Nick Smith - Nelson MP, Minister National Government

Fixing the Financial Sector

22 September 2011

Hundreds of Nelsonians have lost their life savings in the dodgy dealings of finance companies over the past decade. The Government's response has been to hold to account those who breached the existing law and to strengthen the law to better protect investors from reckless behaviour for the future.

Our first step was to reverse Labour's decision to scrap the Serious Fraud Office. New Zealand needs a specialist and well-resourced watchdog to nail sophisticated white collar criminals.

We also need to acknowledge the failings of the old system. Questions were being asked over the conduct of finance companies as early as 2005 but the Government did not react until too late. The confusion between the six Government agencies that had different roles in regulating the financial sector meant no body took responsibility. The Government has merged these into one Financial Markets Authority.

National has passed eight reform bills to sort out these problems. The Anti-Money Laundering Bill, Auditor Regulation Bill, Financial Reporting Bill, Financial Markets Bill, Financial Service Providers Bill, Insolvency Amendment Bill, Securities Disclosure and Financial Advisers Bill, and the Securities Trustees Bill.

These new laws mean financial advisors have to be qualified. They must disclose commissions they receive for financial products they recommend. We've beefed up audit requirements. We've also strengthened monitoring of the sector so problems are picked up earlier. The new laws introduce tougher penalties and greater powers for investigation and enforcement.

The Government also needs to lead by example. The previous Government breached the Public Finance Act in not disclosing huge losses at ACC when Maryan Street was Minister. ACC's losses exceeded those of all the finance companies combined. This hiding of losses was no different to finance companies hiding bad debts. This National Government is ensuring it is quite upfront about these sorts of financial problems, such as our announcement this week with AMI.

A dangerous portion of finance company money was used to fund consumer goods and highly geared property development. National's tax and economic reforms are rebalancing the economy away from the debt-fuelled consumption and property boom of the last decade towards productive investment and exports. We are also providing new investment options for people by making shares available in businesses like Air New Zealand and state energy companies.

These steps will help but people also need to be more cautious. No Government can protect people who hunt out the highest interest rate or sign over their home as security without consideration of risk. Improved financial literacy has also got to be part of the fix.

The 2011 World Bank report rated New Zealand first in the world for its new rules for protecting investors. Our reforms are gradually restoring investor confidence.

ENDS