Financial Services Legislation Amendment Bill

on behalf of the Minister of Commerce and Consumer Affairs: I move, That the Financial Services Legislation Amendment Bill be now read a second time.

The bill reforms the regulation of financial advice in New Zealand. Its overall objective is to promote the confident and informed participation of investors and consumers in financial markets. The bill also makes changes to reduce the misuse of the Financial Service Providers Register. The bill has been reported back by the Economic Development, Science and Innovation Committee with a unanimous recommendation that it be passed with amendments.

I would like to thank the members of the committee for their careful consideration of this complex bill. The committee considered more than 70 submissions, covering a range of matters. Most of those submissions supported the policy intent of the bill, but the committee has recommended some important changes, ensuring that the bill achieves its policy intent. These changes will be covered in later speeches by members of the Government. I kindly and fully recommend this bill to the House.

I’d like to, as the chair of the Economic Development, Science and Innovation Committee, thank the Minister of Finance for his kind words for the hard-working committee as we deliberated on and considered this bill.

The financial advice and services reform that was started by the previous Government followed the global financial crisis that incurred tremendous losses for people in New Zealand. I believe at the time there was around $9 billion that was lost. So the first regulatory regime for financial advice and financial service providers came into force in 2011, and there was in that original bill a statutory review of the existing regulatory regime to be completed in 2016, which was part of this whole process that brings us to this amendment bill, the Financial Services Legislation Amendment Bill.

There was industry and public consultation on the issues paper; an options paper released by the Ministry of Business, Innovation and Employment; and, following those rounds of consultation, the National Government sought views on an exposure draft of the legislation.

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

ASSISTANT SPEAKER (Poto Williams): Members, the House has resumed. Before the dinner break we were debating the second reading of the Financial Services Legislation Amendment Bill, and Jonathan Young has eight minutes and 33 seconds remaining to speak, should he wish to take it.

Thank you, Madam Assistant Speaker, I certainly do.

As the chair of the Economic Development, Science and Innovation Committee, I am pleased to come and report to the House on the work of the committee. We received 72 written submissions on the bill, and quite a number of those submitters came and spoke to us.

Just for some context and history, this bill—or, in fact, the whole regulatory regime for financial advice and financial service providers came into force in 2011. This bill is based on a statutory review of the existing regulatory regime, and that review was completed in 2016. Then Cabinet policy decisions were made on a new regime and, in February-March 2017, consultation opened up on the draft bill. Then, of course, we had an election, and, coming back into the House, the bill has come to the Economic Development, Science and Innovation Committee. It would, ordinarily, go to the Commerce Committee.

What the bill does, it creates a new framework for giving financial advice by amending the Financial Markets Conduct Act 2013 and the Financial Service Providers (Registration and Dispute Resolution) Act 2008 and repealing the Financial Advisers Act 2008. Under the new regime, financial advice providers, being any person carrying on a business of giving financial advice, will be required to be licensed by the Financial Markets Authority (FMA) to give advice to retail clients. Of course, all of this came in to being because during the period of the global financial crisis many New Zealanders lost their life savings through poor advice that had been given to them, and that amount has been estimated to be $9 billion. So we now have a regime which is robust and has gone under a period of review, and now this bill comes back to the House.

So, as I said, the committee received 72 written submissions. Twenty-eight were from financial service firms including small and large financial advice firms, banks, KiwiSaver funds, insurance companies, trustee companies, and other financial service firms. Seventeen submissions were received from industry or professional bodies representing the interests of financial advisers, financial service providers, insurance companies, etc. Included into that was chartered accountants, retirement villages, and even exercise facilities. Eight were from law firms, seven from individual members of the public, six were from individual financial advisers, five were from consumer-interest groups or dispute resolution schemes, and one was from the code working group that is developing the new code of conduct for financial advice. So you see, there was quite a broad range of submitters that came to the committee. The committee heard the submitters here in Wellington and also in Auckland.

The review found problems with the current regulation of financial advice. The review found problems with the misuse of the Financial Service Providers Register, and there were some key amendments proposed in the bill. They included removing the requirement that only a natural person can give financial advice, which allows for provision of online advice. People can go to a website of a financial institution, they can put in their data—confidential of course—and there can be assessments made around their data, and they can receive advice from that data, often called robo-advice.

Expanding the minimum standards of competence, knowledge, and skill to all categories of people giving financial advice to retail clients was a very important part of the bill, and, certainly, having a customer-centred piece of legislation is absolutely critical, and this bill strengthens that. So requiring all people who give regulated financial advice to comply with standards of ethical behaviour, conduct, and client care is very much part of this, adding a requirement that anyone who gives financial advice must put the interests of the client first and disclose prescribed information. It limits who can give regulated financial advice. It simplifies the regime and its terminology, for example, by removing the categories of “authorised financial adviser”, “registered financial advisers”, and “qualifying financial entities”. It amends the requirements to be registered on the New Zealand Financial Service Providers Register to prevent its misuse.

The bill defines “financial advice” as making a recommendation about financial products or designing an investment plan. Of course New Zealanders all over this country seek that advice. They want to prepare for their future, and they want to have advice that will give them confidence and surety in that future, the best advice possible. Of course, many people, as we learnt very early on in the piece, that took wrong financial advice during the financial crisis that took place, lost the opportunity of not only being able to invest their money but being able to earn money again, and so they’re incredibly vulnerable.

One of the most common types of financial advice relates to switching KiwiSaver funds. We noted that a decision to switch between funds within the same managed investment scheme is technically not a renewal or variation of the terms or conditions on an existing financial advice product. Therefore, providing advice on switching funds could be excluded from the regime. We consider that the regime should apply to advice on switching funds within KiwiSaver or other managed investment schemes.

In clause 27, new section 431J(2) of the Financial Markets Conduct Act would impose a duty on financial advice providers to take all reasonable steps to put the client’s interests first. We understand that this is to stop advisers from recommending one product that might advance their own interest—for example, by earning them a commission—over another that would better serve the client’s interest, a matter that has been discussed a number of times prior to this bill coming to this House and the committee.

