Securities Legislation Bill

National supports the Securities Legislation Bill, and, in the spirit of cooperation, I hope the Minister in the chair, the Hon Lianne Dalziel, will consider accepting two of my amendments, one to Part 1 and the other one to Part 2. My Part 1 amendment proposes to increase the authority for the Securities Commission to carry out functions so that the relationship and the role of both the Securities Commission and the stock exchange can be improved.

During the financial review the Commerce Committee had an in-depth exchange with the Securities Commission. In September 2004 the Securities Commission completed an inquiry into the performance of the New Zealand Stock Exchange. The stock exchange declared in that year that Access Brokerage had defaulted under its participant rule, and the exchange suspended it from trading. But it revealed a lot of confusion about the understanding of the front-line role of the stock exchange and whether it has a reporting function to the Securities Commission.

Why did the joint monthly meeting not send an early detection warning that the compliance rules of the stock exchange or programme could have been improved? At the time we conducted our financial review, we noted that the Securities Commission, although it claimed that there is a working relationship between the two agencies, seemed to be helpless in terms of getting the review programme completed.

So my proposed amendment inserts new clause 3AA, which would allow the Securities Commission “to keep under review the operation of the securities markets, and to comment on those operations to the appropriate body or the Minister;”. That means that the Minister in the chair, the Hon Lianne Dalziel, could have an early warning sign from the Securities Commission if, indeed, that agency finds itself lacking in power or not able to take early action.

I hope the Minister will look into that recommendation properly, because the objective of the bill is, supposedly, to improve the confidence of investors in our capital markets, so I think my proposal is going in the right direction. At the moment, the Securities Commission and the securities stock exchange market are operating under a joint regulatory role. Although we agree that they can work in partnership, one cannot help thinking that the Securities Commission is, ultimately, the agency that needs to know whether any breach is happening. Given the example of the way Australian authorities operate, we believe we do not need to wait for another bill to be introduced into the Parliament. There is goodwill on both sides; we do want to increase investors’ confidence in the capital markets, and I hope we could cooperate and support this amendment.

I am pleased to see that the Minister seems to be discussing the issue with the officials. I am happy to accept further amendments, but the spirit of this provision is to ensure that the Securities Commission does have that authority to review the operation of the securities market at all times, and then comment on those operations and bring them to the attention of the Minister. We all know that a thriving capital market and securities market is, indeed, very important in order to ensure that investors have confidence. That would assist business to prosper. I am sure the stock exchange and the Securities Commission would welcome a proposal in that direction. So I am hoping the Minister will look kindly on this one.

I really would like to respond positively, in the spirit of the way it has been presented—the Opposition is supporting this legislation and I am very grateful for that. I am a little bit concerned, because I had only just seen the amendment, but I refer the member to the existing section 10(1)(caa) in the Securities Act, which states that one of the functions of the commission shall be “to keep under review activities on securities markets, and to comment on those activities to the appropriate body; and (cab) on the Minister’s request, to advise the Minister on the conduct rules, or amendments to those rules, proposed by securities exchanges;”.

The member seems to think there is a difference between the word “activities” and the word “operation”, and I actually think that the language of the existing Act is broad enough to pick up on those points. But I would like to say that I felt the Commerce Committee members handled that matter particularly well when they looked at the financial review of the Securities Commission, and I felt that the Securities Commission explained itself particularly well in its annual report, which has just recently been tabled. It did explain that it was very difficult that, at the time it was developing that early relationship with the stock exchange for the co-regulatory regime to work, there was the Access Brokerage case, which it then had to deal with and set aside the time it was spending on developing that relationship. As soon as the Access Brokerage decision came out, the Securities Commission was quite clear and acknowledged that the stock exchange had changed some of its practices and procedures as a result of Access Brokerage, and then it was able to move on. The relationship has developed very well ever since that time. So I am very pleased that the member has raised that point.

I do not think the amendment to the legislation is necessary, because the Securities Commission has that ability to review activities on securities markets, and that is indeed the function it is carrying out very well now.

