Financial Markets (Derivatives Margin and Benchmarking) Reform Amendment Bill

Thank you, Mr Assistant Speaker, and I do want to say a few more comments about this piece of legislation. Ultimately, what we’re talking about is the Financial Markets (Derivatives Margin and Benchmarking) Reform Amendment Bill, which amends a number of Acts to remove impediments to compliance with foreign margin requirements for over-the-counter derivatives, which will enable relevant New Zealand entities to continue to enter into certain types of derivatives and international counterparties, following changes to the EU and G20 countries’ rules around this kind of financial market activity. It also establishes a new licensing regime for administrators of financial benchmarks under the Financial Markets Conduct Act 2013.

So, ultimately, we are broadly supportive of the policy intent. We are aware that most of the market players are keen to see this happening so that they continue to have access to these instruments. It will go off to select committee now and, of course, the devil is always in the detail when it comes to this kind of legislation. Many things can go wrong and, quite often, you can achieve exactly the opposite of what you’ve set out to achieve, so we’ll go through the select committee process in detail.

The only point I wanted to make was that, fundamentally, this bill is doing something quickly in order to maintain our access to capital, international capital—our access to international flows of money in order for us to invest and to grow our economy. We support that and we’re glad that the Government is doing something about it. But I do make the point that it stands in stark contrast to everything else that the Government is doing. Here, they’re maintaining our access to capital, but at the same time, they are considering a capital gains tax, which would increase taxes on investment, and nobody believes that taxing investment more will lead to more investment. So I can’t believe for a moment that that would lead to New Zealanders having more access to international capital coming into this country, and also domestic savers investing more and growing this economy.

So we’ll support this bill, but we just wish they were more consistent in their thinking around investment and attracting investment to this country in order to grow our economy and to provide jobs and opportunities for New Zealanders. Thank you.

Thank you, Mr Assistant Speaker. Such welcome, if grudging, support from the other side for this bill, the excitingly named Financial Markets (Derivatives Margin and Benchmarking) Reform Amendment Bill, otherwise described by me—with apologies to Minister Kris Faafoi—as a boring but bloody important bill! Really, though, in my short contribution to this debate—and I may be sitting on the select committee, but I’m not sure; I’m waiting with bated breath—I say that this is actually pretty important.

As Paul Goldsmith, the previous member, said, it is about ensuring that there is access to international capital and a whole lot of other things, actually. While this is a technical bill, it’s critical because it will allow New Zealand’s major financial institutions to continue to transact with those overseas parties to manage financial risks, to raise capital, to continue to engage effectively in international markets and bring us into line with international standards, and, proactively—as a good Government does—to avoid potentially substantial economic damage.

It wasn’t magicked up out of thin air. Over the past year, the Ministry of Business, Innovation and Employment (MBIE), the Reserve Bank, and the Financial Markets Authority have undertaken a comprehensive review of what’s required to bring New Zealand into line with the international reforms, and MBIE and the Reserve Bank undertook public consultation on foreign margin requirements for those over-the-counter derivatives in 2017. That consultation identified specific impediments to compliance in New Zealand law and it proposed a number of targeted legislative amendments to address them.

So there are two essential, main changes that I think this bill makes. It will ensure that our flow of capital and international standards between New Zealand markets and the international markets will ensue, and it’s pretty important that we’re doing this.

The second one, which I’ll just briefly talk about, is the introduction of the licensing regime for administrators of financial benchmarks. In June 2016, the European Union responded to concerns about conflicts of interest and the manipulation of financial benchmarks. It published new benchmark regulations, and those new regulations set standards around the processes by which the financial benchmarks were set. They apply from 1 January 2020, so I imagine that that is the timetable that this legislation is working to, to make sure that we’ve got that in place.

The regulations have got effect outside the EU as third countries and benchmark administrators in those countries must meet the new standards if the benchmarks they administer can be used in financial contracts with parties located in the EU, and, of course, our banks and other large private and public sector organisations such as the Reserve Bank, ACC, the New Zealand Superannuation Fund, and the New Zealand Debt Management Office rely on the contracts with EU counterparties that reference New Zealand benchmarks and access EU financial markets for risk management investment and capital-raising purposes.

