Financial Market Infrastructures Bill

I present a legislative statement on the Financial Market Infrastructures Bill.

💬 SPEAKER: That legislative statement is published under the authority of the House and can be found on the Parliament website.

I move, That the Financial Market Infrastructures Bill be now read a second time.

I want to thank the Finance and Expenditure Committee for the hard work that they did in ensuring that this bill has come back with a unanimous recommendation, including some amendments, which I will speak about shortly, that have been agreed to. It is the hard work of select committees on bills like this—that don’t, necessarily, draw massive attention or get great headlines—that underpins what this Parliament is all about.

When we think about financial market infrastructures (FMIs), it’s a little easy to let those words glaze over. They have been called—

💬 Hon Chris Hipkins: Ah!

—I know colleagues will find that hard to believe—the plumbing of the financial system, and this is what makes sure that the money and the transactions that happen in our financial system continue to flow around unimpeded by blockages—

💬 Hon Chris Hipkins: This isn’t helping.

Mr Hipkins, I thought you’d enjoy that metaphor. I might have to move on from it. It is important that in any system the plumbing works well to ensure that there is an easy flow, in this case, of money. Mr Speaker, I know, and I am moving on from the metaphor, you’ll be pleased—Madam Speaker. Sorry, a change there. Madam Speaker, you’ll be pleased to know I’m moving on from that metaphor. But FMIs are the systems that, essentially, enable the electronic payments that we have to be made.

They also facilitate the transactions of buying and selling of financial products. That includes payment systems—things that people would perhaps be a little bit more familiar with—but it also includes the settlement systems, which are a critical element of the way that our financial system works. This is the arrangements both between banks, and between banks and the Reserve Bank as well: central security depositaries, trade repositories—all of the things that enable financial transactions to take place. What we’re doing in this piece of legislation is establishing a new framework for the regulation of these financial market infrastructures in New Zealand and actually closing a gap within our regulatory system and broader economy.

It would be fair to say, Mr Speaker, that the international agencies who—

ASSISTANT SPEAKER (Hon Jacqui Dean): Order!

—Madam Speaker. I’ll just keep looking at you, Madam Speaker. So the international agencies who comment on these issues, and in particular the IMF, have raised concerns as far back as, I believe—I’ll just check it—the Financial Sector Assessment Program review that was done by the IMF in 2017 about whether or not New Zealand’s regulatory environment for financial market infrastructures was appropriate. It’s currently regulated under two different Acts in our legislative framework: the Reserve Bank Act, Parts 5B and 5C, and also the work of the Financial Markets Authority. Essentially, what the International Monetary Fund told us was that those parts of the legislative framework were no longer fit for purpose, or sufficient, anyway. In particular, they didn’t cover some of the types of FMIs that are now in regular use, particularly for central counterparties, and they lack the full range of regulatory and supervisory tools that you would expect, and that the public would now expect, in terms of the way those systems work. So, in order to close that gap, we have put this bill forward into Parliament and it has now gone to the select committee.

The select committee, as I say, did an excellent piece of work. What they did was look at—and I’m looking forward to hearing from members of the select committee shortly in some detail around the work that they did, because I know they took it very seriously indeed. But among the issues they have now put forward amendments that have been unanimously agreed on are broadening the circumstances where regulators may agree that one of them acts as the sole regulator; simplifying the thresholds for when Ministers can grant approval or consent to decisions being made by a regulator; clarifying the relationship between the general purposes of the bill and principles of the bill and the purposes and principles that relate to crisis management powers; removing the requirement of ministerial consent before the regulators can issue a notice requiring a rule change; and removing the requirement for the ministerial consent to a new operator scheme. So those amendments, if I am interpreting them correctly from the select committee, are, essentially, to ensure that the scheme operates even more smoothly than it has in the past. Ministerial consent alongside regulator consent is not always required. The regulators act independently, they know what they’re doing, and they need to be able to do that in a timely manner.

The amendment around crisis management powers: I am particularly pleased with the work that the committee did in this area. This is an ongoing issue when it comes to the operation of our regulators. We don’t want there to be the need to use crisis management powers when it comes to the way that our banks or financial institutions run, but being absolutely clear about how they will work is critical. In New Zealand, we only need to look back to the period around the global financial crisis and the collapse of some of the finance companies in New Zealand to know that, unfortunately, there will be times when crisis management powers are required, and being very explicit about what the role of a regulator is when that situation comes to pass is important. It is no different when it comes to these financial market infrastructures—so that we are very clear about that. So, again, I thank the select committee for their hard work and reporting back unanimously those changes.

From time to time in this House, we will have bills of this nature come forward. They are technical; they are about the way that our regulators work. We put a great deal of faith and trust in both those regulators and also the officials who advise us on them, because it is not, in all seriousness, in the day-to-day work of members of Parliament as to exactly how these work. So I want to thank all of the officials who have been part of making sure that we have this bill here. It has had a reasonably long gestation period, interrupted by COVID, but I do believe we are passing, or moving forward in the legislative process, a piece of law that actually is going to serve New Zealanders well, to give them confidence in the systems where their money flows through but also that the regulators involved have the tools that they need to make sure that they can intervene where it is necessary. So, with that, I commend the bill to the House.

The question is that the motion be agreed to.

It’s a pleasure to be talking on the Financial Market Infrastructures Bill. I just want to acknowledge the Minister of Finance for nearly doing six minutes on the Financial Market Infrastructures Bill. I thought he did a great job of trying to understand the plumbing of the financial infrastructure of New Zealand. That was obviously well rehearsed and well written by his advisers, so I do compliment him.

Before I talk about this bill and get into the details of it, hopefully for not too long, I thought it would be just useful for people to understand what this bill is about. Unfortunately, when you read the commentary it doesn’t actually talk about what we’re dealing with, and essentially what we’re dealing with is the issue of derivatives and how financial markets work. So we have things like people wanting to borrow money from a bank and they want to borrow it in Australian dollars and they want to borrow it on a fixed interest rate. However, they mightn’t be able to do that directly, so what they do is they use different types of instruments to do it. They could use a derivative that deals with the transfers, the fixed interest rate to a variable floating rate, or they might use foreign currency. It’s quite common to swap one currency for another. So you can use different types of derivatives to actually make change.

What this bill is about—and I can see my learned colleague here beside me—

💬 Hon Michael Woodhouse: I’m hanging on every word.

—hanging on every word, OK. So what this bill is about is there are two types of trades that go on in the market, and the first one is the exchange trade. Probably the best analogy of that, or example of that, is, actually, if you were to buy shares on the market through the New Zealand Stock Exchange, that is an exchange traded transaction. What this is about, or what the second element is about, is principally around over the counter. That means it doesn’t go through an established jurisdiction, or an established organisation. In fact, the Reserve Bank operates two of them. It has what’s called the Exchange Settlement Account System payment system, and it has NZClear, which is another trading system.

What the International Monetary Fund was concerned about was, actually back in about 2006, and more recently in 2016, the fact that we had a relatively unregulated, over-the-counter market in New Zealand. So what they strongly advocated was that we should be tightening up the arrangements around that, and, of course, this has now led to this bill. Of course, it was initiated by the National Government and obviously carried on under the current Government, and, of course, today we’re at the second reading. It’s taken a long time to get to this point.