I will start by saying to the Minister in the chair, the Hon Lianne Dalziel, that I am bitterly disappointed to come to the Chamber this evening to find that two Supplementary Order Papers have been tabled. I say that I think that makes it very difficult to have informed debate about legislation that should otherwise have the full attention and understanding of those who are debating the issues. The select committee process was very rigorous—and, at times, vigorous—but to find that there are now two Supplementary Order Papers, one 3 pages long and the other 14 pages long, I think is simply unacceptable.

Having said that, let me turn my attention to the body of the bill. Because it has been some time since it came out of the Commerce Committee—in fact, it was in the last Parliament—let me take a moment to recap what the bill is trying to do.

The Securities Legislation Bill is an omnibus bill containing amendments to the Securities Act 1978, the Securities Markets Act 1988, the Takeovers Act 1993, and the Takeovers Code. The main aim of the bill is to increase confidence in New Zealand’s capital markets. The National Party accepts that as being conceptually sound, but as this debate proceeds I will draw the Committee’s attention to some concerns I have about the way the bill is framed, because I think it may actually work against that lofty objective and may, in fact, stifle the flow of capital into, and throughout, New Zealand.

For the sake of the Committee’s accuracy, I say that this bill has three important changes. One is the restructure of the current insider-trading regime, and I will come back and talk about that in some detail. The second is amendments to the disclosure regime required of substantial securities holders, which I agree with, and the third is increase of disclosures of advisers and brokers, which is, again, something I agree with, provided that it does not become too burdensome.

One issue worth noting is the proposed market manipulation provisions, which is a concern I raised both in my first reading speech and in my second reading speech in this House. Those provisions have been dropped. I made the point at the time, and I think the argument held sway in the select committee, that market manipulation enforcement is notoriously hard to nail home, so I think common sense has prevailed.

Of more important note is the component relating to insider trading. The bill expands the present civil liability to include, in appropriate cases, criminal liability. Additionally, the concept of an insider has been expanded to include any person who has inside information regardless of its origins. Critics—and I am one of those—say that this could discourage directors and employees from owning shares, including incentive shares or schemes. That is an issue that I raised in the course of the second reading and is a view I still hold very strongly. I think that rather than enhance capital flows into this country or through our capital markets, we might create an environment where people become so risk-averse that they may find markets in other jurisdictions more attractive.

Throughout the course of the select committee discussions I was concerned to avoid the creation of a regulatory regime that would stifle our capital markets in the pursuit of one or two crooks. I was at pains to point out then, and I will do it again now, that I do not want to see anyone who is engaged in insider trading getting away unscathed. At the same time I do not want—and I know the Minister is cognisant of this—to create an environment that also scares people from engaging in the pursuit of legitimate activities. What we particularly do not want to do is to stifle initiative.

I draw members’ attention to one or two examples and ask them to contemplate the argument I am putting forward. Is it insider information if a bright young thing uses his or her initiative and, through his or her own inquiries, determines that an enterprise is worth pursuing and putting some money into? A case in point might be someone taking a packed lunch and a pair of binoculars and looking over the Auckland, Christchurch, or Wellington wharves. They see the activity of a particular company and how that company is increasing its importation of goods for sale in this country. On the back of the company’s retail success, that person invests heavily in that stock. Is that insider trading, or is that information that any bright young thing could have had at his or her disposal? If that person then passes that information on to clients, on the back of his or her own endeavours, in my view that is information anyone in the community who had put in the hard yards could have had access to. That is a very strong concern I hold, and on reading this bill I am not sure that the select committee has yet addressed that issue. Maybe the Minister would be good enough to take a call and give me some assurance that she is satisfied that will not happen.

The other issue that bothers me is that we are relying heavily on the Australian example, in terms of basing our legislation on Australia’s. Having spent the best part of my corporate career in Australia, I can say to the House that having a tougher law in itself will not be the panacea if the resources are not there to enforce the legislation. I caution the House that what we need are resources to police, as opposed to more restrictive legislation. I would go as far as to argue that if we had better enforcement now, this legislation in itself may not be necessary. Certainly in my time in Australia there were one or two very high profile convictions. But I have to say that for every conviction that was made, there were probably 50 that failed. What it certainly did in Australia was to make people risk-averse.

