Financial Services Legislation Amendment Bill

Thank you, Madam Assistant Speaker. I won’t take long. I would like to just take this opportunity to thank Minister Faafoi for finishing his contribution approximately one minute before the House rose that day. I was just talking at the time, when it was interrupted, about the information asymmetry that exists in financial services from the perspective of the consumer. You could call them the investor, but I think “consumer” probably fits better in most circumstances. Those selling the services tend to know a great deal more about those services—the intricacies of them, the pitfalls, the advantages—than the purchasers, the consumers. So for the bill to place the obligation, a very clear obligation, on those providers to put the interests of their customers first I think speaks to the very heart not only of the intention of the bill but, in fact, of what the bill does.

Just before I close, I would note that the rather large Supplementary Order Paper 195 that the Minister did introduce in the committee of the whole House, which allows for staged disclosure over the course of a piece of advice and a transaction, is actually a really good idea, I believe. The idea is the investors, the consumers, should know all that is relevant about the person providing the advice, but rather than give them a great tome right up front, disclosing relevant advice at relevant points should actually make it better and easier for the consumer, which fits to the point about putting the consumers at the heart of the services and, certainly, of the legislation. We commend this bill to the House.

Thanks, Madam Assistant Speaker, for the opportunity to speak on this, the Financial Services Legislation Amendment Bill. Whilst I came into the Economic Development, Science and Innovation Committee part-way through the consideration of this bill, I’ve appreciated seeing firsthand how well Minister Faafoi has done with introducing and bringing this piece of legislation—

💬 Hon Jacqui Dean: Just say “Thank you.”

—to the select committee. Yes, thank you, Minister Faafoi. I’m really pleased because it shows that he is forward-thinking and he is looking after New Zealanders and he has a desire to make sure the regulation of financial markets is fit for purpose.

What this piece of legislation does is it reforms the regulations of financial advice. It repeals the Financial Advisers Act 2008. It’s really important that people today have access to extremely high-quality financial advice. Whether it be someone looking to take out their first-home mortgage or just a mortgage in general, this is a really big decision that one makes in life. There is a lot of money involved, and potentially some risk also, so it’s really important that you have good-quality, sound advice when making these decisions.

One of the things that this piece of legislation does that I think is really good is it takes away the incentive for the advisers to sell or promote—I guess “sell” might not be the right word—a particular product because they may get commission from that and have their own interests at heart. But what this piece of legislation does is ensures that financial advisers have to put the clients’ interests first, and that is really important because we do need to prioritise their interests, and that they only can give advice where they are confident to do so.

This is also really important, I think, for people who are looking to start a business, because it’s a big risk when you start a business, and there’s a lot of money involved. It’s really important that you do get extremely sound, high-quality financial advice. So without further ado, I wish to commend this bill to the House.

What an excellent bill this is—an excellent bill, and—

💬 Hon Kris Faafoi: If only you’d introduced it.

Yes, it is a shame, but I want to congratulate Minister Kris Faafoi for really picking up this piece of work and bringing it to fruition. It happens all the time, you know—one Minister initiates the work, maybe another one takes it the way through, and then some lucky guy gets to bring it to the House and bask in the glory. I’m not hurt—ha ha! It is good. Look, it’s a good piece of work, and when we do talk to members of the financial advice industries—I did just last evening—there is a good understanding of the regime, and there is a good understanding and acceptance and enthusiasm for the new compliance requirements, new standards of financial advice, and also for putting the needs of the client right at the very forefront of financial advice provision in New Zealand.

The parts of this bill have been well gone over. The part I’m particularly interested in is an emerging part of financial advice, which is robo-advice, and to me that is an exciting enabler in this piece of legislation. Having said that, actually, the Financial Markets Authority (FMA) did authorise—or was it the Commerce Commission? No, it was the FMA—the provision of robo-advice ahead of this legislation. I can’t remember. Maybe the Minister can remind me—FMA? I think it was, yeah.