But it is important because there’s substantial trades every day on these different exchanges in over-the-counter. We’re talking about billions of dollars’ worth of derivatives, essentially, traded every day. So what this bill is about is putting in place better rules and regulations as to how that trading can take place. As, I think, the Minister just spoke about before, it is complicated and there are different entities involved. I think the biggest thing is this all came about through the GFC, because as many of you will recall, a lot of the financial meltdown, if I can use that word, actually was sourced back to the trading of derivatives. People had not quantified their liabilities sufficiently and when the crunch came, many organisations found that they were insolvent because they were literally overwhelmed by the outstanding liabilities they had around their derivatives trading. And there are many investment banks that were caught in that situation. So that was the prime driver for it.

We’ve, obviously, been through the COVID crisis over the last year and it is heartening to see that in the main the New Zealand market’s held up pretty well. Although, what was offsetting about that, and actually contributing to supporting the market, was many of the traders were actually permitted to go to work. But this shows that there is robustness to the New Zealand situation, but many people were very worried about derivatives because they are, basically, a synthetic or arbitrary created instrument.

So this bill looks at enhancing some of the rules and regulations around it. The Minister sort of highlighted the key causes around it, or aspects of it, but, basically, the one is to allow the Reserve Bank—and in the Financial Markets Authority there is a combined role, but the Reserve Bank is the principal—to be able to set standards around the issues around how financial market infrastructures, or derivatives, are set. The legal standards behind them clarify the ownership structure and all those different aspects. So there’s more clarity around what instruments we’re dealing with. It also enables the regulator to monitor what’s going on much more closely so we don’t get into a situation like the GFC, and for the regulator to have an oversight of what’s going on in the market.

These are all good things. Obviously, this is a highly technical bill. Luckily, we had some people from the Reserve Bank that helped us through the process. We are supporting this bill, across the House, which is good. It’s one of those rare moments when we all come together for the common good of New Zealand. I think that’s probably enough because we’re going to go into committee of the whole House, and I am just waiting for the contribution from the Hon Gerry Brownlee because I know he is an expert in this matter and I’m sure he’ll be able to illuminate a lot more to my colleagues across the way, some of them, of course, who are new to the committee and may be struggling with the concepts. But I know my learned friend here will be ready to pick up any points if they don’t actually understand all the detailed aspects of this bill. Thank you very much, Madam Speaker.

Kia ora e te Mana Whakawā. I can assure Mr Bayly that there are some members that are new to the committee on this side of the House, but they are not struggling with this bill in the slightest, they are some of the most talented people we will ever see in this Parliament and I am very excited to hear their contributions. Whilst it was an excellent select committee—well led as well—that looked at this bill, we will no doubt see some further insightful contributions coming from this side of the House at least. We know that Mr Bayly dealt in the murky world of merchant banking in a former life, as I understand it anyway, and he actually did make some very good contributions in select committee here, about this Financial Market Infrastructure Bill. But it is important to just recognise that this bill actually touches on everyday lives, because every time we go down to buy something at the supermarket with our Visa card or our EFTPOS card, we are using part of our financial infrastructure, and that payments and clearance system which underpins this, underpins those simple payments, is absolutely integral to the financial stability of New Zealand.

So that is what this bill is about. Whether it be a clearing system for payments of that nature, or whether it be the stock exchange or over-the-counter derivatives, or any of the numerous other financial transactions that go on here in New Zealand, underpinning this are these systems—largely run, it must be noted, or the services are provided by, private companies. This is not Government infrastructure, this is private infrastructure, so it’s really, really important that it’s stable, because if one of these pieces of infrastructure were to fail, the knock-on effects could be quite catastrophic.

I guess there’s really just two points I want to make about this bill, one is about the purpose clause, because we can sometimes get lost in the details—and I love to get lost in the details of bills of this nature—but in fact the purpose is really important and the committee did examine that. It’s important because it’s on the basis of purpose that regulators can intervene. Every time a decision is made about whether to intervene in an entity, the regulator should be looking at the purpose and saying, “Has the trigger been reached? Is the purpose of this legislation met by this intervention?” The select committee noted that the purpose clause talked about a sound and efficient financial system, and of course those are both good things, “sound and efficient”.

💬 Hon Michael Woodhouse: Good, they’re vital.

Well, they’re still there, so that’s why we left them there. We didn’t take those ones out, Mr Woodhouse, but we added in stability, a stable system, and public confidence in a system. That’s another important thing, that if a system loses public confidence then, again, the infrastructure can fail—whether it be a run on the bank, or people choosing not to use the stock exchange, and we’ve seen the stock exchange come, quite rightly, under scrutiny recently, about whether its systems are robust and stable enough to do the work that it’s expected to do. So adding in the purpose of “stability and confidence” was an important point.

The other thing I wanted to—

💬 Hon Gerry Brownlee: Repetition.

Ha, ha! The other thing I want to talk about is the approach to the regulation-making powers, because we got advice from the Regulations Review Committee—another fantastic committee, a very good committee in the last Parliament, it will be hard for this Parliament to keep up with that, the firepower on that former committee—we actually looked here at the question of whether it was appropriate for the instruments made under this Act to be disallowable, particularly an instrument which gave things like exemptions to particular organisations. The question there really was about whether that was having widespread legislative effect, or whether it was simply a one-off kind of carve-out that only affected one entity. Now, the Regulations Review Committee, you’d never take the advice lightly, but the committee looked at that question and said, “No, in that situation it’s really not a legislative instrument. It doesn’t have legislative effect, it needn’t be disallowable because of its narrow application.”

In the same vein, and throughout the report—which I know we’ll have all read, avidly—it notes a shift away from ministerial regulation-making to regulation making by officials, and that’s unusual, it’s very unusual in fact. For example, the appointment of a statutory manager is a very, very significant step. It really does take away a huge amount of autonomy and freezes the entity itself, but a lot of the stuff that goes on there, it’s not a broad policy decision—it’s operational. The other thing to note—and I think this is critical—is in these situations, dealing with financial infrastructure: hours and minutes count because these settlements must be made on time, absolutely. It’s a kind of drop dead situation that, if a payment—and these can be payments in billions and billions of dollars, if they’re not made on time, then a series of defaults can occur which could be catastrophic. So we need the ability, where those decisions are made, for them to be made extremely rapidly. They’re decisions which are highly technical, and largely operational. So it was entirely appropriate for those really important decisions to be pushed down the chain to where the technical expertise lay, rather than leave them in ministerial hands. But I just do want to reassure the House that that was very, very, carefully considered.

Of course, the other really important point there is the designation of financial infrastructure entities. Not every financial infrastructure entity is kind of essential to the integrity of the system of the whole, there are some smaller operators who have less widespread systems; smaller stock exchanges would be a really good example, where, whilst there might be benefits for them to be subject to this Act for various reasons—they get various protections and indemnities for example—it’s not essential to Government, to the integrity of our overall system, that they be included in this piece of legislation. So we looked at the opt-in, opt-out provisions there, so where an entity is absolutely essential to the integrity of the system, they will be compelled to be part of this regulatory framework, but when they’re not, they may opt in to the framework so that they get the benefits of it—but they needn’t if they don’t want to.

