Financial Market Infrastructures Bill

Last time the debate was interrupted on the third reading of this bill, Greg O’Connor had the call. He has eight minutes and 12 seconds left, if he wishes to take it.

Thank you, Madam Speaker, and I felt that I was just reaching the crescendo of my speech at the time when the night came to an end, and when one is speaking on something as really intrinsically interesting as the Financial Market Infrastructures Bill, it deserves to be given licence.

Often, when trying to explain what this is, it’s sometimes easier to go into things that it’s not. There will be some around the House who remember when workers were mostly paid in cash—not the type of cashie’s backhander that we talked about, perhaps, today that also help to lubricate our working system, but actually a right to be paid with a payslip. Those were relatively simple days, because you would take that money, take it home, distribute it, and pay many of your bills, and life was done in cash. However, those days are something of the past. As we’ve become more sophisticated in the way we remunerate each other, so we have built this infrastructure around it that we really need to have an intrinsic trust in, and this bill is about that. It’s about ensuring that the plumbing of the whole financial system is robust and is trustworthy, and it won’t fall over.

I suppose, again, a better way to look at it would be—again, people will be aware of blockchain and bitcoin and the advent of that. Well, again, that’s a new system of payment that doesn’t have any of these safeguards in it, and the world is watching—I mean, I see, tentatively, many of the managed funds are now starting to dip their toes in the water and buy them. But this is a system that everyone’s very wary of, because it doesn’t have the sort of safeguards that this Financial Market Infrastructures Bill has, and the financial market infrastructures themselves exist to give that trust in the system. Every so often, we see the price of bitcoin heading up around that NZ$100,000 per bitcoin. It will get there very shortly, those speculating—although every so often it drops away and no one really knows why. In fact, I was just reading an article recently that nobody actually really knows who started this thing. So we don’t really know.

But when and if it does—and there’s a possibility it may become the currency of the future. Who knows? But if it does, to have the trust that countries will be able to have confidence in to start moving the money around the globe, there will need to be a financial market infrastructures bill like this, because what this bill is doing is actually putting us in line with other international markets so that when we go off to our EFTPOS machine or when we settle a mortgage tomorrow, or on the Friday, which is the traditional settlement day for mortgages—many will be settling this Friday. It’s a matter that the lawyers have got to have confidence in, and the agents, the vendors, and the buyers have all got to have confidence that when they sign that bit of paper, all this money that’s going to shoot around the globe—it may be international. It could be someone in Scotland buying a house in Wadestown and competing with me, and I hope the British pound weakens so he doesn’t have the ability to do so.

But this is what I’d tell anyone who’s wondering why anyone can get excited about this, because when you look at it, you can see that it’s so important a part of our lives. So I have no hesitation in commending this bill to the House. It’s in its final reading. I’ve been privileged enough to be working my way through the system, through from first reading right through to where we are today, and through the select committee system as well. So, through that, I’ve been able to develop a little bit of understanding of this. If I can understand it, probably most people can, if they take the time. So, again, I have no hesitation in commending this bill to the House.

Thank you, Madam Speaker. It’s often said that in financial services, regulation follows innovation, and there have been extraordinary amounts of innovation in the financial services and financial markets sector over the course of the last few years—things like trading, clearing, settlement services, reporting services for payments, securities, derivatives, and so on. It’s an incredibly fast-moving area. If these services take hold, which is starting to happen in Aotearoa New Zealand, that provides huge opportunity, competition to banks, new levels of financial services, and secondary and tertiary products and industries that can trail off the back of it. But it is one of those things where in the absence of an effective regulatory regime, that actually tends to dampen innovation, because there’s a level of uncertainty about the operating environment for those services. This is particularly true in financial services.

So this is an area in New Zealand which has had a very light level of regulation, and obviously the regulation is also old, and because the innovation is moving so quickly, it needs to be updated. So, on that basis, this is a very good bill. It’s a timely bill, and it’s an important part of the regulatory infrastructure to support the financial markets infrastructure that the bill is intended to address.