So already there is an emerging market of robo-advice. Well, what does it mean for me when I want to make an adjustment to my KiwiSaver, for example? I can do that, perhaps, online. I might not need to use a person to do it. It might be quicker and easier and more convenient for me, and it may be anonymous if I want that, to be able to get some advice which I need, at the level which I want, quickly, easily, sitting in front of my keyboard.

It also opens the door for innovation, and I will be very interested in the future to see just what form that takes. I know there was a lot of interest in the insurance industry, financial advice industry, obviously, and banking about what the potential is for providing that robo-advice, because any advice is good advice.

So I do commend the bill. I commend the Minister for his good sense in picking it up and running with it, and I commend the bill to the House.

Thank you, Madam Assistant Speaker, for this opportunity to speak to the Financial Services Legislation Amendment Bill. I just wanted to start by acknowledging the members opposite, because this was a piece of legislation where the Ministry of Business, Innovation and Employment (MBIE) was required to do a review, which they undertook in around 2015-16, and, to be frank, they found a few problems with the existing regime for financial advice, and so that was brought to Parliament under the previous regime. I suppose what the public can take assurance in and see, I don’t know, a positive pathway for legislation is that it was started under the National Party Government and it’s continued, and it’s continued with a great sense of positivity in terms of the select committee process and the way that the two sides of the House have worked together—so a great example of collegial work in Parliament.

What MBIE did was they consulted extensively with the industry, with consumers, obviously. They put out several consultation documents and, actually, they put out an exposure draft bill for consultation. So what happened then, I suppose, is the fruits of what we’re seeing now—the fruits of those efforts is what we’re seeing now. I would kind of summarise the Government’s position by saying good financial advice is core to, I don’t know, good household operation—

💬 Kieran McAnulty: That’s right. Dead right.

—yep, thank you—and people having confidence with their moneys and particularly the likes of KiwiSaver, where financial advice in that area is so core. Actually, the Government’s undertaking further pieces of work, which I won’t go into here in the third reading, just to drill down and make sure that people with KiwiSaver, which is more and more of the New Zealand workers and population, can have more and more confidence. This is one of those processes where they will go and seek advice and they can be sure, for example, that the people they are seeking advice from are working from a comprehensive code of conduct. So we want New Zealanders to have those tools to make wise decisions with their money.

A sad statistic in my notes here is that 68 percent of New Zealanders do not have confidence with their money. So in that, it speaks to the strong necessity of not only the provision of financial advice but, as the review from MBIE found, sound advice that people can trust. I think it was the previous speaker on this side who spoke about the confidence for people to engage in savings and having a sense of confidence that the people giving them advice are actually working to their best interests, which is a large part of what this legislation is about.

So to that, I think I will take the time in this reading just to outline the three main parts of the legislation. So it overhauls the regulation of financial advice, which is mainly what I have been talking to up to this point. These changes, as I said, are intended to improve the quality of and access to financial advice. They also aim to remove undue compliance costs and, actually, barriers to innovation, which is to be applauded.

The second part amends the Financial Service Providers (Registration and Dispute Resolution) Act. The bill makes changes to the Financial Service Providers (Registration and Dispute Resolution) Act 2008 to address the misuse of the Financial Service Providers Register. Actually, it does bring to mind—when I was in the previous Parliament in Opposition, I undertook quite a lot of work with financial advisers in the sector just to understand, because the evolution of the legislation of financial advice had had its ups and downs and there were quite a few elements of complication that made it hard to deliver advice comprehensively. So, actually, as much as I acknowledge those who came to the Economic Development, Science and Innovation Committee to give MPs advice and engage with our officials, this is an opportune time to thank those businesses and people that I had worked with in the past who came forward with good advice and timely advice in this area.

The third part was minor amendments to the Financial Markets Conduct Act, which makes minor changes to address technical issues of the Financial Markets Conduct Act.