So this is pretty obvious. It might sound dry to those listening, but it’s extremely important. It’s the hallmark of a responsible Government that we’re getting on and doing it, and it’s great that we have got the support from across the House to do it. So, with that, I commend the bill to the House.

There’s a few things—I’m going to make a couple of predictions here, and if I lose, we all get a peppermint. So one prediction is this: this first reading will pass with overwhelming support and be sent to, hopefully, the Finance and Expenditure Committee. The other point will be: this will get no coverage whatsoever in the mainstream media or any other media. It will, however, cause problems if it’s not passed. We will have a select committee process. The only people to come along and be interested in submitting on it are people who actually know about it, so there will be about three people or organisations that will come along, and we will nod and we will listen and we’ll all learn, and we’ll have a great time in that committee.

💬 Hon Clare Curran: Will you do baking?

Clare Curran says, “And will I do the baking?” This is not a sexist comment—no, no. Ms Curran knows that I quite like to produce some nice home baking from time to time for committees.

💬 Chris Bishop: What do you bake?

Oh, well, it just depends, Mr Bishop, on what I feel like. I’ve even made gluten-free for my colleague over here. So coming back to the bill, which, of course, is far more important than my baking and gluten-free—but it woke everyone up, didn’t it, Mr Assistant Speaker? Actually, instead of a peppermint, I’ll do some home baking. Good idea. There’s a lot of you, though.

💬 Greg O’Connor: Finally, some common sense.

Amazing common sense—finally. So I thought what we would do is—this bill reminds me a bit of the anti - money-laundering legislation. I’m sorry to say, it has caused a number of law firms—because, of course, as you know, I’m a lawyer as well—to complain to me about it, and I have to look embarrassed and say, “I’m so sorry. I was the Minister of Justice who had to bring it through.” Actually, quite often it’s because the European Union has decided something. We were being told then that we would not be able to have a lot of business with the European Union because of the anti - money-laundering legislation that we hadn’t quite yet passed, so we had to do that. It causes a lot of extra cost to everything and to everyone, but we have a similar situation here, where the banking system has to cope and comply now with the EU regulations. I mean, imagine what it’s like if you’re actually part of the EU. We’re not even part of it and we’re having to comply with it. Of course, the fact is that we do because we are just a mere little trading nation with our 4.8 million people—I mean, if Statistics tells it, it’s probably 3.5 million—out there trying to do business with the world. So we just, essentially, have to do as we’re told on this unless we want to say goodbye to the European Union as a trading partner. So that’s why we’re doing it. It’s for our banks, and it’s for us to be able to get capital into New Zealand through that system.

As we all know, New Zealand is a beautiful country full of lovely people—well, actually, not full at all; there’s hardly anybody here, but we’re all lovely. The issue is that we don’t have enough money—we don’t have enough capital—so we need to have this. This is an excellent bill, and it is one that we will of course support on the National Party side. It’s the sort of thing that responsible Oppositions do when it’s something in the greater good, for the good of the country, which is—so seldom do we see a bill coming into this House these days that we can support, but this one, we can. So, having really exhausted what there is in this bill, apart from the fact that we’ve solved child poverty, we’ve got world peace, and the European Union will let us trade with them—fantastic, Mr Assistant Speaker; great bill. I commend it to the House.

Thank you, Mr Assistant Speaker. I rise to speak on the first reading of the Financial Markets (Derivatives Margin and Benchmarking) Reform Amendment Bill on behalf of the Green Party and in support of the bill. I just wanted to pick up on where the Hon Judith Collins left off, which is that this is, obviously, a highly technical but, actually, fairly significant bill, and it is in the public interest. It is good to see that the Opposition is supporting it, and I hope that they also support another important piece of legislation coming up soon, also in the greater good—

💬 Chris Bishop: What’s that one?

The zero carbon bill. So returning to the Financial Markets (Derivatives Margin and Benchmarking) Reform Amendment Bill—the purpose of the bill is straightforward. Now, what’s proposed in the amendments in this bill are a number of changes to pieces of legislation that will, basically, keep New Zealand’s financial institutions connected to the global economy.

💬 Andrew Bayly: You must be reading this.