I wanted to say that I think it’s had a good process, this particular bill. There was an exposure draft in advance of the bill coming into the House. It attracted very little public comment, which shows that it’s not terribly controversial. It’s had support throughout its process, and so I think we’re probably at the point where we can say we’ve done our job and been thorough about it.

I do want to say that I think the intention of the bill is important. That is to protect New Zealand’s financial markets and the participants in it from significant damage, to increase fairness, to increase transparency, and to ensure that good practices are followed in the financial services sector, all of which are consistent with the principles that my party puts forward when it comes to monetary policy or financial services policy as well. So, on that basis, we support this bill and we’re looking forward to its passage into regulation.

Thank you, Madam Speaker. I rise on behalf of the ACT Party to support the Financial Market Infrastructures Bill. As previous members have stated, this is a fairly technical bill but important to the healthy functioning of New Zealand’s economy. The proposed regulatory framework allows our exporters to trade with certainty and to manage their risk. It is incredibly important to the financial security of New Zealand, as was painfully evident in the global financial crisis.

Generally speaking, ACT typically does not support additional regulation with great enthusiasm; however, we also feel that fixing a potential market failure is perfectly justifiable and reasonable. We favour an efficient financial system in New Zealand, particularly in times of crisis. This bill provides a regulatory framework to insulate financial markets during periods when the markets can become illiquid and it’s difficult for trades to occur. This bill will assist in providing certainty in such times.

When I lived in London in 2007, just as the global financial crisis was unravelling, I saw the significant impact on financial markets, the economy, people’s businesses, and, not least of all, the devastating human cost, including on my own family. So anything we can do to insulate ourselves when such global events crop up is a good thing. We have recently seen issues such as the trading of game stock shares on novel electronic platforms, where investors were exposed to significant losses because of the lack of liquidity in those platforms. We’ve also witnessed a similar series of events with the volatility in the movements of cryptocurrencies. This bill could reduce the impact of these events on New Zealand investors.

ACT also favours this bill because it is largely an opt-in system for non-designated financial market infrastructures; however, it is prudent that institutions deemed too big to fail are also mandated to be part of this regime. ACT supports the quest for a more efficient and stable financial system. Supporting this bill would reflect a long consultation period, which has been conducted across the world by organisations such as the International Monetary Fund, and will ensure consistency with our trading partners. I commend this bill to the House.

Madam Speaker, thank you very much. It’s a privilege to take a call on the third reading of the Financial Market Infrastructures Bill. It’s been a long time coming to get to this point where we’re in now at the third reading—eight years, actually; eight years of policy development, consultation—and to the point where we’ve finally got to a bill that is so important, because everybody in this House today, I am pretty sure, has used their EFTPOS cards. An FMI, or a financial market infrastructure, is the payment system that underpins an electronic funds transfer at position of sale. So to anybody who’s used an EFTPOS card, this bill is increasingly incredibly important to you.

The bill, as previous speakers have said, provides a regulatory regime for FMIs, and, for someone like Aotearoa, who uses EFTPOS—we’re one of the highest users in the world. For example, Payments NZ, in 2019, cleared $6.9 trillion through their FMIs, with the FMIs being settlement before interchange or high value clearing systems.

An FMI, as the Minister of Finance in the second reading—he likened it to a plumbing system. You know, it’s just like a plumbing system in a home, and if you’ve got plenty of children there, you know how important the plumbing system is.

So when you’re an in-house lawyer or you’re a lawyer and you’re doing submissions for court, one of the really important things is, for a piece of policy that’s taken eight years to develop, in order to help do your submissions to court, you need to track through the Hansard and track through how you got through to the policy development. So I just want to quickly touch on the history of this bill to help that future in-house lawyer, or that lawyer in the future from the Reserve Bank or Treasury, who needs to look back into how we got to this position today.