I guess the other point in there is really some of the questions around the confidentiality of information here, because we know how sensitive the information can be here, and it’s important that when notices are issued here, it’s absolutely confidential—and, as well, the securities is another really important aspect, that if an administrator is appointed, a statutory manager is appointed, then the rights of secured creditors are not diluted. In fact, that was not immediately apparent, that wasn’t abundantly clear on the first draft, and we wanted to make it absolutely clear that if someone had a call on financial assets as a secured party, if an administrator was appointed, they would be preserved. Again, essential to the financial system that we have—and that goes to confidence, doesn’t it, because if secured parties can’t have confidence that their interests are protected even when the Government steps in to administer a piece of financial infrastructure, then that’s undermining of the financial system as a whole.

So look, it is absolutely a technical bill and. as Mr Bayly said, it’s one which the National Party kicked off, because, incidentally, I think it was the IMF who indicated that it was a gap in our regulatory framework—perhaps a distance risk, but a risk nevertheless, and one that this Government was very happy to pick up, very happy to make sure that the work was done. Of course, this is a piece of governing that people will never notice, this is the kind of work that good Government does, isn’t it? Because we’re making sure the systems are in place, the systems are working, they’re robust, they’re strong, and people will be sleeping in bed at night knowing that tomorrow when they wake up, their EFTPOS card will still work. I commend this bill to the House.

Thank you, Madam Speaker. It’s not unusual for colleagues to find themselves having to speak on a bill at second and subsequent readings when they themselves have not been part of the select committee process—or, indeed, at the first reading. I actually think most people in this House do a pretty good job of boning up on the subject matter of the bill and coming and making an intelligent contribution to the debate. That ain’t going to happen now.

I’ve looked at this bill and I have tried and tried and tried and I cannot make head nor tail of it. So all I can say—and I didn’t think I was going to say this—is: thank goodness for Andrew Bayly and Dr Webb because they were on the committee in the 52nd Parliament—is that right? How many are we up to?—the last Parliament, and they, obviously, had to wade through the very technical detail of that.

But I have to rebuke Dr Webb, somewhat, for his assessment that perhaps the current Finance and Expenditure Committee doesn’t have the same intellectual firepower as the previous Parliament’s.

💬 Dr Duncan Webb: No, that’s Regs Review.

Now, I think that’s somewhat—oh, Regs Review, I withdraw that then. That may have been a save on Dr Webb’s part, because, I think, there are some very talented people on this Parliament’s finance committee. Dr Webb talked about the new MPs and his confidence that they will be able to speak intelligently on this bill. He’s not looking from where I am; I can see the terror in their eyes. So all I will say to the new MPs that are in the Finance and Expenditure Committee is: their careers will not be judged by their interventions on the second reading of the Financial Market Infrastructures Bill. Perhaps Ms Edmonds will surprise us all; I know she is a very diligent MP—as they all are.

I think what we really needed in this bill were technical experts. Clearly, Dr Webb with his legal background and his analytical background—but also Mr Bayly, having lived this as a merchant banker for many, many years—obviously was able to speak the language and understand the amendments that we were embarking on. I will commit to having a much greater knowledge of this by the time we come to the committee of the whole House—I may even have a Supplementary Order Paper to lodge, you never know! That would be a great day.

With that, it simply leaves it for me to join the Minister in thanking, firstly, that committee, the submitters—there weren’t that many of them, which highlights how complex this is—the Reserve Bank, and the others officials who supported the committee. I look forward to a robust debate in the committee of the whole House.

Thank you very much, Madam Speaker, and thank you very much to Barbara Edmonds for letting me take this call. I’ve got quite a lot on this afternoon, and you’ve saved me 20 minutes. So thank you very much.

I rise on behalf of ACT in support of the Financial Market Infrastructures Bill. I will just make a couple of preliminary comments about some of the debate that’s gone before. It’s certainly true that this is a very technical bill. It deals in matters that most people will never encounter. I certainly have not encountered these sorts of matters outside of my role on the Finance and Expenditure Committee in the previous Parliament when we dealt with this bill. But I also say I think it’s a little bit unfortunate that in various comments, including from the Minister and Dr Webb, there’s been an expression that maybe the financial markets are a little bit murky or that the people that work in them are a little bit sinister. I think that’s really unfortunate, because, actually, they’re a valuable part, a vital part in fact, of the New Zealand economy.

While I don’t claim any great expertise, I think we can actually do a bit better in talking about what this legislation does and why it is necessary and broadly a good idea. There are a few trends in the financial sector that are important. One that’s been going on for several decades is that computerisation and then the internet have meant that we have a much higher velocity of transactions, a lot more participants with a lot more financial products. What we’ve just seen with GameStop, what we’re seeing with retail investors, are just some high-profile examples of those trends. And that means that there are a lot more possibilities for different people coming together, and when they come together in financial markets, they often require a clearing house or some sort of meeting place where they can transact. We have quite a number of those. They’ve traditionally been regulated by the Reserve Bank of New Zealand Act 1989, but, clearly, the possibilities of market failures have grown, and the need for certainty and clarity and, potentially, crisis management has grown. So giving the Reserve Bank and the Financial Markets Authority (FMA) jointly and separately, depending on whether they agree to regulate a particular financial market infrastructure together or apart, is actually a very good idea.

Just to give one example of something that has cropped up in recent times, we now have a lot of potential for New Zealand to grow its weightless economy through fintech companies. I’ve had a few of them in the Epsom electorate raised in this House over the years—some of the travails that Harmoney, for instance, have had attempting to do business under our current financial regulations. I could also raise NZFintech, and part of the challenge that they’ve had is that they haven’t been able to access clearing houses or payment systems so that they could be part of the wider New Zealand financial sector. I would hope that this bill will allow the FMA and the Reserve Bank to step in and regulate infrastructure for some of these emerging markets made possible by new technology so that we can have new entrants. Gerry Brownlee’s looking because NZFintech are based in Christchurch and they’re very good people. He’s nodding, and he’s right.

So I think it’s really quite valuable in terms of the opportunity that it creates for more entrepreneurship in New Zealand, but you do need to have clear rules of the game, because as the Reserve Bank identified in their initial briefing to us at the Finance and Expenditure Committee, one of the dangers is that if you’ve got a group of financial firms who own a particular clearing house, there’s the possibility that they will actually use that market power to the exclusion of new entrants, and that is bad for everybody in the long term. It’s particularly wrong when, actually, it’s only the Reserve Bank’s licensing that put them in a position to own that payment system in the first place.

So I think this is something that we can say is welcome. We, obviously, I think, have a responsibility in this House to watch how the legislation that we make is used in the future. I hope that this will lead to more stability, better crisis management—heaven forbid it be needed—and an environment that is more welcoming to new entrants and more innovation in our financial sector, because we need to create those high-paying, globally connected jobs right here in New Zealand and Fintech’s a great opportunity for that.

I don’t have a huge amount further to say except that I thank again the member for letting me have this early call in the debate and letting me get to my 3.30 meeting—it’s very collegial of you. On behalf of ACT, I commend this bill to the House.

It’s always great to be collegial across the House, so you’re welcome. I take lollies at any time during the House for snacks.

The reason why I missed my call is I was so speechless. My breath was taken away by one of the previous Ministers and his challenge to me about making sense of this particular bill, particularly as I wasn’t a member in the previous select committee. But what you learn as a policy official—which is part of my past life—is that the fundamentals of policy come back to three very basic questions: what is the problem you are trying to fix, what are the options to fix that problem that you are trying to fix, and what are the next steps? It was really clear through the discussion today, through other members of the House, that there was a problem that was identified by the IMF. It had come through the National Government. It had gone through the Labour Government. Now we’re here today on this bill.