We looked at the conduct of nominated representatives. The scope of advice that could be offered by nominated representatives should be limited. The intent of the bill is that financial advice providers should, ultimately, be responsible for the conduct of their nominated representatives. Therefore, the activities of a nominated representative should be tightly controlled by the processes and systems of the provider.

We looked at exclusions from regulated financial advice, particularly for lawyers and accountants, who, in the normal course of their business, may give some degree of advice to their clients. We recognise that normal legal and accounting advice may sometimes technically fall under the bill’s definition of what financial advice is. However, we consider that lawyers and accountants should not be burdened with additional regulatory controls in the course of their ordinary business or occupation. Existing regulatory frameworks for the legal and accounting professions should suffice. We, therefore, consider the exclusion necessary to avoid unnecessary compliance requirements and, of course, costs, which are passed to the clients.

I am very pleased to support this bill to the House. Thank you.

The Financial Services Legislation Amendment Bill is an important piece of legislation in establishing a good regulatory environment for New Zealanders who are in receipt of financial services. We’ve had two very comprehensive speeches—from the Minister of Finance, who launched the debate, and now the chair of the Economic Development, Science and Innovation Committee—that have gone into some detail on the provisions of the bill. I thank both of those members for that.

My own select committee, the Finance and Expenditure Committee, will next week be receiving submissions from a number of organisations in respect of the Australian royal commission into banking issues. So it’s very much top-of-mind for our select committee, while we have not considered this piece of legislation, the issues that go to the heart of consumers being able to have confidence in the financial advice that they receive when they go to experts in receipt of advice that is principled and will provide them with good avenues to invest their hard-earned money. As Mr Young outlined, we’ve had issues in New Zealand in the past with that.

Perhaps the most pressing issue, actually, at the moment in New Zealand is the sheer number of New Zealanders who simply don’t receive any good advice at all. We have a huge number of New Zealanders who have billions of dollars in funds—some in KiwiSaver, some in other forms of investment—who simply don’t have the right avenues to go and receive information. Some of that’s about access, but also I think some of it is about a lack of confidence, given some of the issues that have occurred in New Zealand in recent years.

So this piece of legislation, to me, at its heart is about trying to re-establish that confidence for consumers, for people who need financial services advice, by ensuring that we have a transparent system, and by ensuring that we have, for example, a good code of conduct in place so that people know there is a place to go if something goes wrong. I doubt that there are many New Zealanders who, if they walk into a financial institution, know the difference between an authorised financial adviser and a registered financial adviser, for example, and this piece of legislation, amongst other things, is about making that kind of thing simpler.

Just a couple of key matters that I wanted to touch on: one is the level of innovation that comes through in this bill in respect of not requiring natural persons to have to give the advice. That opens up some capacity for robo-advice to be provided. I think it’s important that we all keep an eye on that to ensure that the best outcomes arise as possible. It’s very important that we do that. The second issue, which I know came through in a number of the submissions, was a concern around ensuring—and this is one of the objects of the bill—that we have adequate regulation at both the big end of town and the small end of town. The bill has certainly tried to deal with that by ensuring that that applies across the board, that the duties are universal to people who are providing advice, but I think, again, that’s something that we’ll be needing to keep an eye on.

It’s very much my view that this is a good piece of legislation that brings our regulations up to date, that deals with a number of the concerns that the Ministry of Business, Innovation and Employment and others in the sector have raised, but it’s probably not the final word on the matter. As the sector continues to grow, as our understanding of the issues changes, as technology changes, it’s likely that this House will return to some of these issues in future years as well. But for now, I think the House can be well-satisfied, through the tabling of this legislation and through the select committee process, that we have a good, robust piece of legislation to give New Zealand financial consumers confidence in the advice that they will receive, and I commend it to the House. Thank you, Madam Assistant Speaker.

Well, it was very pleasing to hear that previous speech from the chair of the committee that worked hard on this bill. It’s interesting; I was the Minister at the time when it was first developed, and I’m sure that if I had brought this bill to the House, the member who has just resumed his seat probably would have opposed it, but that’s the funny way of politics.

The origins of this legislation go back to the global financial crisis, I suppose, and the situation where, right throughout the world, there was concern about the conduct of financial markets. There were a lot of people who lost a lot of money in the course of the market transactions that went on during the global financial crisis. In New Zealand, the particular thing where a lot of people lost a lot of money through was the finance company collapses that we saw.

New Zealand, like many countries back around 2012 and 2013, came through with some very heavy and substantial regulations in the financial markets area. One of those was the regulation of financial advice in New Zealand, which up to that point had been pretty relaxed. As a result of that, there was a five-year review period where we agreed, when the first bill came in, to take stock of where the regulated financial advice services got to. As a result of that review, this legislation was developed, and then a wider series of issues came along as we went.

From my point of view, there were a couple of things that were driving it. One is that when you look at why New Zealand is the successful country that it is and why so many people want to live here, it’s because we have high living standards; we have a good, strong, vibrant economy; and we can provide good quality healthcare and education, superannuation for everybody when they’re old, and opportunities for people to get ahead. That’s partly why New Zealand is a successful country, but we also have a series of things which are very precious to us and that we should never lose sight of. One is the quality of our environment, but another one is the relatively high-trust, low-corruption, rule of law - based society and economy that we enjoy. That is incredibly rare in this world, and we’re one of the relatively few places where there is that high level of trust and relatively low levels of corruption.

But we should never take that for granted, and we’re not perfect by any means. One of the core functions of the Government is to keep asking ourselves: have we got the settings right so as to encourage good levels of probity in the way that various things are dealt with? Here we’re talking about the conduct of financial markets so that people can have the confidence to invest their funds effectively.

Another driver of it, of course, was the concern around the escalation in house prices that we’ve seen in many of the cities around New Zealand in recent years. Part of that, of course, is also related to the conduct of financial markets. A lot of people invest all their savings in houses because nobody has ever managed to steal a house very effectively, but, in living memory, in the last 20 or 30 years, there have been three or four generations who have lost huge amounts of savings through the sharemarket collapses and the finance company collapses.