The last issue I want to address in this call is the issue of banning orders. For those who wonder what banning orders are, they are essentially a mechanism to ban managers—directors of companies—from being involved in those activities if they are found to be in breach of the regulations. When this bill was first drafted, I thought the banning orders were punitive and would apply to everyone regardless of what the breach was. Through the good work of the select committee—and I commend my select committee colleagues for the work they did, and the officials for listening and redrafting this component—people will be banned from management and directorships if they are found to be in breach of serious misconduct. This is quite different from people making an inadvertent mistake. At the time I was concerned about managers involved in minor misdemeanours. I am glad to say that concern has been removed. In my view it was going to drive people away from taking on executive management positions or directorships and it would have certainly spelt an end to share schemes.

With those point made, I am looking forward to having a very vigorous debate throughout the evening over the Securities Legislation Bill. It is very complex legislation and runs to something like 182 pages. I do not want to labour the point with the Minister but I will end where I began, by saying I am very disappointed that Supplementary Order Papers have been tabled today, given that the select committee worked its way through 182 pages of original legislation. It would be useful to understand exactly what those Supplementary Order Papers intend to accomplish.

The purpose of the Securities Legislation Bill is to increase confidence in New Zealand’s capital markets. Let us look at the basic structure of securities and how that fits with this bill. I note that National is supporting the bill. It is an omnibus bill, and therefore it contains amendments to the existing Securities Act 1978, the Securities Markets Act 1988, the Takeovers Act 1993, and the Takeovers Code. The main aim of the bill is to increase confidence in New Zealand’s capital markets.

Securities are often related to bonds—an exchange of stated trust. How familiar are we with that expression: “My word is my bond.”? Throughout commercial history, business people have been judged on the efficacy of their word. Oh, that that was still a valid currency!

Having had 1 year in Parliament, I have found it to be a remarkably rewarding experience in terms of being part of the hub of the wheel. However, if I am permitted to be slightly critical of the procedures of the current Government, I would have to question the way that questions are answered in question time—or perhaps I could say that I question the truth or answer avoidance that occurs during that time. How that can instil confidence and trust leaves me be.

So what security can we have as a country? What do we each represent? I guess there are three effective measurements: ethics—what we believe in; confidence—what other people believe about us; and integrity—what we believe about ourselves. I am still struck by the saying of President Harry Truman: “The buck stops here.”

Hone Harawira: Harry Truman.

CHRIS AUCHINVOLE: Harry Truman, that is right. In the Securities Legislation Bill—[Interruption] Some of these things, I say to Hone, are timeless. Indeed, a breach of trust is equally timeless—it is not easily forgotten.

With the Securities Legislation Bill it is important to determine where the buck stops, and it is important to make sure that that is a known place. This is necessary for confidence in the country’s capital markets. Confidence is so necessary, and it is something we all have to contribute to. I have had the opportunity to deal with overseas interests. I have operated a joint-venture company with overseas interests, and I am aware of some of the measurements used in determining how much confidence can be placed in New Zealand business. I am delighted to say that, when I established the company in the 1970s, there was a very high understanding of New Zealand’s integrity. There was a high level of appreciation of New Zealand’s sense of ethics. Word was that when a New Zealander said he or she would do something, it was believed the person would do so.

The confidence other people have—

Peter Brown: And then came the National Party!

CHRIS AUCHINVOLE:—and the confidence that is based on the way we behave, I say to Mr Brown, is reflected in the saying: “By our work we will be known.” I think the National Party and National Governments have an unparalleled record in stimulating the confidence of people from other countries in the way we behave.

Then we can measure integrity—the belief in oneself. I like to think, as a businessman, that these lines on my face are not just laugh lines; nothing could be quite that funny. I like to think that I have been through the mill a little bit—as has my colleague “Bob the Builder”, and as have my other National Party colleagues who have been involved in business.