So I would like to echo the points made by the Minister of Finance, that there are areas of technical policy that are not at the forefront of the public’s mind but which are intended to make sure that our systems, such as plumbing, run smoothly. And again, having come from a policy background, we see this often in remedial and omnibus bills. Other examples on the Order Paper include the Regulatory Systems (Transport) Amendment Bill and the Secondary Legislation Bill. But I come back to the point that it’s important to stress that although some of these bills are technical in nature and they’re not attractive enough to have big media bells and whistles, they are extremely important for our everyday lives—such as EFTPOS, such as credit cards, such as the financial system that underpins that. So I acknowledge the select committee for your work in the previous term, officials from the Reserve Bank, and the 10 submitters who took their time to submit on the bill.

So more specifically to the bill—because, yes, this is a new bill for me, being a new member in this Parliament. So what I did is I actually looked at the purpose clause, and then what I did is try to relate the elements in the bill back to the purpose clause so I could understand what this bill is intending to do. So if I look at the purpose clause, which is clause 3 of the bill, subclause 1(a), it says to “promote the maintenance of a sound and efficient financial system”. I understand by the commentary by the select committee that they included the new words of “(including by responding to threats to the stability of, or confidence in, the whole or a significant part of the financial system);”. Now, I understand that the reason why the select committee put that particular element in the bill is because those particular words have been threaded throughout the bill but hadn’t linked back to the purpose. So I congratulate the select committee for picking up on that point and bringing it back into the bill.

If you look at clause 3(1)(b), the second part, the purpose of the bill is to “avoid significant damage to the financial system that could result from problems with an FMI”—a financial markets instrument—“an operator of an FMI, or a participant of an FMI”. So what part of the bill helps to make that purpose clause come to life? It’s Part 2. That is the information-gathering powers and investigative powers, all for the ongoing oversight and monetary of the FMI sector, and examples in the bill include clause 15. So you look to clause 15. Part 2 is the “Regulator’s powers to require information, reviews, and independent reports”. Clause 15 then enforces that through offences. So clause 15 is an “Offence for failure to give information”. Then look at clause 17. That is an “Offence for failure to obtain review”. Again, that links back to that second part of the purpose of the bill, to avoid significant damage to the financial system by including offences and an offences regime.

I turn to the third purpose of the bill. The third purpose of the bill, in clause 3(1)(c), is to “promote the confident and informed participation of businesses, investors, and consumers in the financial markets;”. So where does that relate back to in the bill? What I found was not only in Part 2, the information-gathering powers in the regimes, which shows enforcement, but if I could also point to clause 37, whereby “Operators must publish copy of rules of designated FMI”—why is that important? So for transparency’s sake, you want the public or a consumer to be able to go to a particular place to be able to look at what those rules are. Clause 37 says that it must be “maintained … on behalf of the operator … is publicly available free of charge”, and the really key part here is “on an Internet site”. So it puts the onus back on the operators to ensure that it’s transparent and it’s there for the public to be able to review and to see.

But then you also look at clause 40, which is that an “Operator of designated FMI may apply for [a] rule change”. They can’t just change these rules willy-nilly. They can’t just change their internet sites and therefore change the game on consumers. What they have to do is go back to the regulator and provide “(a) a copy of the proposed rule change; and (b) a description of the rule change and the reasons for the change; and (c) the time at which the operator would like the change to come into effect.”—so, again, another sort of backstop or safety net for our consumers.

So then I go back to the purpose clause again. I look at the fourth purpose part, in clause 3(1)(d), which is to “promote and facilitate the development of fair, efficient, and transparent financial markets.” Again, it’s those policy analysis details coming back in. So where does this link to in the bill? I look to clause 40, and that was, again—which is in Part 3, which I’ve just discussed, where you need to go back to the regulator for those rule changes. Then, if you look deeper into the bill, in clause 89, “Making FMI operator subject to statutory management”—now, that’s really important. If for any reason an operator comes under the statutory manager, the Governor-General may, by Order in Council—under clause 89—on the advice of the Minister given in accordance with a recommendation of the regulator, declare that they’re subject to a statutory manager, appoint one or more persons as a statutory manager of that operator, and the order must specify the date on which it comes into force and also appoint two or more statutory managers. The key thing to that is that it is through an Order in Council. An Order in Council is gazetted weekly. So again, there are layers of transparency that come through this bill which, again, fall back to the initial problem that the IMF recognised.

So I think I’ve given a well enough contribution to prove to one of the previous Ministers of Revenue that there is definitely competence on this side of the House to be able to pick up a bill that they’re not necessarily on a select committee of, fall back on to the policy analysis of “What is the problem we are trying to fix? What are the options to fixing that problem? And what are the next steps?” So the next steps in this bill are that we see this through the committee of the whole House, and I look forward to any potential Supplementary Order Papers that the Opposition, on the other side of the House, might lay down. I recommend this bill to the House.

E te Māngai, tēnā koe. Tēnā koutou e te Whare. I don’t intend to trace the House through the legislation as has just been so competently done by my colleague Barbara Edmonds, who is also a new colleague on the Finance and Expenditure Committee. It’s already been well traversed, was seen and passed through the select committee stage by the former membership in the last Parliament of the Finance and Expenditure Committee. There were a number of amendments made as a result of those rather technical submissions at that select committee stage. Perhaps most importantly is that addition to the “Purposes” clause, as was just stated by Barbara Edmonds. But if I may repeat it, the inclusion at clause 3(1)(a) whereby it says “promote the maintenance of a sound and efficient financial system”, and then the inclusion in brackets of “(including by responding to threats to the stability of, or confidence in, the whole or a significant part of the financial system)”.

Now, there’s been a lot of contributions that have spoken to exactly how, in granular detail, this legislation attempts to, through a number of different levers, produce and create protection and maintenance of a sound and fair financial system by facilitating development of fair, efficient, and transparent FMIs, or financial market infrastructures. I want to acknowledge, actually, the complete transparency of my colleague across the Chamber, the Hon Michael Woodhouse, in his complete honesty and integrity in the submission that he could not wrap his head around this because, to be perfectly honest with you, having engaged with a number of not just financial products but new products on to the market on the internet over the past few months, I’ve been trying to wrap my head around not just the likes of these FMIs but also something that some in this Chamber may know of as NFTs, otherwise known as non-fungible tokens, which are digital tokens which have a unique identity and ownership verified on Blockchain. They are not mutually interchangeable files but are often uploaded through the likes of Instagram or Twitter and then can be sold on, but still are able to be effectively screenshotted and passed along to other consumers—I would have guessed, but I can’t wrap my head around that.

It seems to be the case that often, when it comes to parliaments, we are at the very end of the process after these tools have been developed and these new products come on to the market. This actually—there’s a great example over the past several years with Uber coming into the marketplace in Aotearoa New Zealand, and, I believe, about two parliaments ago, the Transport and Infrastructure Committee at that point in time requesting an inquiry or review or information from officials about how this damn-fangled new thing—this app—operated inside of our market, after the genie had already been unleashed out of that bottle.