So in March 2013—as I’ve said, this has taken eight years—the Reserve Bank began its first round of consultation by releasing a proposed new regulatory regime. Then, in April 2015—two years later—they then did another round of consultation, and they released a consultation paper to modify the existing statutory framework. Then, in March 2016, the Reserve Bank issued another consultation paper, and that was around the proposed crisis management powers which are covered within this bill. Then, in August 2019, the Reserve Bank published the exposure draft, which previous speakers have spoken to. In that exposure draft, it also had a covering note which now led to what is the regulatory regime, which is in here. Then, finally, in December 2019, we have the bill that is before us today, that was introduced with the first reading on 12 February 2020, the second reading was on 16 March, and then the committee stage was here in 2021.

So I want to commend the Minister, the Reserve Bank officials, and Treasury officials for the robust, sound, and well-analysed bill that we have before us today. Good things take time. This bill has taken time, so I commend this bill to the House.

The next call is a split call.

That’s OK—I won’t be needing the five minutes, Madam Speaker. In my second reading contribution on the Financial Market Infrastructures Bill, I think it’s fair to say it’s probably one of the least esteemed speeches of my political career, where I admitted to nearly no technical expertise in the areas which this bill seeks to improve. But I was fortunate enough to hear from a member of the Finance and Expenditure Committee who said this about the bill: he said, “It’s a good bill. We need a good credit card system. Goodness knows where we would be if that system collapsed. My Uber Eats might not get delivered.” That happened to come from Dr Duncan Webb, chair of the Finance and Expenditure Committee, in a weak moment.

But he actually had a point, flippant though it was, which was underscored, I think, by Dr McDowall’s and Ms Edmonds’ contributions around the importance of what Barbara Edmonds calls “the plumbing” and what the Minister referred to in his speech as “the important electronic movement of currency through our financial system”.

Actually, James McDowall talked about cryptocurrency, and I think one of the things that we can say about a modern financial system is how incredibly quickly things change. My first job after school, actually, was in the National Bank, stamping cheques and folding bank statements, and that was before the first ATM was introduced into New Zealand in about 1983 or 1984, but we are fast adaptors. We are fast takers-up of technology. EFTPOS is another very good example of the way in which our financial systems have changed over the years.

Indeed, we’re now at the point where cheques are not being issued by banks any more. Very little cash, comparatively speaking—certainly in most parts of the economy—is being used now, so electronic transactions are literally the circulatory system of our economy and our financial system. Therefore, it is important that the regulatory framework continues to keep up with those fast-paced changes.

But it’s also fair to say that for many people, including myself, the technical aspects of this bill have been somewhat beyond even a chartered accountant and lapsed banker. The importance, then, of officials who are advising the committee and able to articulate to the previous Parliament’s committee in plain English the very, very complex technical aspects of this is absolutely vital, and I think it speaks to the quality of the public sector that we have in this country that we are able to rely on them to the degree that we have. So I want to commend them, together with the submitters who have also helped us make improvements to the bill.

We’ve got some others. We’re already doing the Reserve Bank of New Zealand Bill, which is before the select committee, which I—I’m pleased to say—know a lot more about and understand even better. It is, nevertheless, still being supported by those submitters and our officials. So I want to commend them and thank them, and I commend the bill to the House.

Tēnā koe, Madam Speaker, and good evening to you and everyone in the House. Tonight, I’m rising in support of the Financial Market Infrastructures Bill, a bill that establishes a new regulatory regime for the regulation and oversight of the financial markets infrastructure.

I take my two points from previous speakers tonight: first from my colleague Barbara Edmonds and the acknowledgment of a very practical part of our day-to-day lives, an EFTPOS card. I think back to the past 12 to 18 months and the life of COVID-19, and we think to our small businesses across Auckland and across New Zealand, who have had to pivot and adjust and adapt their business models to work within our new world and keep afloat, essentially. And at the other end, our customers have had to change what they purchased and adapt to those evolving markets too, not only because they’re consumers but also because they want to support local business, and that was something special of that last 12 months throughout COVID-19.

But what this bill does, essentially, is it upgrades, I guess, the plumbing—we’ve called it this evening.

💬 Barbara Edmonds: It’s necessary.

It is necessary now. What we experience is that we have financial infrastructure systems, regulatory systems, that are incredibly out of date. It’s important as we rebuild our economy post - COVID-19 that we support our local businesses, that as consumers we go out and buy the things that we want to, that it’s as easy as possible, for all involved it’s as simple as possible. On that basis, I would like to commend this bill to the House. Tēnā koe.

