Financial Markets (Conduct of Institutions) Amendment Bill

Thank you, Mr Speaker. I would just like to shout out to all the hard-working nurses in the Taieri electorate on this International Nurses Day.

In June 2021, a financial institution called Credicare service announced it was closing, and it left 2,300 people out of pocket, including many senior citizens in my own electorate, and people like Wayne White of Dunedin who had paid into this fund for decades, some of them for 25 years, hundreds if not thousands of dollars. Those who were over 73 years old were offered a closure gift of $50, which they found difficult to understand, and they basically walked away empty handed. This financial institution was about funeral costs. It was these seniors trying to do the right thing by not lassoing their families with the expense of funerals should they die, and the idea was that everybody would chip in and that when somebody passed away, they would have their funeral costs covered to the tune of $10,000. The problem is that as that cohort aged and fewer and fewer people opted in, and more and more people died, the fund basically ran out of money.

That is exactly the type of situation that the legislation before us is seeking to remedy. There’s another case of a woman who paid $19,000 in insurance premiums for a policy that was worth only $10,000. Consumer magazine called that type of cover over-hyped and over-sold. I’d like to acknowledge Consumer magazine for the advocacy it’s done to restore the fairness around funeral and other insurance schemes. The Otago Daily Times has also done an editorial, saying that the law before us today, the bill we’re debating now, is long overdue. I hope the Otago Daily Times will continue its excellent coverage of this issue and also alert its readers to the fact that we are now remedying this, and that is what we’re doing here today.

The Financial Markets (Conduct of Institutions) Amendment Bill refers to the conduct of financial institutions, so this is really about changing behaviours, changing the culture of those institutions and putting people before profit, which is a core Labour value. So it’s seeking to address the question of how we get a culture of valuing people into our financial structures, and it’s very much about fairness. It sits very nicely with the response of this Government to COVID, where we have sought to get fairness for people. You’ve seen that our unemployment rate is at the lowest for many, many years at 3.2 percent. We have targeted our pay rates and living standards for the lowest-paid workers. We have fair pay agreements coming in. We’re steering away from austerity. We’ve got a wellbeing focus and we’ve got many other things to show that this Government puts fairness at the heart of its policies, and we will see that again in the impending Budget.

Actually, the legislation is also about financial stability. When we have systems that are robust and transparent and are fair, we also contribute to the overall financial stability, and that, Mr Speaker, as you well know, leads to a more robust and more stable economy which is more attractive to foreign investment and is able to withstand the types of shocks that we’ve seen.

The legislation also builds on the work done in the Fair Trading Act 1986, the Consumer Guarantees Act 1993, and the Credit Contracts and Consumer Finance Act 2003. So the problem that the bill tries to remedy is the imbalance of power in the financial markets and the role of consumers in that. It specifically looks at insurance and the questionable motives of salespeople who are perhaps seeking a win from a sale rather than looking at a win-win, and it’s also looking at the conduct controls and systems that protect consumers, and the lack of accountability, especially at senior level.

Various banking inquiries have identified gaps in the conduct around markets, gaps around fairness and weaknesses—that’s inquiries by the Reserve Bank and the Financial Markets Authority—and there have been several sector reviews which have shown evidence of poor conduct. So, as I mentioned before, we’re really looking to try and change the culture around these financial institutions to make sure that consumers are taken care of, that there’s a rebalancing of the playing field, and that everybody entering it knows that it is fair.

The UK financial services did a lot of mahi into what that culture could look like, and the New Zealand officials have looked closely at that research. The UK says that consumers need to feel confident that they’re treated fairly, that they have needs-responsive products, that there is clear communication that they can understand, that the advice that they’re given is appropriate, that products meet their expectations, and that there are no unreasonable post-sales barriers.

So what the bill does is it ensures that banks and insurance companies are licensed by the Financial Markets Authority, and it also seeks to reduce harm to customers by making sure there’s fair treatment, and that means including due regard for their interests plus intermediaries. It establishes and maintains a fair conduct programme and it requires compliance with it, and it creates a regulatory power to stop volume and value targets, or soft commissions. This is a case where somebody is told that if they can get a 10th consumer over the line to buy a particular product such as insurance, they may, say, win a trip overseas. So the incentive on the intermediary or on the salesperson is about getting that sale at all costs, rather than considering what is a win-win outcome.

The select committee received 59 submissions. Most of them were favourable, and the main highlights from the process were really adding a minimum requirement of fair conduct so that there would be certainty, and also limiting the definition of fairness so that it was a non-exhaustive list.