I am. The changes will allow our financial entities to access capital, as other speakers have said, most recently the Hon Judith Collins, but also alluded to by the honourable Minister Faafoi in his introductory remarks. Now, I think this is a really important point, which is that if we don’t make the changes to this bill—if we don’t make those changes—it will actually cost all New Zealanders in the form of higher cost of borrowing. So while, as Judith Collins noted, it’s not going to get a great deal of press attention, the title of the bill obscures its intent, and it’s a pretty niche bill, it does actually have a material impact on the lives of all New Zealanders if we don’t pass it.

So what we’re now considering under this financial markets reform amendment bill are changes that will help keep us in line with international regulation reform. We’re not the only country that’s introducing these reforms; there are a number of countries that are lining up around this. These are changes, I want to point out, that have been prompted in part by the very painful lessons that were learnt in the global financial crisis (GFC), and that’s some of the context that we’re debating. Last year, of course, was the 10th anniversary of the Lehman Brothers bankruptcy, and, I have to say, that met with a lot of reflection about how the financial world has changed in the 10 years since. What that reflection showed, I think, was that whilst there has been a lot of progress that’s been made over the last decade in securing and making more stable and more resilient financial markets, it also showed that debt levels now are actually higher than they were when the GFC hit us 11 years ago now.

Now, I have to point out, obviously, the New Zealand context there is a little different. We’re carrying less debt than many other OECD countries, but we’re still highly exposed to the global situation. So I think that while things have changed, there are some things that have outstanded, and some of the lessons that ought to have been learnt may not have been learnt. So I think it is important that we keep going with these kinds of reforms. While we are in relatively strong shape by international standards, it is important that we maintain and build on this regulatory regime.

So the amendments in this bill really are towards that end, and without them, again, as my honourable friend Kris Faafoi has pointed out, and the most recent speaker, the Hon Judith Collins, we won’t be able to comply with relevant commitments and the kind of new international rules that are aimed at keeping more resilience and protection against manipulation in the global financial system. As anyone knows, that is a system, and the players in that system are very fast-moving; they’re very sophisticated. Every time a wave of regulation comes through, they’re usually able to get ahead of that and work out how to create new instruments and new ways of getting around it and create yet more levels of risk and uncertainty into the system, and so it is quite a job for us to keep up with that in the national and international regulatory system. So what that means is that once a regulatory regime has been put in place, it can’t stand still. You kind of have to keep monitoring and learning and evaluating and seeing what trends are out there. Again, that is, I think, where the amendments in this particular bill come from.

The amendments in this bill will ensure that New Zealand banks and other financial entities in New Zealand can continue to access offshore funds with the kind of safeguards that they need. I notice that without the amendments in this bill, certain aspects of New Zealand law as they currently stand would restrict New Zealand’s financial entities from complying with rules around foreign margin where those rules would give our financial institutions protection when parties default or become insolvent. So that does carry with it some risk.

I want to acknowledge the consultation that the Ministry of Business, Innovation and Employment (MBIE) did, the Reserve Bank did, and the Financial Markets Authority did as this bill was being put together over the course of the last year. I do want to acknowledge that they were operating under time pressure to complete their consultation and analysis and subsequent advice. I note that MBIE felt satisfied that the time pressure didn’t unduly compromise the process, but I do know that when you’re dealing with something this complicated, it can be hard for people to participate in that. But I think that where we’ve landed is pretty good.

So I want to highlight some of the concerns from some of the consultation documents that it picked up around the over-the-counter derivatives aspect of the bill—derivatives, of course, being financial contracts that banks and other institutions enter into in order to protect against exchange rate risks. In relation to those, where exchange of collateral—the margin—is involved, submitters to the consultation were worried that under existing law, there would be some impediments that this bill needs to address. So those impediments related to the fact that under existing law, there are no margin requirements in over-the-counter derivatives, but there are several banks that are registered in New Zealand which would likely have to comply with margin rules that are being implemented overseas.

The consultation process also pointed out that some features of New Zealand laws which cover statutory management and creditor priorities could prevent or impede the prompt and free availability of margin provided in New Zealand banks. The possible result of that is that there could be difficulties for New Zealand banks across derivative products in markets used for funding and hedging. Minister Faafoi, in his speech, pointed out the example of the kind of implications for the big four banks in this country if we were not to bring the amendments proposed in this bill. Those implications estimate $1.1 trillion of gross exposure just for those four big banks to parties in the European Union if we don’t align with the over-the-counter derivatives reforms being established by the G20.