So, with that, I think we can take surety on the vote in the House that this legislation will receive this early evening in that it is well supported. It is a piece of legislation that has been worked on—started under the previous Government, but engaged fully and supported fully by all of these members in the House today, and so I applaud everyone for that. With those short words, I do commend this legislation to the House. Thank you very much.

It’s a pleasure to rise in the third reading of the Financial Services Legislation Amendment Bill, and I’d like to commend all of the members who’ve actually stood up and cordially congratulated all of the Ministers who were involved. In particular, I’d like to, obviously, congratulate Minister Kris Faafoi, but, obviously, our former Minister of Commerce, the Hon Jacqui Dean, did an amazing amount of work. She did jokingly, actually, suggest that somebody else was taking the glory after she’s done all the work, so I just want to acknowledge the amount of work that she’s actually done.

This bill is an omnibus bill that makes amendments, as other members have said—changes in the way that businesses change their conduct when they’re dealing with their customers. As earlier speakers have actually said, for members of the public—you know, ma and pa investors, or anyone who is making a financial decision—it is a major risk that they actually face, and having good advice from professionals who should have the nous to advise their clients without thinking about their own pocket should be the way to go, but it hasn’t been always the case.

This particular bill changes that, and puts the client care obligation at the forefront of the work that people in this industry actually do. Other members have said many things, but one of the things that this bill does, that I am particularly proud of, is the issue in relation to offshore providers with tenuous links to New Zealand who were, in fact, able to register as New Zealand financial service providers in the registry, and one of the things that we do in this particular bill is remove them—so, for example, some odd outfit who is trying to utilise the good name of New Zealand. They don’t even exist in New Zealand and yet they were able to register their company to make their clients believe that they were a New Zealand company, because they were able to register here as a financial service provider, but they don’t even have an office in New Zealand. So we are preventing these shysters from being able to register here without providing those services in New Zealand.

It would also remove the place of business test. One of the interesting debates that we had in select committee, which I found very interesting, is that there are some legitimate New Zealand businesses who were, in fact, providing financial services to offshore clients. We continued to actually look at those businesses and make sure that legitimate business could still register, but that the shysters, who were using the good name of New Zealand, could not actually do so.

This bill is a good one, and I am very proud to have actually worked on the select committee, and I commend the bill to the House.

Thank you, Madam Assistant Speaker. So it’s with pleasure I rise to take a call for the Green Party on the third reading of the Financial Services Legislation Amendment Bill. It’s nice to mark these moments in the House, where we seem to have unanimity. I too would like to acknowledge both Ministers who have been involved in this—the Hon Jacqui Dean and the Hon Kris Faafoi—for getting this bill through the House to this day.

The bill, as has been stated by others, is making amendments to the financial services legislation, which has, really, only been in place for about eight years, so it’s relatively new legislation, but in, I think, an encouraging way, the ministry, through monitoring, picked up that there were issues with the legislation, and some gaps; and this bill is addressing those.

At a high level, it brings financial adviser regulation into the Financial Markets Conduct Act 2013, and it creates new types of financial advisers, allowing also for the provision of robo and digital advice, and the intent of that—for some of us who may just associate anything that says “robo” with robocalling and the desire to disconnect from landlines altogether—is about setting out that not all financial advice should come in the same medium; that we need it also to be appropriate for the decisions that people are making, and not everyone needs a full prospectus; and that actually sometimes robo or digital advice will be the best way to get information across to people. We should be ensuring that our legislation enables that.

It also requires providers of financial advice to be licensed at a firm level, and puts in place, in effect, a new code of conduct that will apply to everyone providing that advice, and it addresses the historic offshore abuse of the Financial Service Providers Register by requiring providers to have a stronger connection to New Zealand. As Melissa Lee, the previous speaker, mentioned, I think it’s encouraging that it’s been picked up that there have been some offshore providers who have, in effect, been misrepresenting themselves as more closely grounded in New Zealand than they have, in fact, been. When people are making decisions in a New Zealand context, I think it’s reasonable that they have the ability to discern how close to the market in New Zealand the people they’re getting advice from are, so this tidies that up.