I was hoping there would be other things I could respond to, but I will go back to Brian Connell’s speech, which raised a couple of points that I ought to respond to.

The first point Brian Connell raised was about new section 8A, “Who is information insider”, which is proposed to be inserted by clause 21 of the bill. He raised questions about insider trading, including who an information insider is, and whether “material information relating to the public issuer that is not generally available to the market;” would be caught by his example of some bright young market analyst who goes with binoculars to take a vantage point overlooking the activities of the Auckland wharf—this was the example he used in his second reading speech and has repeated again tonight.

In order to find the answer to that question we really have to go to new section 4 of the bill, which is proposed to be inserted by clause 20. New section 4(1)(a) talks about information being generally available to the market if “(i) it is information that has been made known in a manner that would, or would be likely to, bring it to the attention of persons who commonly invest in relevant securities; and (ii) since it was made known, a reasonable period for it to be disseminated among those persons has expired; or (b) if it is likely that persons who commonly invest in relevant securities can readily obtain the information (whether by observation, use of expertise, purchase from other persons, or any other means); or (c) if it is information that consists of deductions, conclusions, or inferences made or drawn from either or both of the kinds of information referred to in paragraphs (a) and (b).” That new section makes it clear that the example the member uses would not be caught by the insider trading provision. I would like to offer him that assurance.

The second question Brian Connell raised was about Supplementary Order Paper 59, which makes a number of relatively minor amendments to Part 1. A number of those amendments were brought up with officials by the financial services industry after the bill had been reported back from the Commerce Committee. So we have been working on the Supplementary Order Paper for quite some time. It is not an ideal circumstance, but the bill had already been reported back from the select committee, there had been a general election between times, and in the meantime we had been talking to various market participants about this particular Supplementary Order Paper.

I will quickly run through the key changes to Part 1. It ensures that capital market advisers are not caught by insider trading or continuous disclosure provisions of the bill, providing they are legitimately advising their client on its own activities. I think that was a partial question that the member raised. It extends the time period for bringing civil proceedings from 2 years to 3 years, to enable the Securities Commission and others to have sufficient time to detect and investigate behaviour before bringing proceedings. It clarifies that the Securities Commission can recover its actual costs, rather than court costs, where it brings a successful civil pecuniary penalty proceeding. It requires investment advisers only to disclose to a potential client an adverse finding against it by a court, not an adverse finding by a disciplinary body. When we worked through that issue we thought some relatively minor breaches could bring an individual in front of a disciplinary body. If that individual had to disclose each breach, then he or she may not join what are voluntary bodies, and we thought that that might somewhat minimise what we were trying to gain by the passage of this legislation.

A couple of other minor technical amendments ensure the overall efficacy of the bill and ensure there is a greater consistency of approach across other pieces of legislation.

I thank the Minister for clarifying those matters, and I endorse the goodwill that seems to be around this Securities Legislation Bill here and in the Commerce Committee, even though it was over quite some time. National is supporting this bill. It was interesting to pick up on the point that Mr Brian Connell made about the two Supplementary Order Papers. Last time I spoke to a bill like this—the KiwiSaver Bill, 2 weeks ago—a couple of key Supplementary Order Papers were launched in the Committee. The democratic process was somewhat abused, in my opinion, in that fundamental changes were introduced to a bill at the last minute. Having said that, I freely admit that the changes in these Supplementary Order Papers are not quite as fundamental.

I would like to declare a personal interest as we speak about some of the insider-trading matters, not that I have insider traded but I have traded securities in New Zealand, Singapore, London, Australia, Tokyo, New York, Hong Kong, and also most interestingly as far as insider-trading stuff goes, in the emerging markets when the Soviet Union broke up, and particularly also with South America and the Indonesian states. If we think we have a need for this legislation in New Zealand, my goodness gracious once one gets involved in some of those markets with their various versions of insider trading, “bauble” exchange if you like, cash for favours, and cash for questions, it is endless. I make that point because in all those countries they, of course, did have securities legislation. The key is the teeth and the appetite to enforce the legislation, or the punishments and enforcing the boundaries that surround it.

