Financial Markets (Conduct of Institutions) Amendment Bill

Thank you, Madam Speaker. I must say, I thought to myself, “It seems such a long time ago since we considered this bill.” I was looking at the select committee report, and to see that we had such luminaries as the Rt Hon David Carter and Fletcher Tabuteau on the select committee at the time—so we’re going back a bit.

But, look, this is a really important part of the infrastructure around protecting consumers of banking and financial services. We’ve seen the Retail Payment System Bill proceed tonight, and this is essentially part of that but it’s much more around conduct. It’s flowed on from some of the troubling matters we saw come out of the Australian inquiry into banking where services were sold to customers quite unnecessarily, and some corollaries—not quite as egregious, but nevertheless some deep concerns—that sales and products were being given to consumers driven much more by commissions and profits than by need.

So the definition of proper financial conduct and the requirement around having procedures within a financial institution to make sure that the employees and providers of financial services understand that they need to put at the forefront of their mind the needs of consumers and not the needs of corporate banks—and to strike the right balance given the relationship of trust and the vulnerability of consumers who take these very complicated banking services and financial services—is really important.

So it’s good to see this proceeding a little bit further in the House today, and I look forward to the day where it’ll be passed into legislation and we can see another piece of the infrastructure of consumer protection in the financial services sector. I commend the bill to the House.

Wow, that was pretty short. I think the member might have been struggling a little bit, like all of us, because this bill’s been sitting around for a while. The last note I have is from back in August last year. It’s probably worthwhile reminding ourselves what this bill stands for and what it involves.

This bill has come about as a result of a review in the Australian banking sector of unwelcome practices. The Financial Markets Authority and the Reserve Bank conducted a similar exercise here in New Zealand. Whilst they did find some instances of practices that were unwelcome, the main and overarching conclusion of their review was that there was no systemic failure—as there was in Australia—and the failure that was found in New Zealand primarily related to governance structure and management of risk. The upshot from the review was that New Zealand was in pretty good shape. However, having a Minister, Dr Clark, who just loves the thought of regulation and a Labour Government that doesn’t understand business at all, they somehow came up with this wonderful Financial Markets (Conduct of Institutions) Amendment Bill.

National opposes this bill, and we oppose it for a number of reasons. I’m going to talk about some of those issues, but the core obligations of this bill are to implement effective policies, processes, systems, and controls to enable a certain group of financial institutions—and I’ll talk about them; but primarily registered banks, licensed insurers, and licensed non-bank deposit takers—to meet high levels and to treat customers fairly, including by paying due respect to their interests. These policies are going to be set out in a conduct programme. The issues with this are manifold, but the first thing is that it is a bill trying to come up with a solution looking for a problem. That is one of the principal issues that we have with this bill. This bill is an incredible overreach to some issues that were found but certainly were not systemic or widespread.

The implication of this bill is that how banks and other regulated entities have to manage their marketing aspects and operations through an intermediary are now subject to a great deal of scrutiny and oversight. The biggest strategic issue that’s happening—and I see it from this Minister—is that there’s been such an avalanche of legislation that’s been imposed on the financial sector. We’ve had, more recently, the credit contracts and consumer finance (CCCFA) legislation that’s turned out to be an absolute disaster—and it’s still subject to the Minister reviewing it. But we’ve seen major issues with banks and other financial institutions in the way that they now conduct and undertake lending, and there’s been a decline in the availability of finance and much delay in banks and financial institutions providing funding to hard-up New Zealand businesses, to individuals wanting to buy a house, and all of those sort of aspects. And that is a result of hastily imposed, poorly thought-out CCCFA legislation.

One of the things about the CCCFA legislation is that it requires institutions to develop a responsible lending code, which is subject to Ministry of Business, Innovation and Employment (MBIE) and Commerce Commission oversight. So MBIE will be the principal entity, but the Commerce Commission will have an oversight role as well. Under this bill, which is another piece of legislation proposed by Dr David Clark, institutions will also be required to agree a code of conduct—so very similar to what’s required under the CCCFA requirements. But this one will need to be approved by the Financial Markets Authority. So what we’re seeing now with this piecemeal, ill-thought-out strategy—if there is such a thing—is that over time, and over recent time, the Labour Government has put in a whole stack of regulations and pieces of legislation that are now potentially leading to quite significant conflicts. Where you’re talking about two sets of codes, now overseen by different organisations—who’s going to have priority? Which one should a financial institution be more responsible for, or to have greater regard for?

That is going to be one of the biggest issues that we will have to deal with when we get to Government—to try and sort out and try and put in place proper arrangements, because we do want to make sure that financial institutions are operating appropriately, but what we don’t want to do is put in conflicts.

So the first issue is this bill relates to financial institutions, and that has quite a defined meaning. It means registered banks, such as an ANZ or Trust Bank; licensed insurers, like all insurers that we’re well aware of; and licensed non-bank deposit takers. But there are approximately 1,500 registered financial service providers, which represent about 90 percent of the industry, who are not subject to this bill. In fact, they’re not subject to the other bill. So if we were to actually worry about people who might potentially be more likely to undertake unwelcome lending practices—the very group that we want to capture are not captured. It is an absolute glaring issue. They include instances of payday advance lenders, peer-to-peer lenders, other high-cost lenders, and shopping trucks. So that’s the first issue with this—the definition around it.

The second thing is what the requirements are on financial institutions, in terms of their practices they’ve got to worry about with their entities or intermediaries that might be selling their products. So if you are a bank, you might have many, many intermediaries. You might have fund mortgage brokers. In insurance, you might have insurance agents who are separately contracted companies. Those intermediaries in themselves might then have other agents or intermediaries that act for them.

What this bill requires is that the financial institution must then have regard for everyone in that chain of selling their products to the market. What that really means is that the difficulty around managing these relationships—and if you were a large bank, you might have many, many relations, and many, many intermediaries. They might be in the tens, dozens, 50 or so, maybe 100—I don’t know—and because you’ve got third parties beyond that, the difficulty of practically managing that is a really significant issue. So that is one of the things, the practicality of doing that.

There’s also issues with how the obligations relating to the intermediaries are going to be overseen by MBIE. So some of those arrangements and the clarity around how that process is going to take place leaves somewhat to be desired and is rather unclear.

I was looking at some of the submissions, actually, and they are just a swag of people saying, “Look, first of all, this bill should be delayed.” I’m just looking at those from the banking industry, I’m looking at those from the insurance industry, I’m looking at those from CUBS, which are, effectively, the credit union entity—all of them have this consistent recommendation that this is poorly defined, poorly drafted legislation, and the delay around doing this should be paramount.

But there’s some really significant clauses, which we’ll deal with during the—

ASSISTANT SPEAKER (Hon Jacqui Dean): Order! This debate is interrupted and is set down for resumption next sitting day. The House is suspended, and I will resume the Chair at 9 a.m. tomorrow for the extended sitting. Good evening.

Debate interrupted.

Sitting suspended from 9.59 p.m. to 9 a.m. (Thursday)