Also, I just note that through the select committee they added in subcontractors, which the Greens were really pleased to see, which I really think strengthens the legislation to stop people using that as a backdoor in terms of avoidance, which would have undermined the intent of the legislation, which is really to provide an even playing field around our expectations of good-quality financial advice. I also note that the Supplementary Order Paper that came in at the committee stage provided for a staged disclosure regime that also seems to have support from everyone in the House.

So it’s good to see that we’re all on the same page—it would be hard to think why we wouldn’t be—in making sure that New Zealanders can have confidence in the financial advice that they’re getting.

Thank you, Madam Assistant Speaker. I rise to take a very brief call this afternoon on the Financial Services Legislation Amendment Bill’s third reading. I won’t add too much more to what’s already been provided by the House this afternoon; there have been some excellent contributions laying out what the changes are in this bill, which really provide a clear duty for anyone giving advice to ensure a customer outcome is the priority.

I did sit on the select committee that considered this bill, and we received 71 submissions and heard about half of those in oral submissions. They recommend a number of changes, several of which we took up, particularly in relation to the definitions of financial advice.

The most significant change, I think, in this bill, was mentioned previously by the Green member Jan Logie, which is in relation to removing the requirement that only applies to an actual person and that it does now also cover the provision of robo-advice, which, of course, is something that’s growing and will continue to grow. So, in a lot of ways, this legislation will futureproof future arrangements.

I would like to congratulate my colleagues on the committee. We all worked in a very collegial manner, as we often do on the Economic Development, Science and Innovation Committee. I would also like to acknowledge Minister Kris Faafoi for shepherding it through the House, and acknowledge former Minister Jacqui Dean. Thank you.

I understand this is a split call. Greg O’Connor, you have five minutes.

Thank you, Madam Assistant Speaker. How timely a piece of legislation is this? We’ve got a generation who are growing older, who are ones who have trusted. I know from personal experience that some of a generation ahead of me—unfortunately, there is only one generation between—

💬 Hon David Bennett: There is no generation ahead of you.

—myself and the graveyard. There still remains one, unlike for some of those people screaming from across the other side. But they were a generation that trusted the professionals. They trusted their accountant. They trusted those who, basically, looked after their financial matters, and, unfortunately, there were some investments that just didn’t really turn out to be what they thought. That’s a generation that are the first ones that lost a lot of money through finance companies, and then there was the crash. In Wellington, there was David Ross, of Ross Asset Management, which, unfortunately, again left a trail of financial victims around Wellington, in particular—building companies, Blue Chip investments.

So it’s a world where people previously really had a lot of trust in their banks. We’ve seen what’s happened in Australia with a banking inquiry, but who can you trust? It really now behoves us as lawmakers in this House to ensure that we can get some sort of confidence back in there so that people who have nest eggs—people are living longer. Those nest eggs that they had hoped would see them out and that would maybe leave a little bit for the grandchildren—they hope that they can actually do that. They need the confidence to do that, and that’s why legislation like this is so important.

Just looking at one aspect of this, around the international companies who’ve been setting up here using the New Zealand name, I had a personal experience of that. I was in New York at a fund-raiser, where I was a guest, and someone mentioned that I was from New Zealand. Someone from South Carolina who was doing a big property investment came up to me and mentioned the name of a New Zealand company that was financing this particular development that he was doing, and it was a very large development. So I had some inquiries made about this company, and they were one Canadian and two Americans who had never been to New Zealand, but who had this company doing exactly what one of the previous speakers on the other side has talked about. They were just having the New Zealand name to give it the credibility.