My colleague Mr Chris Auchinvole, the next West Coast MP, made some very good points. In fact, it is interesting; why do we need this legislation? Sadly, yes there was a time when one’s handshake was one’s bond, and that was one’s pledge. For example, the pledge card could be an interesting example of why we need such legislation, or proactively, in the internationalisation of share markets, securities, and financial markets, we need robust legislation, ongoing and work-in-progress legislation, if you like, to keep us in tune with the rest of the world.

I would make one more point—whatever gets passed in the Chamber, sadly we will have examples again of dodgy behaviour, shareholders being ripped off, and investors being ripped off by unscrupulous individuals. I guess we will have some further legislation, once that arrives. In particular the arrival of the Internet and the ability to share trade in unregulated environments—particularly in some of the emerging Asian countries, with all that goes on there—has created ripe opportunity for further abuse, sadly, of people’s goodwill. There are a few recent examples. Some are currently in the headlines. We have an issue around the recent fall in the Feltex share price and the issues around the Feltex company, when it was floated versus where the share price is now, and who knew what, and was it just the market, or did some people know more than others, and did they let on more than others? Did they deal within the law, or the spirit of the law, or the word of the law?

Interestingly, another example where there was very, very robust legislation was around the Enron debacle in the United States a few years ago. I am sure members remember that that debacle brought down the great accounting company, Arthur Andersen and Co. Again, the United States had more robust legislation, probably, than New Zealand will ever have, yet, again, unscrupulous individuals managed to exploit the system, tunnel right in, and, sadly, the auditing sector of the market was never the same again.

We recently had an interesting example in New Zealand over the allegations around Telecom and the leaking of insider information in respect of what the Government proposed to do with the unbundling. Regardless of the merits of that, we saw, quite openly, the impact someone can have if that person has a key piece of information and is about to short-sell into a market. From memory, that leak wiped about $2.5 billion off the market value of Telecom, which was—and probably still is—New Zealand’s largest telecommunications company. Thank you, Mr Chairman.

I move, That the question be now put.

Hon Members: Part 1 is huge!

The CHAIRPERSON (Hon Clem Simich): Yes, Part 1 is a very big part—it is huge. I call Tim Roper. I apologise to the member—Tim Groser.

Mr Chairman, if you had a name like mine and you had a dollar for every time it had been misspelt or mispronounced, you would be a rich man, so I take no offence.

I rise to take a call to support the Securities Legislation Bill. I am well aware that the bill had been in front of the House for a number of years prior to my arrival. Unfortunately I have not, unlike some of my colleagues, had personal experience in dealing with securities, but I have had a long interest in economic reform, and I recognise that this bill addresses some issues in that area and is therefore worth supporting from that perspective alone.

I am well aware of—and I think we have had increasing debate in this country on—the thinness of our capital markets. I am well aware that those capital markets are vital not only to establish New Zealand companies but to benefit new companies that have gone beyond the mezzanine and angel financing stages and are looking at initial public offerings. I am well aware of a recent Ernst and Young study that placed—unfortunately, as an illustration of the weakness of our capital markets—New Zealand 21st out of 22 OECD countries in 2005, in terms of the funds raised through initial public offerings. I think the parties in this Chamber recognise that we have a structural problem in this country, and the cleaning out by some Australian companies of some of our more successful emerging companies is itself, unfortunately, an illustration of our need to address some of those weaknesses as best we can. The bill is worth supporting as one move in that direction, because it is perfectly obvious that the public’s confidence in our capital markets legislation is a component in it. The public can get burnt off capital markets for any number of reasons, including, of course, the public’s own inappropriate decisions. But if there is a widespread belief in the malfeasance of markets, that is something that is within the control of the authorities, and we should move to do what we can to put in place the measures necessary for the public to have confidence in the integrity of the markets.