So it is one of those, kind of, quiet bills but I think it’s lit, and I think it’s great that everyone’s supporting it, and I commend this bill to the House.

Thank you, Mr Assistant Speaker. This bill is supported by the Opposition through the House—the Financial Markets (Derivatives Margin and Benchmarking) Reform Amendment Bill. There have been a number of contributions around a fairly narrowly defined piece of legislation. So I don’t propose to go through it all again. I don’t think that would add much to a debate where everyone is in support of the banks having a more appropriate regime in place to continue and ensure continued access for New Zealand benchmark users to access European financial markets.

So this was originally a National Government Bill. We’re happy now to support it in Opposition, and congratulations to the Hon Kris Faafoi for progressing it. I do see that the Financial Markets (Derivatives Margin and Benchmarking) Reform Amendment Bill is enjoying quite steady stakeholder support and feedback. So ACC and super fund, who submitted jointly; the New Zealand Bankers’ Association; Russell McVeagh; Chapman Tripp and Buddle Findlay also did a joint submission; and then RITANZ, which is Restructuring Insolvency and Turnaround Association of New Zealand—all wrote and submitted in support of this very narrow bill.

I just want to do a shout-out to the Hon Judith Collins and her baking with the Finance and Expenditure Committee (FEC). I was not aware that there was baking going to FEC. That’s a bit of a challenge to the rest of us. Challenge accepted. I commend this bill to the House.

This is a split call. I call Paul Eagle—five minutes.

Thank you, Mr Assistant Speaker. It’s my pleasure to take a split call—five minutes—on this bill, the Financial Markets (Derivatives Margin and Benchmarking) Reform Amendment Bill, and it is the first reading. Can I acknowledge the Minister—he’s no longer here—for introducing this important piece of work. In terms of what I thought I would cover—I didn’t want to double up—I would just mention various things from the regulatory impact assessment for the financial markets, because I thought there was some good work in there. Some of the work done by the Ministry of Business, Innovation and Employment has certainly contributed to making this bill what it is today. So can I thank the officials for that.

One of the points for those who, like myself, are not entirely knowledgeable about this bill was really understanding what is the policy problem, or what is the opportunity—everything from the way that New Zealand’s banks use offshore and domestic finance to fund their activities. They enter into these derivatives contracts to protect or hedge against the exchange rate risk of raising money in foreign currencies. For example, other large public sector asset managers like the Accident Compensation Corporation and the New Zealand Superannuation Fund also use derivatives for hedging purposes.

In terms of banks and the public sector asset managers, they are facing a barrier to accessing international derivatives markets due to the Group of 20—the G20, as it’s been mentioned before—and those rules for certain types of derivatives. Those rules include the requirement for parties to over-the-counter—or OTC, as a colleague mentioned—uncleared bilateral derivative exchange securities, also known as the margin, under a contract to support the performance of it. If one party fails to honour its obligation—for example, if it’s financial distress—then the other party can call on a margin to shield it from any losses that might result from its counterpart’s non-performance. That’s a good basis for developing this bill. Part of their advice too talked about the need for more Government intervention.

So this, I guess, targeted amendment legislation was deemed to be required to ensure or enable those affected entities to comply with the foreign margin requirements and continue to access international derivatives markets. A non-regulatory response was said not to be possible as the impediments to compliance are contained in the legislation. Who’s affected? These amendments are not intended to change the behaviour of entities that are affected by the new derivative requirements, rather preserve the status quo of the industry behaviour, but instead the amendments are intended to ensure that affected entities have the ability to enter derivative transactions that comply with new requirements and market practice.

One of the most important things, I think, is the stakeholder views, and they were tabled around what they thought that problem was. So agencies were consulted over a six-week period in 2017, between July and August, and they were all in agreement, essentially, on the nature of the problem, and they were supportive of what’s being proposed. So I think that’s commended, and can I commend this bill to the House.

Thank you, Mr Assistant Speaker. It’s a pleasure to be talking on the Financial Markets (Derivatives Margin and Benchmarking) Reform Amendment Bill. It’s an interesting bill, isn’t it, because derivatives are actually a fundamental part of our financial systems, but, unfortunately, not many people know about them. They’re the glue, as financial systems got more sophisticated over time, in terms of how you allocate risk and how you manage risk. That’s essentially what they’re about.