The money was channelled through New Zealand, which was, at one stage, why the New Zealand dollar, I believe, was the 10th most traded currency in the world—through those sorts of transactions. I might say that on that particular occasion, everything, as far as I understand, did work well, but it did show the ease of using the New Zealand name for very little. In fact, I looked into that. There was very little for New Zealand in that. I think there were about 200 other companies renting the same office space, and so there was very little accrued to New Zealand from that.

That was a type of financial system where bills like this become absolutely necessary. So I commend whoever has been involved, and it’s one of these cases where success has a thousand fathers and failure is an orphan—everyone is taking credit for it—but I’ll give that credit to Minister Kris Faafoi on this occasion. This is something that I just hope, for those of us who reach our dotage—that’s a long way away for some of us—we can actually have faith that those hard-earned dollars we have will be secure and that the State is doing what it can to be sure to protect us from some very scurrilous individuals that exist out there. I commend this bill to the House.

It gives National great pleasure to support this bill because, as the previous speaker has said, ensuring adequate protections and rights for New Zealanders seeking financial services is a very important principle. I do want to pick up on that example of David Ross that the member for Ōhāriu, Greg O’Connor, just raised, because I have known individuals who were impacted by the terrible financial advice that he gave. The impact for them was incredibly detrimental, because the impact of very bad financial advice is not just financial and material; it’s emotional, it breaks families, it creates depression, it can really ruin lives. So this, while a dry bill on the surface of it, is actually dealing with issues that have substantive relevance for the lives of many New Zealanders.

Of course, issues like this are technical. So this is a technical and complex bill; it is establishing a new regulatory regime. So I want to take just a moment to commend the process that National followed, having introduced this bill in August 2017. That had actually followed a three-year process, and it was incredibly comprehensive. There were issues papers, there were options papers, there was an exposure draft of the legislation, and I commend that process because what we know with technical financial issues of this sort is that if there are inappropriate loopholes or technicalities are left unaddressed, then there can be ways that people can work around the system. None of us in this House want that; so by allowing all of that exposure, allowing all of that submission, allowing all of that debate, we iron out any wrinkles as we go so that we then come to this House with a piece of legislation that both sides can support.

The bill, of course, does a number of things that have already been canvassed by previous speakers, and before I sit down, I just want to highlight the modern aspect, which is removing the requirement that only a natural person can give financial advice. That, of course, allows for the provision of online advice in the future, or robo-advice. I know, not having sat on the select committee but having spoken to colleagues who did, that this has been an issue of debate and contention, but I think it’s important that we think about the regulatory principles first and then allow those to be adapted towards the technology so that people can get affordable advice that is effective and that can be relied on. I commend this bill to the House.

Thank you, Madam Assistant Speaker—just a short contribution on this third reading of the Financial Services Legislation Amendment Bill. I know it has been described as technical but it’s actually another really important step forward in the modernisation of our financial services regime. It’s also got some underpinning principles, which are pretty important and that I just want to mention—that is the intent to lift the financial capability of all New Zealanders. That’s pretty important because there’s research that says, I think, 68 percent of New Zealanders have money worries. I would hazard a guess that it could even be higher than that.

Financial literacy is a seriously big issue in this country. Our financial environment is becoming ever more complex; so this is one way of putting in place some measures to address some of those issues—another is the fact that this Government is looking at our school system, around providing a toolkit for young people to become more financially literate and to help set them up for adulthood, which is incredibly important as well. So this piece of legislation sits within a framework of intent, which is about raising the financial literacy and capability of all New Zealanders, as I said.

Having the tools to make wise decisions is pretty important. Obviously, that also then requires a strong regulatory environment around the quality of the advice that’s being given to people, and that’s why this piece of legislation feels like the next stage of quite a long—and the previous speaker, Nicola Willis, and the speaker before her, Greg O’Connor, touched on that quite long history, over more than a decade now, since that financial crisis and the collapse of financial companies and the terrible practices that were unearthed as a result, and the need for very strong financial regulation.