So, too, I want to acknowledge the contributions of my colleague David Seymour—we’re acknowledging everyone today. So, yes—looking forward to Te Paati Māori if they are to speak to this bill, because I’d love to hear their perspective. But it is the case that we are so often, as mentioned by David Seymour, looking to situations—like, for example, what occurred with GameStop—as to whether there should be forms of Government intervention or, in fact, this was exactly what was intended by those initial regulations or lack thereof. I also just want to mention the point that has been raised by other speakers in the Chamber so far, which is on the point of the rapid development of financial products, and the context is created by virtue of the increasing kind of technological development. Thereby, we have the opportunity for quicker, more innovative, and more rapid products coming to the fore, and it is the kind of recognition of the increasing possibility of those failures and the need for regulation to protect, particularly, consumers, because if we think back not all too far ago, it was, in fact, new products like those bundled up subprime loans that led to the global financial crisis in the first place.

So, just to put on record a few of the other things that we should be paying attention to as they seem to develop and, as you know, we need to have an eye on in order to protect citizens and consumers. I think one of the things that we’re only just beginning to grapple with as the Finance and Expenditure Committee in this term of Parliament is the likes of cryptocurrencies. So I’m really interested to see where that discussion goes, as well. But for the reasons put forward today in this contribution and those of my colleagues across the Chamber, the Greens join with everybody else in supporting this bill in its passage in the second reading.

Apologies, Madam Speaker, I was waiting to see if ACT were going to speak. But I must apologise for my enthusiasm for this bill. With the fervour of a new MP and a new member of the Finance and Expenditure Committee, I have read the bill and independent commentary—quite a lot of it—and while it is technical, it does make perfect sense to me because, really, it speaks to three things: first, risk management; secondly, proportionality; and, thirdly, integrity and coherence of our financial systems. So it is of course a Financial Market Infrastructures Bill (FMIs) I’m referring to, although we could possibly call them FMIs: fairly mundane instruments. But I’m aware as I listen to the debate that there are probably two audiences to speak to. The first of those who really don’t have much to do with the financial markets, and then there are probably some people who are very involved with this legislation who have made submissions and who may be listening for some of the minutiae or the more granular things that have happened. So I would like to speak to both those audiences in turn.

At the risk of revisiting the finance Minister’s analogy about plumbing, this bill really is a bit like upgrading the plumbing. There are in points for the money to go in, there are out points for the money to come out. And what we really want to see are pipes that are clear with no blocks and no leaks. Now, that’s not the sort of thing that you would talk about in a dinner conversation and, in the same way, it’s not the sort of legislation that normally gets bandied around in the media or is the subject of intense discussion. But it certainly does get attention when it doesn’t work, and, if it was a dinner conversation, you wouldn’t be eating dinner any more, you’d be running across the road and out of the house. So the financial plumbing system has not changed, actually, since the Reserve Bank of New Zealand Act of 1989, yet now we have more pipes, we have different sized pipes, we need different tools to fix them, and we do need proportionality. In other words, you don’t want to be opening up a small pipe with a sledgehammer. So this bill does recognise that, it upgrades the plumbing and it makes it fit for purpose in a digital world. And, as one of the previous speakers has quite rightly said, it involves derivatives and it looks, particularly, at over-the-counter transactions.

But I turn now to those who might be seeking some more technical contribution just to mention specifically the contribution that the Finance and Expenditure Committee made around changes, and they fall into three categories. The first was around decision-making processes, the second was really around the new arrangements for transitioning designated settlement systems under Part 5C across to the new designation regime in the bill, and then the third one was the really, really, really technical stuff. Depending on how much time I have left, we might get to that third bit.

But if I go to the decision-making processes. To summarise, really, the contribution that the select committee made—and this was going through it with a fine-tooth comb, listening to the excellent submissions as I understand them to be from the small number of people and organisations who submitted. They broadly came up with these changes. First, they broadened the circumstances to where the regulators may agree that one of them can act as the sole regulator in a particular case. They also simplified the thresholds for when Ministers must grant approval or consent to decisions made by the regulator, and that has got to be really around transparency and clarity for operators. They also clarified the relationship between the general purposes and principles of the bill and the specific purposes and principles relating to crisis management powers. We have heard a little bit about crisis management today and, certainly, after the financial market crash, that was less hypothetical. I think that COVID has made us all realise how perilous all our systems are at any given time and how important it is to have integrity in the underlying systems that enable our society and our economies to continue to work. There’s also the removing the requirement for ministerial consent, which has already been discussed, and removing the requirement for ministerial consent to a new operator scheme.

The second group of changes, as I mentioned, were about transitioning. This, again, has got to be about clarity and certainty for those operating in the system to make sure that, as we transition from a less regulated system to a more regulated one, that it is a smooth transition, that it is fair, and that it keeps the integrity of the system.

Then finally, there are the really more technical amendments. Again, just wanting to thank those who submitted to the select committee as, no doubt, many of these very technical points would’ve come from those submitters. So what they did do is they wanted to clarify how the concept of stability and confidence referred to at various points in the bill interrelated with the bill’s purposes. We’ve just heard very clearly from my colleague Barbara Edmonds about how that was able to be brought to bear. They were also looking to bring into force certain additional provisions of the bill at the day after the Royal assent. They wanted to adjust the circumstances where derivatives counterparties can exercise certain close-out rights against an FMI operator in statutory management, and, again, that is for protection of those working in the markets to make sure that there is an equal weighting and balance of power so that we don’t have a change where some of those working in the system are able to be exploited. They also wanted to clarify that security interests in the assets of an FMI operator in statutory management continue in existence if those assets are transferred to a new operator under a new operating scheme. They wanted to provide a Crown indemnity for the statutory manager of an FMI operator. Again, that’s around providing confidence to the market more generally. They wanted to enhance the rules around confidentiality notices issued by the regulator, and my colleague Duncan Webb has spoken to that. They also wanted to adjust the rules around the confidentiality of information held by the regulator so that the relevant confidentiality rules in the Financial Markets Authority Act 2011 apply to the Financial Markets Authority (FMA)—that’s obviously about consistency of legislation—and to make a technical amendment to the Financial Markets Authority Act 2011 to ensure that the FMA can also make use of its powers under that Act in respect of FMIs.

So you can see why I may refer to these FMIs as fairly mundane instruments, but to summarise: it is really important. We’ve heard across-the-House support for this bill, which really brings more cohesion to a rapidly changing market, one that is operating in the digital space, one that has been lightly regulated. It brings it into line with best practice overseas and, in that way, adds coherence and integrity to our financial systems. We’ve heard about the proportionality that it brings in terms of making sure that we are not requiring ministerial intervention when, in fact, what is required is a technical response from technicians with specialised knowledge—and again, my colleague has very clearly pointed out that that was clearly debated so that we could make sure that we didn’t overstep the mark when it came to democratic principles. But probably most importantly, this is about risk management. So we’ve heard about the risks that can happen, that did happen after the financial market crash. We have seen the risks to the financial system and, in fact, very good responses through COVID. But what we did see a lot of was a lot of transactions happening, going through different pipes than they normally would. What we have chosen to do across the House is to recognise that that plumbing system needs to be fit for purpose, needs a bit of upgrading and a bit of tinkering to ensure that, should we go through another situation like that or even if there are just more calls on certain parts of the system, that we have plumbing that is fit for purpose, that we can sit around at the dinner table or, indeed, in this House, talk about matters that perhaps seem a bit sexier or more interesting knowing that the plumbing is not going to break down and we are not going to have to run out in the middle of dinner or in the middle of the debate because the system doesn’t work. So on that note, I commend this bill to the House.