One of the big areas that came up with intermediaries—and we’ve seen this around employment law, where there are grey areas of whether people are employees of a company or a firm, or whether they’re subcontractors. The legislation tidies this up and, basically, requires all intermediaries to be treated as though they were employees of the company for the purposes of making sales. So that means that the firms have an onus to do criminal record checks on their intermediaries, they explicitly set out the expectations of good conduct, they have robust policies and processes for dealing with misconduct, and they monitor the outcome for consumers. Also, they encourage the disclosure of commission to consumers so that they can mitigate risk, so that means that intermediaries need to be transparent about any commissions that are coming their way.

What this legislation does is it sits in a very complementary way with other regimes which protect consumers. It sits under the umbrella financial and credit contracts legislation. There are compliance overlaps with other legislation, which are complementary. They are acceptable and they don’t cause confusion. There is a statutory review clause, which will pre-emptively deal with any unforeseen issues—for example, if there are regulations which may overlap—and it really does complement other regimes.

The scope of the legislation is around banks and insurance. KiwiSaver providers and finance companies have not been included. However, there is room to do that. The Minister has acted swiftly. He’s seen the mischief in the market and has moved to rebalance things for consumers, and once this legislation is passed, we could expect that there will be a review into other institutions which should be captured by legislation like this.

Really, what we are debating today is a bill that looks to increase fairness and achieve a culture of fairness in the financial institutions. It’s about re-levelling the David and Goliath relationship that consumers sometimes have with large firms and organisations, but also it’s about ensuring the integrity and financial stability of the banking structures so that we have an economy that can withstand the types of shocks that we have seen very recently.

So it’s a great piece of legislation. It’s been a long time coming, getting to this second reading. I don’t know how many times we have prepared to stand and speak to it, so it feels very good to be doing this on International Nurses Day, and I commend this bill to the House.

Tēnā koe, Mr Speaker. Echoing the comments from Ingrid Leary about just the number of times that I’ve prepared to give a speech on this bill, it’s nice to finally get in here. I want to start by also giving a shout-out to our nurses and our migrant nurses on International Nurses Day. The Green Party supports a transparent and well-regulated and accountable financial services sector, and we’re pleased that this bill, the Financial Markets (Conduct of Institutions) Amendment Bill, works towards creating such a regime.

I note that this bill was introduced almost 2½-plus years ago now, and so it does feel like it’s been a sort of slow process in getting here. Looking back at some of the submissions, which are now somewhat dated, I think the issues are very much relevant in terms of some of the pressures that consumers continue facing—as well as retail workers who work in the bank sector—and I wanted to reflect on one of the submissions from FIRST Union, who was really clear that a fair-conduct principle is really necessary but it must extend to fully removing sales pressures from New Zealand’s retail banks. They talked extensively on some of the pressures that exist on workers and that, when we talk about fair conduct, we need to think both of the consumers and the workers as well. And I did note in the submission that they were really keen to have some specific requirements regarding the fair-conduct principle.

When I was looking at the select committee report from the Finance and Expenditure Committee and the amendments that were being proposed, I was pleased to see that not only was there a sort of review period being introduced that I think will allow us to examine whether the bill is actually meeting the requests from submitters to properly protect people from the tactics from financial institutions that are sometimes unfair, but also that there are some amendments that seek to clarify, and provide more clarity around, the concept of the fair-conduct principle and the clarity and broadening of that definition that I think will give some space to hopefully just better protect consumers.

And just echoing, too, what Ingrid Leary was saying earlier, I think the potential to apply some of these regulations to intermediaries is really important, and that is an area that needs to be properly met. I looked at some of the background into what led to this bill, and really thinking about the sort of predatory nature that some insurance companies take on and particularly how they target people that may not have the literacy to understand what may be offered. And I think it is important that we set a regulatory framework that addresses the predatory nature of these institutions.

I think it’s been great to see quite a few commerce bills being introduced and hopefully passed over the next few sitting blocks. So we’re really keen to see this bill being discussed in the committee of the whole House, and we’ll see if the Minister is planning on bringing forward any changes, seeing that this bill has been sitting for quite some time and people have had ample time to provide feedback. We look forward to this bill coming into effect sometime in the near future—hopefully not too many sitting blocks for us to give the speeches. Kia ora.