So part of the reason why New Zealand doesn’t have a great tradition of saving in a financial market sense, as opposed to real estate, is because of a natural wariness over the conduct of those financial markets. So that is why we took the step to regulate as heavily as we did. Of course, if you have, on this side of the House, a philosophy of regulatory restraint, you do that with a great of care and caution and concern. So we’re asking ourselves: did we over-egg it, or did we get it about right, or what are the things we need to do to change in order to ensure that the financial markets sector continues to innovate and provide great services and isn’t bogged down in regulation?

One of the outcomes of that was a desire to enable robo-advice, which was one of the things that I pushed quite hard early on. We want to be enabling of innovation as much as we can. The purpose of all this legislation is to ensure that New Zealanders can get access to advice. One of the concerns arising several years after the heavy regulation was introduced post the global financial crisis, was that one of the consequences of that heavy regulation was that it had become so expensive to provide that advice—because you have to jump through many hoops of fire—that the net effect was that people with relatively modest savings didn’t really have access to financial advice. You needed, effectively, to have half a million dollars before anybody was interested in offering that advice.

So one of the objects of this legislation is to try and streamline the way that the regulations operate. How successful, in the end, the Government has been at that is an open question and something that we’ll come back to, but enabling digital innovation in this area and removing barriers to that is an important part of encouraging people to access financial advice more easily. Certainly the younger generation of Kiwis would far rather turn to an app of some sort to get, effectively, some advice on what to do with their savings, rather than necessarily sitting down and talking for half an hour to somebody and going through 500 questions. So we need to make it fit for purpose, fit for the task. So that was one of the issues that we dealt with there.

The other thing, of course, is around conflicted advice. When you look at it, it’s relatively straightforward. If somebody is coming along and offering me a financial product, it is highly relevant to know whether or not they are getting a commission. If they’re suggesting that you invest in product A rather than product B, we should expect to be able to know whether they’re getting a commission on product A and not on product B. That is a fundamental piece of transparency that is required in the provision of advice. So that is the purpose of requiring some transparency around what an adviser is able to do.

There have been long debates at the Economic Development, Science and Innovation Committee about how far to push that. In terms of somebody who is working within a particular firm that offers a bunch of financial services, where we got to is you can’t expect an adviser within that firm to offer everything in the whole market that is available, but you can expect them to say, to make it absolutely clear, when they’re giving that advice, “Well, these are the products that I’m selling, but there is a whole lot of other stuff that you could look at. I’m not pretending that the products that I’m offering are the only ones, and, obviously, I have a commission that is related to those products.” But just getting transparency into that process has been a critical part of this.

Then the second point was to make it quite clear around the expectations that advisers should put the interests of the clients first. You might think that’s obvious, but if the practice has been to churn clients through, chopping and changing through different offerings, purely so that the adviser can get a commission every time they do it, regardless of whether the change is beneficial to the client, then that is not something that we would support. You might argue that that’s something for individuals to deal with, but the whole point of financial services is it is a very complex area and that is why we have chosen to regulate in this area.

So I hope that this will, over time, add to the slow process of rebuilding confidence in the conduct of financial markets in New Zealand so that more New Zealanders diversify their savings away purely from real estate and into the financial sector, and on that basis I commend this legislation.

Tēnā koe, Madam Assistant Speaker. Thank you for the opportunity to stand and speak on behalf of New Zealand First on this Financial Services Legislation Amendment Bill. It is a pleasure indeed to take this call on behalf of my colleague Fletcher Tabuteau.

I’d just like to acknowledge the previous speakers on this bill tonight for the great clarity that they have given in their speeches. For someone who’s not really a bean counter—my father was, in fact, a bean counter; I’m much more of a spender myself than a saver—it’s been really interesting. So what I’d like to talk about really is perhaps from a Kiwi perspective of those who don’t really engage in financial markets but have some small amount of savings and want to make sure they are secure. It’s really the mum and dad - type investors that this legislation will be protecting and that is a really important thing that we are doing here.

The Financial Services Legislation Amendment Bill was actually introduced as a safeguard for all New Zealanders whether they are high rollers or just your mum and dad savers. It’s against improper financial advice and about providing certainty for all these New Zealanders so that their interests are being put first. This bill speaks to the core values of New Zealand First and so we are happy to support it. It speaks on behalf of the many New Zealanders who want progressive policies and legislation that is in the best interests of all New Zealanders.

The Financial Services Legislation Amendment Bill will protect investors from low-quality and poor financial advice and these changes will demand all financial advisers adhere to the same conduct, the same compliance and obligations. The bill has been reported back—and a job well done from the Economic Development, Science and Innovation Committee—with a unanimous recommendation that it be passed with some amendments. They considered 70 submissions through the course of their work in the committee, and most of these submissions supported the policy intent of the bill, but the committee has recommended some important changes aimed that ensuring the bill actually achieves its policy intent.

Particularly, I note, for example, the technical reading of the bill as introduced suggested the regime may not cover financial advice relating to switching between KiwiSaver funds—and this is probably for most New Zealanders who are investing with their KiwiSaver funds. It could actually result in a situation where a consumer is advised to switch—maybe they’re on a conservative fund up into a growth fund—and they need really good advice about what that means for them and for their future financial health. If they’re changing within the same provider without the advice, that will be caught by the regime. Making a decision about what KiwiSaver fund to invest in—well, that’s, you know, for many, a really important financial decision. The committee, helpfully, recommended changes to in fact clarify that financial advice in relation to those decisions is covered by the regime.

My call on this tonight is brief other than to say really that this has been a good work across the House. Financial advice in fact plays a very important role in the lives of all New Zealanders, particularly our mum and dad investors. Good advice, high quality advice—it’s instrumental in improving the financial position of ordinary New Zealanders. The financial world—it’s not a very easy one to navigate. It can be very complicated, somewhat confusing for many consumers, so sound, quality advice is crucial in successfully traversing the financial landscape. I commend this bill to the House.