Two things I just want to add are with regard to making the bill fit for the modern world, and introducing the flexible and technology-neutral approach by enabling the robo-advice, which is logical and important. It’s important that it’s entered into under a regulatory environment so that it can be more closely monitored. I just want to sound a note of caution around the ability of the algorithmic approach to providing information to consumers and ensuring that that doesn’t move beyond the bounds of what’s acceptable, and I hope that there is a regime being put in place that will keep a close eye on that. We call it “algorithmic transparency”, and some work has been undertaken across the public sector on ensuring that that’s the case, but it’s just equally as important that that work is happening in the private sector and in the financial services as well.

Then, finally, just on the code of conduct—I’m sure the Minister will have touched on this—the code working group has provided the Minister with a draft code of conduct. This hasn’t yet been made public, but there are provisions in this bill to ensure that that happens in a timely way, and I’m sure that the sector is eagerly awaiting what that will look like, and it seems as if really good work has been done. I congratulate the select committee, the various Ministers involved, and all the officials, because often they don’t get the plaudits that they deserve. So, with that, I commend the bill to the House.

It’s a real privilege to be able to take a short call on this third reading of the Financial Services Legislation Amendment Bill. It’s easy to forget the genesis of where this came from and the misery that was caused at the time: the high-profile case here in Wellington, two high-profile cases I’m aware of in Hawke’s Bay, and the genesis of people being ripped off by, in my view, advisers that were more interested in their own personal circumstances in the end than the clients they were servicing.

So this bill provides a clear duty for anyone giving advice to ensure a good customer outcome as a priority. I do acknowledge various Ministers along the way. I acknowledge what National did: the detailed process of engagement with the community, the draft legislation, and the way it was consulted. I also acknowledge the Hon Kris Faafoi and the way he has brought it back to the House.

In this new regime, financial providers carrying on a business of giving financial advice will be required to be licensed with the Financial Markets Authority to give advice to retail clients. Any person giving financial advice on behalf of a financial provider will need to either be engaged—employed or otherwise—by a financial provider or be registered themselves. Having sat on the Economic Development, Science and Innovation Committee, these types of details were important, because it became obvious that if somebody gave you a piece of financial advice and then moved to another provider—where was the liability if that advice was substandard or not correct? There is also a fundamental requirement in this bill that implements conduct and competence requirements to all those giving advice, both the firms and the individuals.

I do want to acknowledge, in closing, that anybody that is giving financial advice, particularly as our population gets older, has an immensely important role as people plan for their retirement, particularly. There is an absolute duty of care on those people, and that’s being enshrined in this legislation.

In closing, I would just like to personally acknowledge the Hon Kris Faafoi, because I have had providers of services in my own electorate who have seen some holes, in their view, where the legislation could be amended. Minister Faafoi has met with them and they have been addressed in the Supplementary Order Paper. So I think this is a very good example of how legislation that is very complex can be drafted, how it can be worked through a process where select committee all work together, and the Minister was open to making changes from both the select committee and members of the public. I commend this bill to the House and I think it’s a very exciting day.

It’s not the first time I find myself agreeing with Lawrence Yule; I hope it’s the last. The point is that he’s absolutely right, as are many other people that have spoken on this bill, because this bill has a very clear objective, and that is the desire to lift the financial capability of New Zealanders. I don’t see the need to go on about it for too long; I agree with what’s already been said.

The fact is that not everyone is born with a great array of skills. I can only speak for myself; I was born with very little. But one of those skills that not many people hold is financial capability. So like previous speakers Lawrence Yule and my friend here, Greg O’Connor, have said, as people reach a certain age, they start to want to ensure that the money that they’ve saved away for their retirement is in good hands. I think that just makes absolute sense. So you’re looking to ensure and give people the confidence that the financial advisers that are assisting them to make decisions about their money are doing so under a regime that instils them with confidence. So on that note, I’m very pleased to speak in favour of this bill and I look forward to it passing into law.

Bill read a third time.