So derivatives take a number of forms. Many people talk about futures and you can buy futures for gold. You can talk about buying an option or warrants that are issued or swaps, and traditionally in the financial market setting, you have swaps as an example that covers foreign exchange movements or interest rate movements. The reason why these are so crucial in terms of managing risk is that for many players in the financial markets, and banking in particular, where they want to make sure that they capture a certain profit and they don’t want to be at risk of changes in the value of the currency or changes in the interest rates, what they will do is disaggregate parts of the financial instrument and sell or trade that part. They might be wanting to buy a fixed-rate instrument even though they’ve offered a floating mortgage rate to New Zealand house owners. Or they might agree to sell currency at a certain price at a certain date, and they don’t know what the price is and they’re not prepared take the risk, so they buy that in advance. Those are traditional types of derivatives and it’s a huge market.

I presume most people have been quoting from the same report, but the reason why it’s so large in terms of the value—and the report talks about $8.7 trillion worth of trades—is most of these arrangements only have a 90-day lifespan. So in fact, you’re having to roll them over regularly, although, of course, many of these have a longer term. But a great portion of them have quite a short term and therefore the issue is around how they are treated and how when you buy one—and if you’re out of the market, which happens during the course of the period if it’s a 90-day one, at some point you might be in the market; at other points you might be out of the market—that is where a margin call comes in. And this is what this bill is about: how you manage that margin and how you keep sufficient amount of margin, those financial institutions, that ensures that the financial markets are secure. That is what this bill is principally about.

The other bit is around licensing of the financial benchmarks, and, again, this is a new area driven by the EU. And I think it is vital that there’s a record of it and how it’s benchmarked and obtain the records behind it. It’s going to be a fascinating discussion in the Finance and Expenditure Committee. I’m looking forward to working with the members in the Government circles because I’m sure many of them have a good grasp of this detail. I commend the bill to the House, Madam Assistant Speaker.

I would like to begin my contribution to this debate by praising the Hon Judith Collins. As earlier speakers have noted, Ms Collins sometimes brings home-baking to the Finance and Expenditure Committee, and I can attest that it is superb. So thank you, Judith Collins. We appreciate it very much.

In terms of this bill, what this bill does is deal with some of the way that we put our financial markets together, and I’m grateful to the immediately previous speaker, Mr Andrew Bayly, who explained, I think at quite a high level, some of the nature of what is going on in financial markets. But what I would like to do in the course of this speech is try to bring this to life for people who may be watching at home. I guess dealing with financial markets is one of those topics where people’s eyes do glaze over a little. Some of the stuff that we are talking about is highly complex and it doesn’t often relate to people’s everyday lives. Most of us never have to deal with what’s going on in the highly complex financial markets. So I do want people to understand why this bill is important and why we are trying to engage in regulating our financial markets—a worldwide effort.

I ask you to cast your mind back to 2008 and what we now call the global financial crisis. It’s hard to say exactly where it started but the world was primed for it. The world was absolutely primed for it, and it was primed for it because there had been an astonishing growth in what are now called, broadly, derivatives. Something that had been going on in various countries was what they call poor-quality lending. There had been a whole lot of lending—mortgage lending in particular; lending to people on their homes—and it was quite risky lending, risky in the sense that banks and other mortgage issuers were lending something in the order of 100 percent of the value of homes to people.

The assumption was that people would be able to cover the costs of the interest on their mortgages, and so on. But they were risky and, in particular, when one looks at some of the stories of what went on at that time, some of the lending that went on went on where families with very low incomes were nevertheless given mortgages, which possibly at the time of the borrowing they might have been able to cover the interest on, but if anything went awry in their lives then they simply couldn’t cope. So if mortgage rates went up just a little, that could be enough to sink those people on their mortgages.

Now, as it turns out, the financial institutions knew that they were risky instruments. They knew that they were risky mortgages—the financial institutions—and of course all mortgages are somewhat risky for both the lender and the borrower. There is always a chance that the borrower won’t be able to make the mortgage payments. But then from there what happened was financial institutions, quite properly, spread the risk. Now, that idea of spreading the risk is that they would take the value of a particular mortgage and they would ask other financial institutions, other banks, to participate in it. So they would sort of sell a bit of the mortgage to another institution, then they’d sheer off another bit and sell it to a third institution, and then hive off a little bit more to a fourth institution. No, it wasn’t a matter of chopping it up, but this all operated through pretty complex financial instruments.

