell, I will speak for a while because there are important matters in the background to this bill that require the time and attention of this Parliament. The proper functioning of markets is essential to New Zealand’s future economic prosperity. By that I do not mean the kind of hands-off approach favoured by this Government in other legislation. I mean more the proper functioning of properly regulated markets.

Before I get into the substance of the bill, I also want to join other colleagues in congratulating those who have put in the work over a very long time indeed. This bill, as I understand it, was kicked off back in 2008. Lianne Dalziel was instrumental in setting up the Capital Market Development Taskforce, which developed a blueprint that forms the basis of this legislation. Colleagues Curran and Cunliffe, who have already spoken, and others were on the select committee that did the work, and Mr Mitchell, I believe, as well. There have been many members of the National caucus who have contributed, too.

This is a piece of legislation that has been developed, as I have said, over a lengthy period of time. For those who are watching the debate at home, the bill itself takes up a substantial number of trees. You will see that Parliament has kindly double-sided the copies that we have to use, otherwise it would be a fatter piece of legislation. It is surely one of the chunkier pieces that has gone through this Parliament.

Why is this legislation important? Well, in my view, it is important because it is about creating the set of circumstances that will lead to efficient functioning of markets. The correct kind of legislation will ensure transparency, will ensure accountability, and will ensure consequences for those who do not follow the correct set of rules. When all those conditions are in place, we see that investment flows. When the incentives and sanctions for ill behaviour in the market place are clear, when there is transparency, and where there is accountability investment will flow, and that is good for our economy.

It is not the kind of hands-off approach that this Government has favoured in other legislation, where the market is left to its own devices. We have seen the failure in the housing market in New Zealand, and we have a Government that says: “Well, you know, the market will sort it out.” It has not sorted it out. We know that good, proper regulation has its place, and that is why Labour will be supporting this bill. We recognise the hard work that has gone into it, and we recognise the endeavour to make sure there is proper regulation in place.

Of course, it is only part of the picture. In order to have a successful economy, we actually need a vision for economic growth, and that will also involve pro-growth tax reform. We need the kind of tax reform that the OECD, Treasury, and the IMF recommend: a capital gains tax, which every other country in the OECD has except for Switzerland, Turkey, and New Zealand. We also need to give the Reserve Bank the monetary policy tools that it needs to ensure an export-led recovery. Inflation targeting was very important in the 1980s. This Government seems content to sit with 1980s economics generally, but, actually, the world has moved on. So we need to give our Reserve Bank the tools to make sure that New Zealand can compete in international export markets.

Of course, we also need proper savings policy. We know that the Government cut back on KiwiSaver, then it increased KiwiSaver, and it has had more positions on KiwiSaver than the Kama Sutra. Labour will be very, very clear that KiwiSaver should become more universal. It has always tried to get towards that position, and Labour will make genuine progress in that direction. We also know that we need pro-growth procurement policies, and if that has not become any clearer to the Minister of Revenue over time, it surely should be after the OECD report that came out yesterday showing that the kind of tax policy that New Zealand and other countries have that is out of date needs updating to ensure a level playing field so that multinationals are not distorting investment decisions through taking advantage of tax regimes, which means that overall the world is worse off in terms of investment flows.

It is important also to talk about Labour leadership in respect of this bill, because Labour started the financial markets reform process, and, as I have said earlier, we are very pleased that the Government has continued this work. It is good work. The Capital Market Development Taskforce, set up in 2008 by Lianne Dalziel, set the blueprint and the action plan for development of New Zealand’s financial system. We are pleased that the Government is starting to act on those recommendations.

One of the things that really sped up the need and showed the urgency for this kind of reform, of course, was the finance company collapses. We on this side of the House have some concern that not all the lessons have yet been learnt from that—that the legislation might perhaps have been further enhanced if an inquiry had taken place into the Crown Retail Deposit Guarantee Scheme and the way it was implemented. On this side of the House we have concerns that it was not properly monitored by Treasury, and the Auditor-General has raised similar concerns. It seems to us on this side of the House that it would have been very good to have a look at the way in which that scheme was implemented, because we are talking about tens, if not hundreds, of millions of dollars of taxpayer money that appears to have slipped between the cracks when the Crown Retail Deposit Guarantee Scheme bailed out firms that continued to take on risky loans long after the scheme was introduced. The risk to taxpayers rose in quite a dramatic fashion. One company had its loan book increase tenfold in a matter of 3 or 4 months. South Canterbury Finance’s loan book increased 25 percent in just a short period of time. That is because it was not being properly monitored. Treasury took its eye off the ball. The Reserve Bank, which could have supplied it the data, was not requested to do so, and so the taxpayer liability grew.

We have seen that Government members on the Finance and Expenditure Committee blocked an inquiry into South Canterbury Finance and the others that were supported by the Crown Retail Deposit Guarantee Scheme, so we will never know—at least not in the term of this Government, it seems—just how much taxpayer money was lost by poor management of the scheme under this Government’s watch. But, as I said before, that could be hundreds of millions of dollars. One estimate has it as high as $500 million of taxpayer money that has been lost because of poor Government oversight.

The answers we got out of the Minister of Finance and others on this when they were before the Finance and Expenditure Committee were unsatisfactory. Treasury and the Minister responsible have refused to investigate this in order to see where in future lessons could be learnt. They have refused to quantify just how much taxpayer money was lost as a consequence of the implementation of the Crown Retail Deposit Guarantee Scheme. It was a good scheme, do not get me wrong—do not hear me wrong. This backed up the banks to stop the flow of money to the run on banks. Australia gave us a day to implement it, and we did. But its monitoring was inadequate, and as a consequence there has been taxpayer cost. This Government has failed to step up to quantify that, to investigate it, and to learn how much taxpayer money has been lost. We think that that kind of investigation could have further strengthened this legislation, because it would have been a good case study, a recent case study, and would have given some insight into the way markets work when they go wrong.

We will overall be supporting this legislation because, as I said at the beginning of my speech, at the outset, it is generally good regulation and it is ensuring that there is transparency, accountability, and consequences for those who supply products into the market, and that is a good thing.

My colleagues on this side of the House have spoken very well to the Financial Markets Conduct Bill, so I am proud to support it.

Just one moment. There is a question as to the counting of the votes so I will ask the Clerk to just check that. Honourable members, I will correct the record. The Ayes are 105 and the Noes are 15. The record will be corrected.