Just before I call the next member, I just want to encourage all members across the House, particularly our new members, that by now we should not be reading speeches. We should actually be just reading from notes. So I encourage members to take advantage of the debating chamber in its fullness and encourage members not to read their speeches. I call Brett Hudson.

Thank you, Madam Assistant Speaker. I hope you weren’t anticipating my contribution with those comments. It’s a pleasure to rise and speak in support of the Financial Services Legislation Amendment Bill, and I think it’s important we do consider, as this has exited select committee, why we as a Parliament would look to not only introduce but potentially pass legislation that does a great deal to regulate the behaviours of a particular part of the market—the financial services part of the market.

It’s well within living memory to remember the global financial crisis and the implications that had not just at a macro level on countries’ economies. But, if we look at the heart of it, a lot of the stimulatory activities, a lot of the bail-out activities that happened around the world and including New Zealand were not just to protect an institution, certainly, or a system; at the heart of that, it was about protecting what the member who just resumed her seat, Jenny Marcroft, referred to as the mum and pop investors—the people who had taken what they had, and what they had wasn’t necessarily a great deal, and had looked to invest it in reasonable return areas and found themselves compromised when something that was akin, at least in parts, to a house of cards collapsed.

That actually brings us to the heart of why we should have regulation and legislation like this. Financial services is an area perhaps greater than many, if not most, where there is an information asymmetry in the transactions that take part. That is, the people that offer the services or sell the products and services have a great deal more knowledge—an in-depth knowledge—of not only what they are selling but what backs it up than the consumers or the purchasers of those products and services. So they are in a natural position to potentially take advantage explicitly or, simply, through inaction, if not direct action, to encourage people down a line of investment that, if they had the benefit of the same level of understanding, they may not take.

So when we have in a market information asymmetry, it is a natural place for Parliament to consider either primary legislation or regulation, or both, to help to address that and to mitigate what could be very, very negative consequences for consumers and indeed, when enough consumers are affected, the market as a whole. So I’m delighted that what has come out of the Economic Development, Science and Innovation Committee is recommending some very sensible additions to make sure that there are minimum standards of competence and knowledge within the industry but that there are also standards of ethical behaviour in the nature of advice and the responsibilities that come with giving advice. It means that New Zealanders and our markets can have greater confidence that the fundamentals, the foundations of our financial services markets, are on a stronger and more solid foundation.

I noted my colleague Mr Goldsmith, the Hon Paul Goldsmith, made a point—he was talking when I walked in, at least—about people getting their information today on apps and new ways of interacting with service providers. It is pleasing to see that one of the changes recommended from the committee is that a prohibition on non-natural persons offering financial advice has been recommended to be lifted.

Now, at a very simple level, people call that robo-advice, but I think that as technology continues to mature—and something we’ve heard quite a bit about over the last couple of years is artificial intelligence—robo-advice is no longer going to be what might have been thought of, in the first instance, as where you ring up a telephone number and a machine answers “Press 1 for this.” and suddenly you get some basic, or perhaps slightly greater than absolutely basic, advice. Most people would understand robos because some of them have been subjected to inbound robo calls. This is a bit broader than that, because what sits behind that advice is actually what the programming is, what the decision making is, and how that advice is constructed and offered. We will see artificial intelligence have a far greater role to play, particularly when that institution knows the person that calls them, and particularly if they are an existing client and they have a great deal of information on their position and their current investments.

Actually, that is a good thing. It is a good thing if it’s used well, because any company—in this case, a financial services company—can offer enormous value to their clients if they take what they know about them, what they know about products and services, what they know about markets, and what they know about other investors. They can tailor advice to them that is beyond the absolute basic and can be of greater future value to that client. But, if it’s done poorly, it could also result in, if not financial harm to that client, certainly a sub-optimal outcome. So I’m very pleased that there is a recommendation to remove that restriction and to allow robo-advice, which will lead to so many opportunities in the future.

I am particularly happy—particularly pleased—about the provisions around a duty of priority to the clients’ interests. Any business, whether they are financial services or not, if they have a vision of a long-term successful future for their business and their shareholders, should be placing their clients’ interests ahead of all else, because, ultimately, it is that client remaining with that business or coming as return business that leads to their greatest success. So it’s pleasing to see that the legislation enshrines that duty of care to the advisers. I’m also pleased, along with it, that there are good, strong elements of pragmatism to it—a recognition, for instance, that no matter who the financial adviser is, they can’t possibly know every single product or service that might be available on the planet, and, particularly, although there is some contention within the industry, it does permit that some institutions that will only ever offer products that are their own, such as banks, are able to do so and not contravene the Act, as long as they make that disclosure upfront. I would note that that is not without some controversy in the industry. The smaller and more independent financial service advisers that have spoken to me have, certainly, raised this issue that that means that there is less control or less oversight on what some of those things, those larger institutions, might be, but I think, on balance, we’ve got it absolutely right—not close to right but absolutely right.

Also, the exclusions from regulated financial advice: I had a wry smile as I read through, particularly, new schedule 5 in schedule 2 of this bill. On the face of it, if you didn’t sit in the committee—and I didn’t; I attained the spokesperson role for commerce and consumer affairs when the hearings were already under way for this bill—it looks like almost every profession and person you can imagine is actually excluded from giving financial advice, and I breathe a huge sigh of relief that members of Parliament are included in those exclusions, so feel free to talk to people about what you wish. It is right that we make some genuine effort to ensure that the law that will cover financial advice and regulated financial advice is targeting the right people, the right businesses, and the right sorts of services in the market place and not, through an unintended consequence, affecting a broad swathe of others.

One of the ones I was pleased to see is that journalists are excluded. They do not offer financial advice. So, for instance, if I was to ask Mr Richard Harman if it would be a good idea for me to put a bet on this Government not lasting three years, he wouldn’t be at risk of being subject to regulation under this Financial Services Legislation Amendment Bill. So I would encourage Mr Harman to give me the good oil on what actually is going to happen, because I think he has a bit of insight there.

💬 Greg O’Connor: Have a bet on Simon!