I have to say, however, that on all of these issues there is a first test that one has to apply, and that is to establish whether there is a problem, and, if there is, to find out how large it is and what the costs and benefits are of fixing it. I remain a little bit unconvinced by the argument that our having had no prosecutions in the last 5 to 10 years proves there is a problem. I ask members to just look at the matter intellectually. As far as I know, for example, the authorities have not captured, recently, a single live ferret in Wainuiōmata. I am not quite sure what that proves. It could prove that the authorities do not have the Taser guns necessary for the task, or it could establish that there is not a problem with live ferrets and, therefore, the good denizens of Wainuiōmata have nothing to fear; I am not quite sure what it proves. So I do not think the absence of prosecutions per se is particularly convincing proof that we have a pervasive difficulty in this area. It would be naive to imagine that in the last 10 years there have not been, in the capital markets of New Zealand, people who have gone well beyond what I would call sharp practices towards engaging in some very dodgy activities. But I start from the somewhat more optimistic assumption on matters of this nature that there is a fairly high level of integrity in New Zealand. I do not think there is even anecdotal evidence that suggests—a few obvious examples aside—that we are dealing here with a large problem.

Therefore, the policy implication that I would draw, as somebody coming to this debate fresh, is that we should look quite critically at some of these provisions, support them in terms of their general direction, but regard this legislation, frankly, as a work in progress. Obviously, this bill does some positive things, including the tidying up of the provisions for the three relevant bodies, the Securities Commission, the Takeovers Panel, and the Commerce Commission, that are responsible for ensuring that deceptive practices are not left undetected. It is very sensible that the bill establishes procedures for the proper exchange of information between those regulatory authorities.

Equally, it is very sensible that the legislation tidies up provisions to ensure that the considerably enhanced penalty provisions apply only to serious offences. I am not quite sure which adjective I would use to delineate those offences from other offences, but let us use the term, for want of something better, “technical offences”. Those are very considerable penalties, and I think the issue of proportionality arises here, so it is sensible that the bill addresses that. Equally, it is sensible that the bill contains provisions to avoid what I call “forum-shopping”. I am not quite sure whether that is a term one uses in this realm of public policy, but it concerns the ability of litigants to look around for alternative forums to pursue endless litigation—in this case, conducting private prosecutions under the provisions of both the Fair Trading Act and the Securities Markets Act. It is sensible that we are tidying up this provision. So I put these provisions down as good housekeeping and well worth supporting.

But what worries me—and I think Mr Connell and Mr Foss touched on this—are the illustrations of that old enemy of legislation, the law of unintended effects. Having worked in the public sector for 30 years, I am deeply conscious of the dangers of putting in place compliance regimes and management systems that encourage deeply risk-averse behaviour. I remember when I was a junior investigating officer in Treasury, more years ago than I am prepared to admit—

Hon Members: Tell us!

TIM GROSER: I will tell members in private. It was pointed out to me that a certain very senior Treasury official—and I am not referring to that great public servant Henry Lang—had sat in his office at a very senior level in the New Zealand Treasury, and for 30 years he had never approved a single departmental expenditure proposal, had never put forward an initiative on his own, and had said no to everything that had crossed his desk. So I know all about risk-averse activity and its great cost to the public sector. I guess what I am worried about, if we apply the law of unintended effects here—and I have listened carefully tonight to the helpful explanations of the Minister, the Hon Lianne Dalziel, on some related points—is that here we are dealing with something that is at the cutting edge of private sector entrepreneurial activity; we want to ensure that due attention is paid to risk, but we do not want to put in place compliance regimes that are actually completely counter to the underlying purpose of having capital markets in the first place.

Mr Connell and Mr Foss have addressed some of those issues, including the definitions of insider trading, and the tests that are generally available to the market—the evidentiary tests. The Minister has given us a view that is interesting, but I have to say that I have some reservations about this, and I have some reservations about the enforcement policy. Although National supports this bill, we should regard it as a complex piece of Government machinery that is very much a work in progress. Thank you.