What happened was that banks and other institutions—the big merchant banks—built up complex layers of very, very complex financial instruments. Let me give you an idea of how complex these financial instruments are. Look, if we’re talking about something like a swap, people say, “Well, what’s a swap?”. Well, a swap is when one entity, one organisation, has a debt, it has an investment, it has some borrowing which has a particular stream of interest payments. They’ve got to make a series of interest payments over a series of months. And then another institution likewise has some sort of financial instrument on which there is a series of interest payments due, and, literally, they swap them. And what that does is it enables each institution to get a better cash profile to plan their cash flows, to plan their interest flows, to plan their risk profile. That swap enables them to stabilise what’s going on in their own borrowing and lending profiles.

But most people don’t really understand swaps, and fair enough; they are complex—and that’s just actually a very simple sort of financial instrument. And then from there it’s not just having the swap. [Interruption]

ASSISTANT SPEAKER (Poto Williams): Order! We won’t be having conversations across the Chamber, thank you very much.

Well, I’m just having the swap—but the valuing of the swap is very difficult. How do you put a value on those streams of interest flows out into the future? Well again, there are ways of doing that, but it takes quite a bit of financial knowledge and expertise and finance to do that. So what happened during the build-up to the global financial crisis was there were a whole lot of these complex financial instruments being built up all over the world, and the risks and the interest flows and the streams of money being swapped and dealt with and sold, until it became an incredibly complex structure that almost nobody could understand and nobody could value, and no one knew where the risk actually lay. In fact, institutions could virtually get rid of all the risk. They had no skin in the game.

Then the house of cards came tumbling down, and what we saw—and I’m sure that members of this House will recall this—was people literally living in tents and tent cities because they had lost their homes. Now, this didn’t so much happen in our own country, but I have a clear memory of the tent cities in various places in the United States. Ordinary people eventually lost out. Actually, a lot of the big banks got bailouts because they were “too big to fail”. It’s hard to go back and recreate that situation, but ordinary people—ordinary mums and dads—lost their homes and often lost their homes because the house of cards came tumbling down. And it happened because so many of those institutions didn’t have skin in the game.

So, as the world started to recover from the global financial crisis, around the world regulatory authorities started to put in rules to regulate that kind of behaviour, and this is what this bill is actually about. I refer in particular to the margin. It’s referred to as a margin but what it is, essentially, is that when institutions engage in these kinds of complex financial deals, they have to leave some of their own money on the table. As we all know, when you’ve got some of your own money on the table, you take much more care. That’s a really straightforward thought, and that’s a common sort of thing. When we want someone to take care, when we want real care taking, we make sure that people have skin in the game, and this is what these margins do.

So the EU has brought in those regulations, and now we need to do that too in order to maintain our access to the EU financial markets and, in fact, to the worldwide financial markets. That’s why this bill is so important. It represents our institutions having some skin in the game, and they want to have some skin in the game. It represents big financial institutions worldwide having some skin in the game. And that, ultimately, protects all of us, and that’s why this bill is important not just for the handful of people in this country who will understand the complexities of these financial instruments but for the ordinary, everyday people on the street. And in the Finance and Expenditure Committee, where, we’re told, this bill is going to come, we will do our best to examine the detail of this bill and make sure that we look after the ordinary people. I commend this bill to the House.

Thank you, Madam Assistant Speaker. It’s a pleasure to be taking a call this afternoon on the first reading of the Financial Markets (Derivatives Margin and Benchmarking) Reform Amendment Bill. The reason it is such a pleasure is that I was sitting in my office and I heard someone refer to this bill as “a bit dull”, and that disappoints me a little bit, actually, because I’m quite excited about it. And the reason for that is that before I came become an MP, I worked on this issue for a fair while, actually. So it’s a real pleasure for me to be seeing it come to this House, and I want to commend and thank Kris Faafoi for doing that. I am excited, and when I think about the bill, I think back to probably three or four conversations I had on it and on this issue with a very friendly lawyer. It took him about three conversations, I think, for me to finally understand it, and so I apologise to Anthony if I do get any of it wrong this afternoon in trying to explain it to members across the House and, I’m sure, the many people who are watching at home.