The last part I would like to talk about—and, you know, things that bring Governments down, for instance, are when their own backbenches don’t have confidence in the Prime Minister. [Interruption]

ASSISTANT SPEAKER (Poto Williams): Members.

I mean, it’s quite shocking isn’t it? If you don’t have confidence in your Prime Minister, how can the country have confidence in her?

The other thing—and I’d say that a practitioner came to speak to me about this—is that it’s very important that the legislation we make doesn’t turn off legitimate opportunities for New Zealand businesses. We have the ability to offer high quality, high-integrity financial services as an export to the rest of the world, and we shouldn’t have legislation in place that prevents it. I’m very pleased to see that officials recommended a change that means that if you’re a New Zealand exporter of financial services and you don’t have New Zealand clients, you can still get registered, which was pleasing to see. So, overall, I will commend this bill to the House.

Kia ora, Madam Assistant Speaker. Ngā mihi nui ki a koutou, kia ora. I rise to support this legislation. Look, when you’ve got tens of billions of dollars of New Zealand’s hard-earned income invested in private enterprises—I mean, for example, just look at KiwiSaver. This year, it cracked $45 billion. It’s estimated to grow to $200 billion over the next 12 years. How that money is dealt with and the investments that are made are critically important. We want to make sure that people have certainty that financial providers are going to be acting in the best interests of their clients and their money.

Now, I don’t know if it’s a cliché in 2018 to still keep referring back to the 1980s sharemarket crash, but we do know we have a different investment culture to many other developed countries. You have to wonder: was a generation burnt off by that experience of what we saw in the sharemarket in the 1970s? That’s why it’s critically important we have a robust, fair, transparent, modern regime, and that’s exactly what this legislation is about. It’s developing a new financial services regime, and then, secondly, also embracing innovation.

We saw some of the debate from the previous speaker, Brett Hudson. Look, it’s good to be taking steps when it comes to robo-advice, but the last member was absolutely right: we need to be preparing for the likes of artificial intelligence, blockchain, crowd computing—all the sort of modern clichés—but this is going to transform the financial market sector. Why is it important in the big scheme of things? It’s because those hundreds of billions of dollars set the framework for what our country is, going forward. We have an historic problem with investing. Instead of investing in modern business, capital, and new processes or technology, we’ve got a history in New Zealand—maybe it dates back to the sharemarket crash—of investing in our houses and speculating on asset gain. That’s why I’m so looking forward to the Tax Working Group coming back, because we need to make sure we’ve got the tax settings right for the financial services.

Look, it was a pleasure to be on the Economic Development, Science and Innovation Committee. I’d like to acknowledge the chair. I acknowledge the members. I understand there were around 71 submitters—I thank them. For me, I think one of the big changes we saw coming out of the committee was new clause 27, which is the duty to protect their clients’ interests. What we heard was that financial service providers face a wide range of pressures, both internal and external, for the types of products they could recommend to the advisers. Having this clear and unambiguous is a very positive step forward.

Obviously, the committee has taken a pragmatic step, which is clarified in the committee’s report, which is that there’s a caveat. It’s not requiring that a financial service provider goes across the entire product of every single range and every single potential market; it’s requiring only acting in the clients’ best interests.

Another area where I think a reasonable, pragmatic step was taken was the terms of the nominated representatives. Here you see, I guess it’s akin to subcontracting, with financial service providers divvying out some work—so making sure we’ve got some clarification around where those responsibilities lie.

An area I was particularly interested in and asked a number of the submitters about was around how we deal with our brand risk. We saw as a result of the Panama Papers and other international reporting that we’ve had some less than desirable practices in our financial markets in New Zealand. What the risk was was that some, let’s say, less than scrupulous providers were registering in New Zealand, or providing quite a tenuous link to New Zealand, and then marketing themselves into international markets using New Zealand’s brand and New Zealand’s good name.

While we’re cleaning up as a result of the Panama Papers, it’s very positive that the Financial Service Providers Register’s regime has been improved. This means that our international clients can have much more confidence that if they’re dealing with a company which is on the New Zealand Financial Service Providers Register, it has much more of a stronger link to New Zealand and our regulatory regime.

Thirdly, we look at the exclusions in clause 58. Here, you’d want to make sure that as you’re developing this financial services regime and applying it so that customers or clients can have confidence in their providers, we’re not drawing too wide of a bow so that your lawyer or your accountant or—as we heard previously, before—your member of Parliament or your media is covered.

We also saw the issue of disclosure of information. That’s in the regulation-making powers, and that was something I raised in the first reading speech that the Green Party caucus was concerned about when it was introduced under the previous Government. We didn’t hear any concerns from our submitters on that, so we’re quite comfortable.

All in all, it is good legislation setting up this regime. We’re comfortable with the direction. We’re pleased by the improvements and glad that it’s seeing unanimous support in this House tonight. We’re very proud and pleased to support it. Kia ora.

Tēnā koutou katoa. Madam Assistant Speaker, it’s a great opportunity. Thank you for the opportunity to take a call on the Financial Services Legislation Amendment Bill, sometimes called F-SLAB, and I think sometimes it was actually called FSLAB. In Parliament, we often come across some acronyms, and I think I was actually picked up by one of the newspapers, suggesting that I didn’t actually know what the legislation was because I didn’t know what FSLAB was, versus F-SLAB—and going “What was that?”. I just want to say, I do actually know what the Financial Services Legislation Amendment Bill is all about.

As earlier speakers have said, there were at least 71 different organisations and individuals who actually submitted to this legislation, to this bill, through the select committee. We heard from 34 of them, and I’d like to take this opportunity to thank the chair and the members. There are some new members to the Economic Development, Science and Innovation Committee, and I’d like to welcome them.

I would also like to acknowledge the Minister the Hon Kris Faafoi. This is the first chance I’ve actually had in the Chamber to thank him for the support of his officials and commend him on being named as the new Minister of Broadcasting, Communications and Digital Media—particularly digital media Minister—in addition to his role as commerce and consumer affairs Minister. I’m sure that he has a lot of work already. He has a big workload, and I hope that he is up to the task of the massive issues that the digital sector is actually facing.