This is a split call, five minutes. I call Nicola Willis.

It would be easy for those watching or listening or reading this debate to think that this is a very dry matter but, as other members have stated, financial market instruments are crucial to the very functioning of the economy. They support the non-cash payment and financial settlement system that underpins almost all of the ways that we conduct commerce in New Zealand today. There aren’t that many cash payments happening, and the importance of this financial infrastructure cannot be overstated. So what this bill does is it creates an improved and properly regulated framework in which those transactions can occur.

Now, I didn’t sit on the Finance and Expenditure Committee while it was considering this bill, but I understand that some of the matters that were considered were about ensuring that a regime of this sort is both appropriate in terms of the regulatory nature of it, the surety it can give those transacting within these systems, but also flexible enough to allow for the fact that, as we have seen, the way these transactions occur has evolved rapidly in response to different technologies and in response to different ways to do things. National supports the view of the committee that the bill has struck the right balance there.

The second area that was of crucial consideration is this issue of how we make sure that the financial market infrastructures are resilient and crisis-proof. That is that when something goes wrong, it doesn’t bring the whole New Zealand financial system down with it. I think that underscores why it is prudent and appropriate that the Government regulate in this area, because if these financial settlements are put at risk or aren’t occurring, we need to have some sort of backup. We need to have contingency plans for not only dealing with operational mechanical failures but also dealing with financial failures. So this bill requires entities to have those provisions in place.

I do just want to acknowledge the concerns from some who pointed out that even though this bill does provide regulation in terms of crisis powers, there is still the question of what happens if Visa or MasterCard go down, because increasingly they are core to our consumer payment system, and yet they aren’t covered in the same way by this bill—and I think it’s worth noting that in the Hansard and noting the concerns that have been raised by some about that; although we fully acknowledge that those are independent market architectures that stand separately for good reason.

In conclusion, this bill brings New Zealand into line with our offshore counterparts in terms of the regulation of financial market infrastructure. It strikes a balance between flexibility and prevention of crises in the future. It’s a good bill and I commend it to the House.

Thank you, Madam Speaker, and at the outset of my contribution can I acknowledge others who have participated in the debate today. I think there was a little bit of doubt expressed in the early days of this debate as to whether members participating would be able to engage in a fully informed way. But I’ve actually found the debate to be a useful, informative—I wouldn’t quite go so far as to say interesting—one, but I think we all walk away with a little bit more knowledge about why this bill is important and why the issues that we’re considering are actually quite significant. Can I acknowledge the select committee who obviously have worked hard to get their heads around this bill. The suite of alterations made to the bill that was sent to the select committee are actually reasonably significant, and that’s a sign of a select committee that was getting down to its work, that was working closely with officials, and doing what it’s there to do, which is to improve legislation which is sent to it. If I can acknowledge the nine submitters, I think four of whom were heard in this process as well. I did have a little bit of a look at the submissions as I was sent here, and it was pleasing to see that across those submitters there did seem to be, generally speaking, support for this bill and for its intent. There were a range of useful suggestions and improvements, some of which have been picked up, but it would appear that, for those people who are most involved in these systems, there is a widespread recognition that this is an overdue piece of legislation.

I also want to, as Barbara Edmonds did, just start my substantive comments with the purpose statement of the bill, which is always a good place to begin. The key point that I want to make here is that I think the change which has been recommended by the select committee is an extremely important one. So if we turn to clause 3, “Purposes”, the purposes of this Act are “(a) promote the maintenance of a sound and efficient financial system.” Now the change that’s been made by the select committee adds on the words, “including by responding to threats to the stability of, or confidence in, the whole or a significant part of the financial system”. The reason I want to just rest on this point briefly is because, to me, this is where we get the link between what seems like a highly technical, somewhat arcane piece of legislation and how it actually affects things in the real world, how real people are actually affected by good legislation and regulatory oversight, or lack thereof, because we don’t have to go that far back in time—it’s only to 2007-2008 and the GFC—when inadequate regulatory regimes in a number of countries, most particularly the United States but others as well, allowed for significant issues to occur in the financial markets that were not just contained to the financial markets.

The fallout of those regulatory failures was a crisis across the world economy, millions of people losing their jobs, having their livelihoods significantly impacted, and recessionary conditions that persisted for a number of years across the international community. That is the real world outcome of not having appropriate regulatory oversight through pieces of legislation like this one. That is why that purpose statement and that additional wording that has been brought in by the Finance and Expenditure Committee is so important, that focus on the stability of, and confidence in, the financial system, because, ultimately, what unfolded in that period of 2007 when the GFC was getting under way, was a result of, frankly, unethical behaviour, greed writ large across the financial markets, then having a systemic impact leading to a total loss of confidence in those markets, with impacts on the real world economy. That’s why this bill is so important.

One of the key things that this bill does is to set up designated financial market infrastructure entities, and these are entities which will be determined by the Minister to be more significant within the system. That determination will be made given their size, given their interconnectivity, given how they fit into the system, and the risk that would be created if they were to collapse. The creation of that designated category will allow, in the event of some kind of crisis or event, for greater steps to be taken by the regulator or regulators, being the Financial Markets Authority or the Reserve Bank, to step in and stop that kind of contagion and, ultimately, flow on to the real world economy with all the damage that that can do.

I’m disappointed I only have five minutes for this particular call. There is so much good stuff in this bill, but other colleagues, I’m sure, will pick up things from here and round this debate off in style. This is an important bill, Madam Speaker, and I do commend it to the House. Thank you.

Thank you, Madam Speaker. In a previous life I was a detective, and when I was assigned to the fraud squad, it was with much trepidation that here was I, a country lad from the West Coast; what did I know about fraud? However, the advice I got from my detective sergeant was that, actually, my job was to make things easier and clarify them so the jury can understand them. To a certain extent, that’s what we’re actually doing with this bill. Yes, it is a bill that is pertaining to some very complicated financial issues; however, like many of these things, it’s only once it is removed that we suddenly realise how important it is.

A very good example of that was, of course, the GFC. Now, the financial market infrastructures (FMIs), which many of the previous speakers have discussed, defined—no FMIs actually failed during the GFC. But you will have heard one of the previous speakers, Andrew Bayly, talking about derivatives, which are a type of FMI. It’s the derivatives market that did fail. Just to simplify that somewhat so that people understand why you do need some regulation around that—again, one of the previous speakers, Mr Seymour, said, “Well, don’t think that the people who are involved in the financial market are a dodgy lot.” Well, they’re not necessarily a dodgy lot; they’re an entrepreneurial lot and they’re a very clever lot, and they’ll also push the limits. Their job is to find new products that everyone can make some money out of. The world is awash with them.

One of those derivative products was, essentially, to take a large number of mortgages and put them into one package. They were called “derivatives”. In those large number of packages, as you might imagine, there were some good mortgages; there were some bad mortgages. The theory being that if there were some failures of mortgages, the good mortgages would cover. So someone who wanted an exposure to the American mortgage market could buy one of these derivatives, buy one of these packages with maybe up to 10,000 or 100,000 mortgages in it, secure that they had a good exposure to the American market. Well, of course, that worked fine until those derivative products got filled up with bad mortgages, mortgages belonging to people called NINJAs—no jobs, no income—and were bound to fail. Now, that would have been fine if only maybe 10 percent of them had been that. But, as it turned out, in the end, a large number of those mortgages were that. So once this became known—there’s a very good movie called The Big Short. I’m limited with my time here, but if anyone would like to know a little bit more about that, well, the movie The Big Short actually outlines it.