I move, That the question be now put.

The CHAIRPERSON (Ann Hartley): No. This is a large part, and there are still people debating the issues.

Thank you, Madam Chairperson—we really appreciate that you have reminded the Labour MP that this Part 1 is two-thirds of this bill. I suggest he uses his spare time to do a good, thorough going over of Part 1. We still have a lot of issues we want to raise. I want to go on to discuss the insider-trading provision, plus the investment advisers disclosure law. I want to echo the concerns raised by both of the previous National speakers. I appreciate that the Minister is taking calls—she might like to give us some assurance.

I want to share a case. There is a credit card technology company—an Eftpos maker—that used to be known as Advantage Ltd and has changed its name to Provenco. In May 2003 Provenco conducted an on-market buy-back of $4.2 million of its own ordinary shares, paying $1.4 million. The Securities Commission considered that the defendants received insider information about the future earning of the business. This case dragged on for a year, and eventually the Securities Commission and the company came to a settlement whereby the company agreed to pay $622,000. In the meantime, the business had taken off and the company was doing very well. Both the Securities Commission and the company had come to this sensible settlement; both sides acknowledged that dragging on would not actually generate additional benefit.

This case has reminded us that under the existing securities legislation, insider information can be detected and dealt with. I hope the Minister will take a call and maybe alert us to additional problems that she felt necessitated the tightening up of the existing legislation. There is a balance to be struck. If we want businesses to thrive, they have to take risks. My colleagues correctly questioned whether we are tightening the net too much; are we actually trying to correct the problem with too big a tool? Does this send the right type of message to the Securities Commission, and does it send the necessary incentive to potential investors to invest in our market?

The other important issue I raise is that I wish the Minister would share with us why it took a whole year for this legislation to be reported back to the House, when National supported it. It contained a very important provision in Part 1: the disclosure by investment advisers. I want to share with the public the following very sad case. Recently, three very high-profile finance companies went into liquidation. Let me share the saga of Provincial Finance Ltd. After it withdrew its prospectus on 10 April, $9.5 million of investors’ funds were poured into that failed company. That suggests to us that there is some serious problem and that investors are not getting good advice or are not getting information. National definitely welcomes the provisions in Part 1 that enforce more disclosure by the investment advisers. Investment advisers will now have to disclose, for example, their qualifications, their experience, whether they are a member of a professional body, and whether they have professional indemnity insurance.

Investment advisers must also disclose whether they have certain criminal convictions. When a company withdraws its prospectus, and $9.5 million of investors’ funds finds its way into the failed company, it certainly suggests there is a market failure. I really want the Minister to take a call to tell us why she waited a whole year to bring back this legislation.

I start by thanking the Minister in the chair, Lianne Dalziel, for her willingness to get to her feet to clarify questions that have been put to her.

Simon Power: She’s good like that.

BRIAN CONNELL: She is proving to be very good like that this evening. I also say to the Minister as regards my argument around the Supplementary Order Papers that it was not the substance of the Supplementary Order Papers I was concerned about, but rather the timing with which they were tabled. I was concerned that, without having the opportunity to read those Supplementary Order Papers in detail, it was hard to make a significant contribution to the debate. Now that I have had the opportunity to read them, I agree with the Minister that they are warranted. I accept they have come from financial markets and institutions, and that is quite legitimate. My point is just around timing.

The other issue the Minister responded to was my question around insider trading and the concept of an insider being expanded to include any person who has inside information, regardless of its origins. That is why I went to some trouble to give the example I did; it was to do with the origins of that information. The bill still states that insider liability has been expanded to any person who has inside information, regardless of its origins.

I now go to another component of the bill. In my discussions with submitters to the Commerce Committee, I found that they still have some concern with new section 4, to be inserted in the Securities Markets Act by clause 20. They say that section 4(1)(a)(ii), which will prevent those with insider information from trading until a reasonable period has passed for it to be disseminated, is inconsistent with section 4(1)(b), and that the matter will probably be left to the courts to distinguish. The problem has occurred in Australian legislation, on which this provision is based.