If I could actually go back to one of the things that Jonathan Young has mentioned, in terms of what this bill is actually about, this bill actually seeks to establish a new regulatory regime for financial advice and financial advisers in New Zealand and to amend requirements for registration on the Financial Services Providers Register to prevent its misuse. The bill is actually based on a statutory review of the existing regulatory regime which was completed in 2016.

Many members have actually mentioned the particular point in terms of removing the requirement that only a natural person—meaning, you know, human beings—is able to give financial advice; to, in fact, allow for provisions of online advice, called robo-advice, and I want to get to that particularly.

Some members have talked about the telephone call that people make to, let’s say, a bank and it saying “Press 1 for this thing. Press 2 for this thing.”, and recently I’ve had an opportunity to meet with and actually visit some of New Zealand’s very innovative companies such as FaceMe and Ambit and to actually be shown what their business is actually capable of and what they’re innovating in this space of digital technology.

One of the things that I came across was an avatar. This particular company had developed an avatar—it’s a face; it’s a computerised face—which was a meld of Māori, Asian, and Pacific faces and actually looked like one of my god-daughters, who happens to be Samoan, Dutch, and Chinese. This avatar was able to provide financial advice. For example, I think this particular one was actually developed for the ASB bank. What this avatar and the robo-advice can actually do is that, with the access of the person’s identification card or the bank card number or a bank customer number, they can get advice from this particular computerised robot—to say, for example, “I want to buy a new car.”, and the robot can actually say “You are able to borrow”—or have the capability to borrow—“a certain amount of dollars, from your past history.”

This is something that new technology is making happen in New Zealand, and some of these New Zealand companies are leading the way in this new digital era. All that artificial intelligence technology that people talk about actually puts us in a space where, instead of having real people providing financial advice, there are technical things that even robots can actually do, and, hopefully, the regulatory regime that actually removes requiring natural persons to be the only ones who can actually do this will provide the banks to provide sometimes simple advice—and more complex—that robots can actually provide to the customers.

I think it is important to note that during the National-led Government, we improved a number of existing matters in the financial sector, including tightening the market regime for those who provided financial advice, and, also, we strengthened New Zealand holding the reputation as a good place to do business, and I think that is really important.

We actually talked about—some of the members have sort of talked about—how in the 1980s, with the stock market crashes and everything that has actually happened around the world, people are very gun-shy in terms of what they will actually invest in. Often, we are dealing with, you know, mums and pas—and people have actually said that—and, often, they don’t actually have the expertise, nor do they have the sophistication, to think about what they can actually invest in and what kind of benefits they will actually have. It’s very important to make sure that we have a trustworthy, very good regime that can actually protect the customers and make sure that how little or how big—it doesn’t really matter; I think one of the members opposite actually said we need to protect both the people on the high end and the low end of the spectrum when it comes to investment—they get very good advice. And I agree, and I’m glad that all of the members here actually agree on that.

One of the things that we also heard during the select committee process is, because New Zealand has such a good reputation—being transparent and a place to do business, and, you know, it’s good for business—we’ve actually had situations of overseas financial companies that don’t actually belong in New Zealand registering their companies here and never actually providing advice. They’re taking advantage of the fact that they happen to be registered in New Zealand, and this is one of the things that we will actually protect New Zealand people from, as well as making sure that those businesses who establish here are in fact New Zealand businesses—that they do actually run a business here and they’re not just taking advantage of the good name of New Zealand and not operating some shyster, fake business or whatever just to take advantage of New Zealand’s good name.

The other thing that I wanted to talk about is the confidence that people have. Actually, it reminded me of what Mr Gareth Hughes talked about, and earlier, I think, Mr Brett Hudson talked about, which is the issue of making sure that unintended advice—for example, there are reporters and column writers writing for newspapers or on blogs or whatever. It is not necessarily financial advice that they’re giving. They give an opinion, and some of them are experts and some of them are not. Lawyers provide—in their everyday transactions, where they’re dealing with mortgages or discharging mortgages or giving some advice as to what they should do, and in terms of accountants when they’re dealing with their customers, they are not necessarily providing financial advice. If they’re going about their everyday kind of work, then they should not caught in this regime and also be punished for their everyday work that they do. Like a member of Parliament might say, “Maybe you should talk to a financial adviser. Maybe it’s a good idea to put some money in a savings account or invest in something.”—we’re not necessarily providing financial advice, or what most people would consider to be financial advice.

As a migrant, one of the things that I have noticed, just talking for myself, is that our parents have a different way of thinking about what savings are or what investment is, because we come from a different culture. You come to New Zealand, and the way that we view investment is actually very different. Often, migrants—you know, for my parents, it was always about things that are tangible, and investing in things that were tangible. So they would never invest in stocks, but they would always put money into things like plants, factories, or buildings. As we get more sophisticated, we will actually move on to other investment portfolios like stocks, for example. Having good, robust financial advice is what people need, and I think this particular piece of legislation provides that and protects New Zealand customers so as to get the best-possible advice that they could have. The very fact that this bill has come to this House is, I think, a great thing, and I commend the bill to the House.

Thank you, your time has expired—I’m sorry about that. I understand this is a split call. You have five minutes—Greg O’Connor.

Kia ora, Madam Assistant Speaker. It does give me great pleasure to rise on this bill, and the consensus that I’m seeing and feeling about the need to protect vulnerable New Zealanders—I think the words are “mum and dad investors”. Mum and dad New Zealanders are to be protected. I’m just looking for that consensus continuing when we talk about housing over the next few days and weeks, because we are all agreed that there are many people in this world who do need the protection of the State.

We’re in the financial system—I mean, we go back to the State, and internationally, we’ve always tried to protect people. We can go back to the Bretton Woods Conference in 1944, which was a way to protect the world economies, countries, by imposing the gold standard, until, of course, Mr Siegmund Warburg sort of ruined that. We have the wild west of the financial world, which we see now, and other speakers have spoken about the global financial crisis (GFC). Well, the GFC, there was nothing really—that’s not what we’re protecting against. I mean, don’t forget that in the GFC, the products that dragged us all down had triple A ratings from international credit agencies.