The result of that, they themselves didn’t nearly bring the system down; it was the fact that each of the banks, each of the financial institutions, had exposure to these things, and they knew the exposure they had. So if they knew that we’ve got exposure to these things, then the guy or the other bank we’re dealing with clearly will have the same exposure so we better not expose ourselves to them. And what stopped happening was money stopped moving, and it was the cessation of money moving around which actually nearly brought down the financial system. That was why we saw the intervention, why the banks had to be given the money, the guarantees, to keep going.

So that will just give some idea of why you need some pretty good regulation safeguards around products that many of us don’t know about, that actually have more exposure to than we know, because many of us do have exposure to managed funds through our superannuation, through different ways. So it’s, again, only when these things fail that we start to understand why it is absolutely necessary. If you wanted to get technical—and some of the previous speakers have got technical—what are the key FMIs in New Zealand, these things that we seek to protect? The real-time, high-value, inter-bank payment system that is the key to money and capital markets—well, that’s exactly as I’ve described it. So if money stops moving—today there’ll be people who’ll be settling on their mortgages. That will require one financial institution to move money to another financial institution. Well, if that stops, for any reason there is some doubt of the stability of either of those orders, it won’t happen. So, of course, that’s very much part of this. The FMI that’s not exactly an FMI in itself, but in a broader issue it is.

The global, high-value, inter-bank payment system for the New Zealand foreign exchange market—again, of course, a little bit broader, this is the money that overnight were moving in their millions, those money traders who wake up at 3 o’clock in the morning to check their phones, to check everything else, to see how things are moving. But, most importantly, is that it does keep moving. Everyone has faith. This, again, was exposed to New Zealand to a certain extent. We heard from the submitters that people started to look at New Zealand and say, “Well, actually, you actually don’t have the necessary safeguards here. We’re going to be sending billions, millions, of dollars to New Zealand.” And the New Zealand currency, I think at one stage, was the 10th most traded currency in the world. While we might be a small country, I do remember being in New York looking at The New York Times thinking—oh, sorry, it was The Wall Street Journal, thinking there won’t be much mention of New Zealand in here. And here it was, a picture of the New Zealand dollar, talking about it, because, again, the New Zealand dollar came out to a large number of trusts set up in New Zealand, money was moving through here. So we actually do need to ensure that we have that for that international exchange.

The retail payment system where New Zealand consumers and businesses conduct their financial transactions—again, similar, big organisations, moving money around; absolute faith that I’m going to send you many millions of dollars. We need to have that faith. This is the system that enables that. They then become the FMIs, bearing in mind what I’m talking about here, the key FMIs being identified.

The security settlement system for fixed interest in equities securities market—equities, obviously shares, again, moving around. Finally, the securities settlement system and securities depository for exchange markets—now, I’m not 100 percent certain of that last one. Even I, with my massive skill from my years on the fraud squad, struggle with that one to actually understand. But the others I think make plenty of sense, and why we actually do need that.

I was fortunate enough to be on the Financial and Expenditure Committee. We actually heard many of our submissions via Zoom during the lockdown, which was actually quite a good time when we didn’t have many other distractions and were actually able to sit and read and get a bit of an understanding of this. Some of the submitters we had—there weren’t a great number. We only received nine submissions, and four of them were from operators of these FMIs. So it was a good opportunity to actually get that understanding, knowing that one day I was going to have to stand in this House and explain it to those people at home. Although Mr Woodhouse was here before, he talked about believing that probably no one beyond the first two speakers would understand too much about this. I think he’d be very impressed with my colleague Barbara Edmonds’ unique and in-depth understanding of this.

We also heard from an industry association, New Zealand Financial Markets Association. It would be very surprising, for something this important, if we didn’t hear from them, and they made some interesting recommendations; a couple of law firms, Russell McVeagh and an individual lawyer as well. In fact, the fact we didn’t have a lot of submitters did actually give us the opportunity to actually put some time and question—perhaps, again, being on Zoom and without, perhaps, the time constraints we normally have—and to actually go into these. Again, there was a considerable number of—there were several changes made to the bill, and we will be speaking about them when it comes to the committee of the whole House.

But, essentially, what I would say is that for those—again, many of my colleagues here have gone into the more technical aspects of it. But as I said at the start, what people really need to understand is, when they either as a small part player paying a mortgage or whether there are large sums going around the world, as part of our exposure, we need to have a system that everybody can trust so that the money doesn’t stop flowing, because when money stopped flowing, that’s when we had the GFC and that was when we required the regulators to print large amounts of money—or not print it, but actually get money moving, so that, actually, the—

💬 Jamie Strange: Quantitative easing.

—quantitative easing—thank you, my colleague there. The word did escape me for that moment. That was what was required just to keep the money moving.

I have no hesitation in commending this to the House, because this is one way of giving us in New Zealand the confidence, but, importantly, our international trading partners the confidence that we will be able to keep money moving. I commend this bill to the House.

Thank you very much, Madam Speaker. A previous contributor noticed that the debate had been so far mostly informative, but perhaps not going so far as to say it was interesting. I don’t know if I can lift the latter category, of interest, and, hopefully, I don’t fall too much further behind in terms of the informative nature of a contribution either.

So it does appear that the legislation is going to get the seal of approval of the House as it continues its passage through this place. I think we should talk in terms of “declined” or “approved”, in the nature of financial transactions—maybe, more than “Ayes” and “Noes”. But that voting will take place soon, as we’re nearly at the end of the second reading debate on it, of course.

I did want to touch on a couple of different areas in relation to the bill. My understanding has been informed somewhat by listening to other speeches but, of course, also looking at the bill itself and leaning on the excellent report of the Finance and Expenditure Committee of the previous Parliament. I didn’t have any role in that. I just genuinely think that it appears, certainly from the product that they’ve provided to us, a pretty robust examination of a technical but none the less highly important area of the law.

So I did want to talk a little bit about the history of the bill, how it’s come to us at this stage that we’re at now, and also its purpose, examining that from a couple of different angles, talking about the regulations aspect so the fact that, obviously, this bill will become an Act, which in turn will allow regulations to be made under that—and then touching on a couple of the particular amendments that the select committee had recommended, which I understand are going to be adopted and form part of the law flowing from this.

So in terms of the history, a couple of others have mentioned, so I won’t do so in great depth, but the background to the legislation, I understand, hearkens back to 2015-2016, before my time in this House, and that was with some policy proposals released by the Reserve Bank at the time—effectively, recommending an update to the regulatory regime of financial market infrastructures (FMIs). That was endorsed by the Cabinet at the time—a National Government as it then was. It’s been a framework being proposed out of that. That’s continued forward. The current Government, in its second term—or second term of some slightly different version from the last Parliament. But nevertheless, we’ve had, more or less, a continuation of a work programme that I think’s received bipartisan support not only in terms of its overall intent but very much in terms of the way that the system will operate, the regulatory regime. I’ve got a feeling that’s maybe a bit of a tautology. I sense those are possibly from the same derivation.