I rise for the first time on this bill, in contrast to many of the others who have spoken before me. In doing so, I reflect on my colleague and deputy chair of the Finance and Expenditure Committee, Barbara Edmonds, who, in speaking on this bill in an earlier reading, talked of her past experience as a policy official and about the fundamentals of policy coming back to three very basic questions: what is the problem you are trying to fix, what are the options to fix the problem that you’re trying to fix, and what are the next steps? Tonight, we are at the very final step in this process: the third reading of the Financial Market Infrastructures Bill.

As we commend this legislation wholeheartedly, and across the political divide, to the House, and as I look back on the speeches by other members—some who will have, by the end of this, spoken three times and participated in the second reading and in committee stages, including my friend Greg O’Connor. He enjoyed saying, with a lot of enthusiasm, that there are several common themes that have come through on this piece of legislation. First is that the Financial Market Infrastructures Bill is very timely. The second is that everyone agrees that it’s a very technical bill and an important bill. And thirdly, in agreeing, everyone is also supporting this bill across the House.

I’ve had to quickly come up to speed with this bill, which seeks to establish a new regulatory framework for financial market infrastructures—that’s FMIs—along with providing certain FMIs with more legal protections and also the enforcement of these rules. The bill makes sure that the Reserve Bank and the Financial Markets Authority, which are the agencies who have the role and the functions of the regulator in the bill, are both given the authority to do the work and given the powers they need to undertake the work. It is a regime based on a framework which also provides the flexibility to allow these regulators to do their job underneath it.

Throughout the debate, we’ve heard that the bill is very important, as it’s intended to bring New Zealand’s regulatory framework for FMIs in line with what is best international practice. While I’m new to speaking on this bill, I’d like to acknowledge the select committee for their work in the previous term, officials from the Reserve Bank, and the 10 submitters who took their time to submit on the bill. This bill has been very well consulted on, resulting in the select committee considering and making several amendments to the bill. Those amendments have all been adopted by the House. These include adding a new principal regulator, adding a new streamlined process for transitioning settlement systems, and a variety of other changes, both technical and detailed, designed to support the operation of the new regulatory framework.

Another common theme that has appeared through the debate is to provide some more understanding around the technical nature of the bill in everyday language. Far too often when discussing technical, sophisticated financial information, rules, and regulations, we can turn people off. So I enjoyed the advice that my colleague Greg O’Connor shared with us, which he had received, about not getting too overwrought when confronted with a lot of financial papers in front of you; simply just break them down in a way that people will understand. What we’re really talking about is simply a bill that keeps the whole financial system moving, often referred to as, as we’ve heard, the plumbing.

We know that with all infrastructure, we have to get the systems right to operate effectively and efficiently. While the operational role of FMIs is often taken for granted on a day-to-day basis, they are critical to ensuring the financial system keeps working in a sound and efficient manner. If they break down, this can have a very serious impact on the operation of our financial system and the day-to-day ability for the business and consumers to buy and sell products. We have come a long way and we have done so well to get this bill to where it needs to be. I am very proud to speak on this final reading and commend this bill to the House.

In rising to offer the final contribution in this debate, I’m reminded of that reality, which is that we politicians in this House do an important job but we would be absolutely nowhere without the highly informed and educated officials and public servants behind us who do much of the detailed, difficult work on bills like this and do so with a level of expertise that is, as I think it is fair to say, and with all due respect to all of my colleagues, to a level that is beyond the comprehension of anyone who’s contributed to this debate.

Because we do have in front of us a very complex piece of legislation that relates to an area of law that is acknowledged by all members as fundamentally important, yet is difficult to understand and opaque to most of us. But what it is is the regulatory regime for financial market infrastructure. And what we know here is that getting the regulation right in this area is vitally important. It’s not just Duncan Webb’s Uber Eats that is at stake. It is the very health of our economy. It is the wages entering the bank accounts. It is financial transactions being able to take place. It is the water running through the pipes.