No, the people need protection from the everyday advice. It’s not really even protection from the troughs and it’s not even from the highs and lows; it’s from the everyday advice. I know from personal experience of people who got advice from the family lawyer or the family accountant. They were well-meaning. They weren’t crooks. They just didn’t really know what they were talking about and sent people off into investments, and it was those investments that cost families their money, as much as it was the big highs and lows of our GFCs.

So it’s a very short call. At the risk of incurring the ire or the wrath of my whip—I’ve incurred the ire this week of several members of my party, so at this stage I will just say that this is a very good piece of legislation, and I look forward to this consensus continuing.

Madam Chair, it’s—

ASSISTANT SPEAKER (Poto Williams): Madam Assistant Speaker, actually.

Madam Assistant Speaker—my apologies. Tēnā koutou katoa. It’s easy to forget while we’re here, and it is nice to hear the unanimity in this House for the support of this bill, because what happened in New Zealand was a whole lot of unsuspecting Kiwis—mum and dad investors, as I refer to them, Mr Greg O’Connor—got ripped off, and $9 billion was lost in the sector during the global financial crisis. So this side of the House, when it was in Government, decided to do something about it, and I congratulate the current Government and the Hon Kris Faafoi for bringing this material back to the House for debate and consideration.

There’s been a lot of very positive contributions this evening, and I think it was also reflected in the Economic Development, Science and Innovation Committee—which I’m lucky enough to have joined recently—where we had 74 submitters who spoke to the select committee. Melissa Lee was absolutely accurate. We got an in-depth picture of what had been done, what was being recommended, and, actually, for the main, where we’d end up now—we’ve got pretty much agreement across both sides of the select committee as to what needs to happen.

There are some new technologies out there which we need to protect New Zealanders from. We shouldn’t be scared of them, but robo-advice and things like that are going to happen more and more. I’d remind members of this House that even today, the purchase of life insurance, health insurance, contents insurance—the amount of that that’s now done online without the intervention of a single human being is actually a thing for the future, I believe. So in those sorts of industries and for further financial advice, we need to make sure that there are appropriate rules and regulations in place.

I specifically come to clauses in the bill which I think are very important. One is new section 431J(2) in clause 27, which is talking about the duty to give priority to a client’s interests. We know how advice has often operated in New Zealand, whether it’s financial advice or other financial products, and I acknowledge what Michael Wood said previously about work that’s coming to the Finance and Expenditure Committee. But there is an area of risk in this space, and that is where a financial adviser seeks income and gains income from some financial products and not others, and then seeks to use those products in the advice. But this bill says that, actually, the client’s interest is the first interest and their best interests should be at heart, and I think that we, as a select committee, understood that and supported that.

One that still has some work—and I’ll be interested when this bill comes back to the committee stage—is around nominated representatives, because what we need to be very careful of is that as financial advisers come in and out of institutions, where is the liability for that advice several years into the future? What we’re basically saying, and what this bill says, is that there is an onus on the parent body of financial advisers in an organisation to take overall responsibility for that and for the advice of people that are working within that institution or organisation. The intent of the bill is that financial advisers should be ultimately responsible for their conduct and for their nominated representatives.

We also looked at this whole question of lawyers and accountants, and there are lawyers and accountants in this House. We actually believed that if they were giving the advice as an ancillary to their core function, they should not be regulated. I support that provision, and I think we will get to that point. I think, though, it does become clear, and it will have to be worked on when we get to the committee stage, how the regulations, how the rules, and—when the Minister is front of this House—how some more of the detail of this will work out.

The misuse of financial products and advice has cost a lot of New Zealanders a lot of money. In many other sectors it has happened, as well, and various things have gone wrong. It is the role of this Parliament and the people that are sitting here tonight and for future readings to make sure that we protect those people, and I’m happy to commend this bill to the House.

Kia ora, Madam Assistant Speaker. I really just want to talk about one thing tonight, and that’s what I think is probably the most important part of this bill, and that is new section 431J, inserted by clause 27, which really talks about conflicts of interest. Whilst sometimes the wrongs that are wrought upon investors are easy to see when something fails because they have been poorly represented, conflicts of interest can be somewhat more insidious. Many times, an investor won’t know that the advice that they’re receiving is being influenced by other things, whether it be by the soft commissions of a trip to Sydney or Fiji or whether it be by more concrete measures—the 5 percent they get for churning investments from one provider to another. So can I commend the Economic Development, Science and Innovation Committee on the fine work it’s done in strengthening in that provision not only the conflict of interest rules themselves but the identification of associated persons.

Really, all I want to say is I hope that as this comes to find its way through to codes of conduct and so on, and possibly through the courts, this is recognised as a key provision, one which should be expansively interpreted for the protection of investors. For that reason, I commend this bill to the House.

Thank you, Madam Assistant Speaker. Just as the member Duncan Webb was taking his brief call—it was unfortunate, because I was just reviewing my notes and might seek some guidance from members in the House, because I didn’t sit on the Economic Development, Science and Innovation Committee. But as success has many fathers, I was one of the progenitors of this bill in my time as commerce Minister. One of the things that really concerned me about this financial services legislation work was the code of conduct working group, which was a group which was working continuously with the development of the legislation in my time. I have to say, since I’ve moved on to other portfolios, I don’t know where that’s gone, but it’s a very important part of the development of this bill. It probably is not contained within this bill, but, certainly, a requirement to have a standard of conduct for financial advisers is an integral part, certainly of the philosophy of the bill.

That financial advice code of conduct working group was talking widely with the financial advice sector over how to bring the sector together. There were a number of disparate groups providing financial advice in New Zealand. Some were highly regulated; some were completely unregulated, and we had an environment where financial advice was limited by the level of the label that you were given and the amount of training. For example, there would be people walking into trading banks looking for a bit of advice, perhaps on a term deposit or maybe something very simple like a KiwiSaver question, and the person behind the counter at the bank was unable to give them advice because they weren’t qualified or allowed to do so under the previous Act—the current Act, which is about to be amended.