I say to the Minister, with the best will in the world, that I think this is a flaw in the drafting of the legislation. If submitters to the select committee still feel, in subsequent discussions, that this issue is left open to interpretation, then I think that is a problem. Now that we are going through the Committee stage and trying to draft legislation, I think we should try to get it as right as we possibly can. So I leave that issue with the Minister, and ask whether she would be good enough to talk to her advisers and maybe come back to the debate with some response. If she could give me some satisfaction that that issue has been clarified, I would be grateful.

The other area that concerns me is that, when preparing a takeover involving third-party consultants, there is no defence provided to those consultants for the inside information they obtain through due diligence. It is standard practice in any takeover or acquisition to involve a due diligence team, and how inside information is treated in that situation is an issue for debate. Again, I seek the Minister’s indulgence and ask her to speak to her officials and to give the Committee some satisfaction that that issue has been canvassed, as well.

We should comment on the issue of additional disclosure for advisers and brokers, as well. Those offering investment advice are now required to disclose qualifications, experience, professional standing, criminal convictions, and, most important, any relationship that would influence their advice. It is my view that most advisers do that now. What this legislation will not do, though, is protect the unwitting public from those people who are crooks or who have a criminal intention. Having as advisers people who are well-trained or well-qualified, but who do not have good intent, will not protect the investing public. That issue still concerns me.

I can see that compliance costs will have to be built into investment companies, because people will have to get qualifications where generally, I think, quality advice is being given now, and there have been no incidents where those particular organisations have given bad advice. So I think the Minister should look at this issue.

I move, That the question be now put.

I would like to continue the debate surrounding disclosure by investment advisers, because I was very disappointed that the Minister in the chair, Lianne Dalziel, who had been very good in taking the call, suddenly stopped doing so. I am still wondering why this bill, which was reported back to the House late last year, is still only at the Committee stage. People would really benefit from this additional disclosure, and we can share with them piles of information about what happens in Australia. The chairman of one failed financial company, Provincial Finance, went over to Australia and started a finance company to try to raise funds over there. The Australian agency, the Australian Securities and Investment Commission, is right up with the task. Its spokeswoman says that it is chasing disclosure in relation to that company. She said: “I can say that we are concerned to ensure that investors are provided with all the information required to make an informed decision.” So the Australians are very effective in trying to protect their investors.

I think the Minister should take a call and explain to the Committee why provision for disclosure by investment advisers took 1 whole year to get to this stage. I would also like her to share with us how quickly the second part of the regulation relating to investment advisers will take place. My colleague Brian Connell has just been saying that disclosure is fine and that a lot of people disclose their information. But the public has a right to know that people calling themselves investment advisers do actually belong to a professional body—that there are regulations and that somebody is checking their qualifications—to ensure a level of comfort.

Or does the delay have something to do with the extension of the definition of what constitutes insider trading? I understand that the definition of “information insider” has now been extended to: “A person is an information insider of a public issuer if that person—(a) has material information relating to the public issuer that is not generally available to the market; and (b) knows or ought reasonably to know that the information is material information;”. There was some speculation about whether the Hon David Cunliffe, when he was under investigation by the Securities Commission for speculating about the future dividend policy of Telecom, would be caught under this new extended definition of “information insider”. Now that his case has been closed, we have suddenly seen this bill find its way into the Committee stage. If that is the case, it is not fair.

The public has a right to get protection as soon as a problem is detected. There have been three very high-profile collapses of finance companies, and we are being told there are still more on the way. A lot of finance companies engage in the financing of second-hand cars, and with the economy starting to slow down—we are now looking at 2 percent growth—people are suddenly finding themselves unable to meet their payments. So I think there are more collapses of finance companies under way.

Personally, I would like to see this bill pass through all its stages a.s.a.p., but we also urge the Minister to fast-track the regulation of investment advisers, because unless we can instil public confidence, then our capital market will not thrive.

I move, That the question be now put.