So, at present, New Zealand banks use offshore finance to fund their activities, and those banks enter into derivatives contracts to hedge against the exchange rate risk in raising money in foreign currencies. Due to a change in G20 rules, banks are facing a barrier to accessing those international derivatives markets, and so it’s really important for us to now tidy up our legislation to ensure that banks can still access those offshore markets, because the effect if we didn’t do that would be quite simple, and it would be increased interest rates. And that would, obviously, lead to a huge cost on families and to businesses. So this is a fairly small and technical bill. I do look forward to hopefully sitting on the Finance and Expenditure Committee while this bill is being considered. It’s a worthy change and one that needs to happen; if we didn’t, it would lead to additional costs for families and businesses. I commend it to the House.

Thank you, Madam Assistant Speaker. Actually, it’s been quite interesting that the passage of this debate has gone from being sort of those of us who are not particularly versed in financial derivatives and in financial markets listening to the odd speaker—Andrew Bayly and Deborah Russell, who has just left, I think—talking about some of the finer detail. It did actually tweak my mind to some things that I had seen and observed in international media, going back to that time of the global financial crisis.

Dr Deborah Russell is quite right to point out what occurred in that time. I think, if you go and google up and have a quick look, at around that time, when we were talking about swaps and Andrew Bayly raised the issues there, members might recall one of the things that occurred that gave the EU such concern. If we go back to that time, JP Morgan were fined $65 million, Cargill were fined $10 million dollars, Commerzbank were fined $12 million, and then there was a bigger action taken against JP Morgan, I think, and Deutsche Bank. There was a partnership arrangement in some dealings with swaps, and that incurred a €485 million fine. Deutsche Bank—another fine of about 7.8 million. And all this comes back to the way in which swaps were being managed and deemed by the courts of those jurisdictions to have been improper and were punished accordingly.

If members want to get a look as to what was going on at that time, I’d probably recommend that they watch the movie The Big Short, which was an excellent movie showing how players at this very high end of the financial markets made considerable amounts of money dealing in things that most of us mere mortals of modest income and modest investments just only dream of. So I guess it’s with that backdrop that New Zealand First wholeheartedly and wholesomely supports this legislation that’s before the House.

It actually has also got me reflecting somewhat on the circumstances and trading and the way certain financial transactions were managed and decisions were made in this country that were highlighted by the Rt Hon Winston Peters when he exposed the dealings in the wine-box; different to this, I know, but it does serve to remind us that unless we keep our eye on the ball in some of these areas where most of us don’t have a lot of understanding, there are very high risks of penalties and consequences being foisted upon the average New Zealander, who does end up paying through increases in banking charges and increases in interest and increases in insurance and all the rest of that.

So this bill, from a New Zealand First perspective, brings us to meeting the requirements set by both the G20 and the EU. This bill aligns New Zealand with international best practice and will improve the integrity of our financial system. This bill is an omnibus bill. It brings New Zealand into line with other countries who have, over recent years, made changes to address significant risks in global financial markets, specifically the G20 and the EU. With these changes, New Zealand entities can continue to access these international markets. Our legislation must put us in a position to be able to meet the requirements of the reforms made overseas and particularly, as we know, in the EU—somewhat critical if this Government is hoping to secure a free-trade agreement with the EU, and something I am looking forward to our wonderful Ministers Parker and Rt Hon Winston Peters successfully concluding in this term of Government. I have my fingers crossed, and I look forward to something of that nature happening.

If we are shut out internationally through not passing this legislation, the disruption to businesses and the increase in funding costs may be very significant, including through the impact on the banking sector and the possibility of increases in interest rates. The big picture is that without these amendments through this bill, there is the potential for significant risk to the New Zealand economy, and we can’t as a trading nation afford for that to happen. New Zealand First wholeheartedly supports the passage of this bill.

Bill read a first time.

Bill referred to the Finance and Expenditure Committee.

on behalf of the Minister of Commerce and Consumer Affairs: I move, That the Financial Markets (Derivatives Margin and Benchmarking) Reform Amendment Bill be reported to the House by 22 July 2019.

Motion agreed to.