That has several impacts on citizens. First of all, they don’t get the advice they’re looking for. They might get the advice, but it’s very limited to the expertise of the person giving that advice. But if that person walks away from the financial institution—the trading bank, for example—then that person will be somewhat disillusioned and confused about the advice that they may or may not have got, because it certainly wasn’t fit for purpose.

I want to acknowledge the committee who have worked on this bill, and also the Minister Kris Faafoi, who has shepherded this piece of work into the House. I am pleased to see that this is, again, another piece of sensible legislation which is non-controversial because it makes sense, and it’s good for just a while to have a bit of collegiality across the House for it.

So there will be a new regulatory regime for financial advice and for financial advisers in New Zealand. There will be a new regime and an amendment for registration on the Financial Service Providers Register to prevent its misuse. The bill is actually based on a review of the existing regulatory regime for financial advice, and that was started and completed back in 2016. So there have been a number of ministerial hands on this bill.

I also want to commend the officials from the Ministry of Business, Innovation and Employment (MBIE) who, in my time and no doubt in Paul Goldsmith’s time and, no doubt—I believe, it’s the same officials who have assisted the Minister in the Hon Kris Faafoi’s time. I want to commend them. They are a good bunch of public servants who provided good, robust advice where it was needed, provided the expertise where it was needed and, when they didn’t have the expertise themselves, were unafraid to go out and seek it and talk to people in the sector, because there was a very strong view in MBIE, supported by Ministers, that this is an important piece of work for the financial advice services regime in New Zealand. So just a note to advisers: I think you’ve done a great job on this. Also the select committee, because I believe that they have considered this bill very carefully and have come up with a number of enhancements to it.

I want to say a few words about the provision of robo-advice. Even a year ago or 18 months ago, when I was sitting in the commerce chair, the talk of robo-advice was becoming louder and louder, and financial institutions were evaluating how they could be part of providing robo-advice. I had conversations with the Commerce Commission at the time, because, of course, it was not allowed under the current legislation, and, in fact, the Commerce Commission issued an exception to the rules in advance of this bill so that robo-advice could be taken up. The concerns I had—it is exciting; let me just say. The provision of robo-advice is exciting for the financial services sector, not just for them but for people like myself and all of us who, from time to time, want to get a little bit of financial advice, which can be done by way of an algorithm, but be certain about its security and the effectiveness of that advice. For someone like me, it might be checking something to do with my KiwiSaver account, something to do with some banking operation I wish to do—I don’t know, should I turn over a term deposit, that sort of thing. Am I paying the right interest rate? The sky’s the limit.

💬 Hon Member: Get a loan.

Yes, get a mortgage, get a loan. Robo-advice can extend across all areas of financial advice, and I would wager that the scope of that financial advice which is able to be provided in the future is not even known yet.

I was in Auckland at a Vodafone incubator programme a couple of weeks ago, and there were young innovative business people going through a wonderful business incubator at Vodafone in—

💬 Melissa Lee: Christchurch.

—Christchurch, sorry; Christchurch—and I spoke to someone after the presentations had been made, and because he was an online IT specialist dealing in the financial world I asked him about robo-advice. I said, “Are you contemplating doing that in your small start-up business?”, and he said, “We’re doing it. It’s so exciting.” This is what happens when you talk to young, entrepreneurial business people—they get so excited about the opportunities that are being presented to them in innovating in the financial services sector. If this bill does nothing else, it will support small business in that way, in particular, small businesses, because it absolutely opens the door to be innovative and new in the provision of the services—whatever their services are—into the market. If we wish to remain competitive as a country in New Zealand, if we wish to continue to support small business, small to medium sized enterprises, business in general in New Zealand, there is one thing we have to do, and that’s be able to innovate. That means through our banking systems, and that means through our financial services.

💬 Hon Stuart Nash: Well, we’re putting in an R & D tax credit, which you guys never did. That’s how you innovate.

Oh, here we go—here we go. It’s really disappointing, isn’t it, that the Minister for Small Business chips in with a negative comment at this point. Oh dear! Oh dear! Bit all at sea over things, aren’t we, because I’m just describing the excitement of innovation, supporting small business—

💬 Hon Stuart Nash: You’re just describing what you should’ve done—

ASSISTANT SPEAKER (Poto Williams): Order!

💬 Hon Stuart Nash: —in the last nine years.

ASSISTANT SPEAKER (Poto Williams): Order! Do not bring me into the debate.

—and here’s the Minister for Small Business having a negative chip. Well that speaks volumes about this current Government’s focus on supporting small business. Shame, shame, shame, Minister. We didn’t think that one through, did we?

The genesis of this legislation started a number of years ago. It has been well supported by the financial services sector as a whole, the banking sector—

💬 Hon Stuart Nash: Nine long years and you did nothing.

—the insurance sector, and now I am very pleased to see this next stage of this bill go through the House.

💬 Hon Stuart Nash: They should’ve put a businesswoman into the portfolio.

Members, just note that the Minister for Small Business is still chirping away like some dissatisfied little canary, because he’s been caught out. He’s been caught out in not supporting small business in New Zealand. So with those words, I commend the bill.

Thank you, Madam Chair. I just want to take a really—

ASSISTANT SPEAKER (Poto Williams): Madam Assistant Speaker.

—quick call—Madam Assistant Speaker, sorry—on this piece of legislation, on the part that I think really aligns really well with what this Government stands for, which is the people—the people. What this legislation is going to do is ensure that mum and dad consumers are going to get really good, clear, sound, quality financial advice. We know that that’s really important, because often this is around things where people are looking to purchase a home, start a business, or to what to do for retirement, and I think it’s really, really important that good quality, sound advice is given to people when making those decisions.

I also really like the fact that the legislation is going to allow people to have robo-advice rather than having advice from a natural person. I think that’s going to make things more easily accessible as far as financial aspects go, because it will ensure that people that wouldn’t ordinarily get financial advice are going to get it through robo-advice, and it will be a cheaper option for businesses also. I really commend this bill to the House.

Bill read a second time.