But actually, if you’ll indulge me, I’m quite touched that yesterday I was at a university, and I introduced myself by my first name and they could see that I was connected with the National Party, and they said, “Finlayson?” In fact, that’s not my surname or indeed anywhere near my level of expertise. And if I were Christopher Finlayson QC—I’m going to claim it, by the way, if I’m going to assume that identity—then I would know the Latin derivation of “regulatory” and “regime” and I would know if it were a tautology or not. But I’m ashamed to say that I don’t for sure. So I was probably silly to have mentioned it in the first place.

Nevertheless, the purpose of the bill—I will pass to that and move on from the history. I think it’s worth actually reflecting on the purpose of the purpose—tautologies, I genuinely didn’t mean that one, but a number of purposes in the Act. Actually, these are really important, because they not only are going to set out, sort of, the rationale, of course, of why we have this legislation in the first place but can be meaningful for people wanting to navigate the bill and understand what it’s looking to achieve, provide a starting point; also they will produce a yardstick against which the policy aims can be measured later. It does also have a significance, in the sense that the purpose of a piece of legislation is, again, a yardstick against which the regulations that flow from it can be measured. So that’s one of the things that can be considered later on: the secondary legislation that flows from it—is that legitimate or not? Well, there are a number of different grounds on which we can consider that, and one of them is whether it’s consistent with the purpose of the bill.

Others have mentioned the fact that the purpose has been added to through the select committee process. So it seems, I suppose, something of a “motherhood and apple pie” statement that the purpose of the Act should include such things as promoting the maintenance of a sound and efficient financial system, avoiding significant damage, promoting confident and informed participation, and so on. But actually, it is quite significant, or potentially significant, that the legislation now has a mandate, essentially, to respond to threats to the stability of, or confidence in, the financial system. So that allows, it authorises, actions to be taken subsequently if we were to have such extreme circumstances as that, and such action would be legitimate because the purpose of the bill includes that. So that’s pretty helpful, I think. Again, I think that the process of the bill, as well as the substance of it, has been pretty constructive, and I think we’re going to get a pretty good result at the end of it for that.

A couple of other notes, if I may, just in relation to the work of the select committee. One aspect of their consideration seemed to be that it was important to them that the regime be sufficiently flexible to manage different types of FMIs. Again, that might sound really obvious, but that means inserting an extra provision in there that would recognise that there are different sizes and shapes of FMIs, if I can put it like that, and that these should be taken into account when a regulator is exercising their power.

Regulator, speaking of which: the Reserve Bank and/or the Financial Markets Authority. So I understand the original intent was to have joint regulators, but within the bill now, as amended or proposed to be amended by the select committee, is the ability for one or the other to be essentially ceded all that power by the other in an expanded set of circumstances.

My final note—there’s no need, particularly, for me to use all my time, I don’t think—is just giving a highlight to the stability and confidence provision. Again, I’ve mentioned that in relation to the purpose of the bill, and it probably goes without saying how reliant we all are, in our modern society and economy and the way those two fit together, for all the reasons that others have given—and by way of example, whether that’s purchasing a home or something much more modest. But of course, it is so important that we have a stable system, that we have the confidence, for example, in the finality of settlements, and so forth.

So it seems to me really good work. I’ve had nothing to do with it, but I do commend those who have, and I look forward to the continuation of its passage throughout the House in due course.

Again, this is a very interesting process to enter at a late stage because one of the advantages we do have as new MPs is looking at the whole and actually admiring it. It’s a very, very good piece of legislation which is going to fill a vacuum that should have really been filled quite some time ago. We have here a separate piece of legislation that’s focused on regulation of an area where there is great vulnerability. We’ve been given an example of something like EFTPOS, which is just a nuts and bolts thing we all take for granted, and if it actually breaks, we are in real trouble. Here we are actually fixing it by a piece of very thoughtful legislation that is quite nuanced and quite directive in terms of where it focuses.

So I want to actually have a look at the object section and focus on something other than what is a very important part of it, which is this introduction of the focus on stability and public confidence, because there are some other parts of those objectives that I think are well worth mentioning. This legislation will promote and facilitate the development of fair, efficient, transparent financial markets, and that’s something that we really did need to see before the GFC. That kind of transparency is so important to actually informing our consumers, it’s just absolutely vital in an area where many of us are struggling to even understand a derivative. So it’s extremely important that we have put in place a regime that starts to see those things as what they are, and actually the vulnerabilities people have, and regulate accordingly.

So the Act actually goes on in its object section to say one of the purposes will “be achieved by establishing a system for designating systemically important FMIs,” and that’s the matter that is really about the nuance, not focusing on the FMIs that won’t be that important, but focusing on the ones that would actually impact on our stability and our public confidence if they were in collapse. Those ones get a great deal more treatment than they ever have, and they come into a system which used to be one where people would opt in, or entities would opt in. Now it’s going to become one where there is a proactive identification of those kinds of bodies that might affect us. And so it really is a very powerful thing, to start to look and actually not be the ambulance at the bottom of a cliff when things collapse, but insist that those organisations join a system which actually regulates them in an appropriate way. What it will do is it will make sure that the rules in place in those organisations are robust, and it will actually make sure that the information provided is tested.

So one of the things that the Act does is it allows that information to be challenged if it’s wrong. It has a penalty system, in fact, if there is misleading going on. It is a system which has a very interesting feature of a joint ministry overseeing it, and so we have both the Minister of Finance and the Minister of Commerce and Consumer Affairs involved. That’s a really interesting development, to have two entities—which really have such an interesting relationship—talking to each other and jointly being involved in administering this. There is this relationship carried on at the regulatory level where we’ve got the Reserve Bank of New Zealand and the Financial Markets Authority (FMA) having a relationship and, albeit that one might make that decision, there is a cooperativeness which I think is really important, because if you have a silo on such things, you might well get a different result from the kind of communication and the experience of both. So this is a really interesting feature of the legislation.

I take the point that this is really about identifying risk and it’s about making sure that we’re focusing on the things that could really go wrong. There’s a very interesting explanation of what is systemically important, what FMIs really do need to be watched and managed more carefully, at clause 28. It talks about those systemically important FMIs being the ones where the “disruption to activities under the FMI could [actually] cause problems” for others and it could “threaten the stability of, or confidence in, the whole or a significant part of the financial system.” So it’s very much focusing on things that could hurt everyday New Zealanders.

Finally, I wanted to talk a little bit about the contingency plans that appear in clause 48 of this Act, because they are very interesting. They’re really about, again, proactivity. They’re about FMIs actually coming up with their own contingency plan in the first instance, and being expected to assert what to do when things go wrong. So there is this layer of actually building in a maturity in those systems, which means that those involved in them are really thinking ahead and thinking about how to manage those crises in the first instance. If all else fails, the State isn’t walking away from its responsibility, because it’s also recognising that these things are a big deal for New Zealanders, and they’re big enough that we might move away from our usual roles in this situation and go to statutory management if we need to. So there’s a real safety net in this legislation too, which I admire.

I think the last thing that I would like to talk about is the sanctions in this Act, and that really is an interesting part of the Act, because the sanctions are very real. There are quite large amounts of money that will be passed into the State if, in fact, people are not complying with their obligations under this Act. One of the things that will go on is that there will be a check on misleading information—so those information powers will have teeth—and another is that the regulations do allow even for directors to be responsible, where that is appropriate. So directors who should know better and have had the information in front of them will be held accountable, which is something that we’re starting to see more and more of happen, and is a really good check and balance in our system.

I commend this bill to the House.

Motion agreed to.

Bill read a second time.