So it’s vitally important. And, as with any regulatory regime, it is important that it keeps pace with technology and the reality of how our money systems have evolved over time. In this area, as in so many other areas of regulation, New Zealand needs to strive to keep up with best practice, to allow for innovation but also to protect from risk. In this area we are doing a bit of catch up with the rest of the world. In doing that catch up, as contributions throughout this debate have acknowledged, we do need to note that we are interdependent here. We can regulate our own financial system in our little corner of the world as well as we like but we are ultimately very dependent on what is happening elsewhere in the world, and there are various aspects of this regime that highlight that reality. I do think that it’s important that we note this for the House.

So National rises to support this bill. We commend the officials and the experts behind the scenes who have put the effort into producing this bill, who understand it better than all of the politicians here tonight. It’s an important piece of catch up. It’s an important piece of regulatory work. I commend this bill to the House.

I rise in support of this bill, and it’s actually a pleasure just to speak on something where, in fact, all the parties agree. It’s a really nice way to end our evening—that we will be doing that. This is a piece of legislation that I have had the delight of watching, for example, Andrew Bayly talk about with a degree of glee because he got to talk about derivatives, and I think, while we glazed over, he was in utter delight at being able to do that. It reminded me, in fact, of when I asked a friend who was really into cricket to explain leg before wicket, and it was quite some time before we came up for air, and I still don’t understand leg before wicket.

This piece of legislation is one that is actually quite a simple and practical piece of legislation, and I like that. So, rather than talk about it being technical, I think I’ll talk about why it isn’t. It’s a very sensible, common-sense approach. What they have done in this legislation is they’ve put together something where there is actually a real focus on the key instruments that, if they went down, it would be a calamity for us all. So there’s a real focus on those. There’s a real support of those instruments so that they will actually provide appropriate information, so that they will have contingency plans if something goes wrong. That’s one of the really sensible things that, really, it’s crazy we’ve lived without. Obviously, a lot of these institutions would have had those kinds of contingency plans. Now they’ll be required to provide them and make sure that they are really up to scratch.

If the key infrastructure is not providing the kind of information that’s good enough, then there will be the capacity to intervene, and there will even be the capacity to penalise. There’s also the capacity for an instrument that isn’t a key piece of infrastructure to actually opt into this piece of legislation, and that, I think, is a really interesting thing. When you start to build a structure and you start to see people opt in because they would rather be in the safe regime that is present and everybody works within those parameters, that seems to me a very, very useful part of the structure.

It is true that these pieces of infrastructure are things that people find it hard to understand are even there. We have used the example repeatedly of EFTPOS, and EFTPOS is the one that we understand. But there are so many parts of the infrastructure that we’re vulnerable to because we don’t understand, and it’s very, very nice to know that somebody who understands a derivative will be looking at this and will be making sure that those parts of the structure that, actually, we rely on, like clearinghouses, like netting—these kinds of things—will be in the hands of people who understand them. They will be watchful and we will not be as insecure as perhaps we have been in the past as these things have developed.

So this is a piece of legislation that I am not at all surprised that we all agree on, because it is the stuff that will make New Zealanders safer and New Zealand more secure, and it will actually provide a lot of resilience in itself to our economy. It is very, very good that we are all able to see that and that we have managed to put together a piece of legislation that has that kind of consensus across the House. I wasn’t on the select committee when this this happened, and so I’d just like to thank those who have done the hard work. It has clearly been hard work. I thank the submitters, who really have, no doubt, really thought about these things and, obviously, have a lot of information that has been made available. They’ve done a lot of hard work, and that work was adopted in the process. So it wasn’t a waste. It’s a good example of how expert submitters produce really good results through a process that I have come to really admire in terms of its capacity to bring those submitters into the system.

So, without saying any more, I think it’s really something that I would like to say thank you to everybody involved. I’d like to thank the Opposition for all supporting this. I’d like to thank my colleagues for doing the hard work. I commend this bill to the House.

Motion agreed to.

Bill read a third time.

The House adjourned at 9.57 p.m.