Thank you, Mr Speaker, for the opportunity to stand and speak on the Financial Markets (Conduct of Institutions) Amendment Bill. This is an introduction of a new conduct regime. The behaviour targeted and required by this bill is laudable but misses the target. ACT has strong concerns over the scope and the application of this bill and would prefer to see a major rewrite before this has been introduced, or the holes in the bill are to be addressed.

The bill intends to create a broad regime governing registered institutions and the conduct of banks, insurance, and non-bank deposit takers. In new subpart 6A, inserted by clause 9, key definitions, it says that New Zealand has 27 registered banks and 86 licensed insurers and 20 non-bank deposit takers. The bill excludes the other 1,450 registered financial service providers—98 percent of the industry’s participants—which includes privately funded finance companies, pay day advance, peer-to-peer, and other high-cost lenders and shopping trucks; the worst offenders in the recent years under consumer laws. This is a major flaw in the bill.

It’s a bill where much of the evidence of the problems is based on qualitative reports by the Financial Markets Authority (FMA) and the Reserve Bank into conduct, and the culture into the banking and insurance sector, plus the Ministry of Business, Innovation and Employment (MBIE) report back filling the stakeholders’ rationales. ACT has a concern that this is all bones and no muscle, and so do others. No crisis, no burning platform here; this is FMA director Mason. FMA and the Reserve Bank said that there were relatively few instances of potential misconduct. The Insurance Brokers Association said that this still results in less availability of independent financial advice in the full reveal of product and design information. The independent financial advisers said that there’s no evidence presented that financial institutions are not already treating consumers fairly. The Bankers’ Association raised concerns to the incentive prohibitions and settings.

Bad behaviour targeted should not be fixed by regulations. Problems identified by MBIE: products are not always designed with a good customer outcome in mind, poor value of products, stitching and covering issues, and problems in relation to sales. Free market is about greater competition and other methods than those proposed in this bill. Institutions already have policy in place, and this requirement will simply impose more regulation and bureaucracy. It discriminates against mutual and credit unions. There’s no more hazard in their activities targeted in this bill. Mutual and credit unions is burdensome and unnecessary and should be excluded from this bill; they’re already legislated to act at all times in the best interests of their members.

The ad hoc approach to the industry, the framework where two years to put meat on to this, and MBIE’s advice two years old, and another two years of workability, and we still need to move on. The bill requires certain financial institutions to be licensed and to create and comply with a fair conduct programme, at a cost. Clarifying what a “fair conduct programme” must include by inserting further minimum requirements for this bill.

Intermediaries are not included in this and do not have to comply. Ministers must have regard and powers before commencing regulations regarding incentives. “The FMA must, before commencing a proceeding under subpart 3 of Part 8 for a contravention of this subpart, obtain the consent of the Commerce Commission if the FMA considers that the conduct in question is likely to contravene any provision of—(a) the Credit Contracts and Consumer Finance Act 2003; …(b) the Fair Trading Act 1986. (2) However, a failure to obtain consent does not affect any proceedings commenced by the FMA.”

We must legislate, at all times, in the best interest of the customers, and ACT does not believe that this achieves that. So ACT will not be supporting this bill.

I’m pleased to rise in support of this bill. I think if we just take a very simple example, I might be able to add to the debate.

I remember a time when people were being charged for insurance for something that ACC covered. So they were paying money they didn’t need to pay for something they were going to get in another way. It felt like trickery because it was trickery, and it wasn’t helped by things like incentive payments, which made that absolutely tempting for people within the industry. I’m glad to see principles like this come into our law and be expected of our people, because these things hurt real people.

I’m glad that the National Party and ACT seem to be enthusiastic about extending this legislation to others, because that’s actually what we do need to do—work on a greater and greater expectation of reasonable things for people and reasonable conduct. This bill does that and I’m proud to support it.

Thank you, Mr Speaker. The National Party will oppose this bill. It does have some aspects of it which the Minister is making out to be in the best interests of New Zealand consumers, but we just don’t think it’s needed at this time. And really, if the Labour Party actually wanted to do something for consumers, it would do something to support their interests and their ability for business to get on and actually rebuild this country after the COVID experience. This bill, as we see here, follows reviews that have been into the conduct and culture, and it’s a small change compared with what’s actually going on in the community today. And if we look at the Government’s announcement around immigration today, really saying they’re open for business, but at the same time restricting the ability of New Zealand businesses to get staff in—[Interruption]. I know, Mr Speaker, that you’re raising my attention to the bill, but what I’m saying is that the bill in its context is only small fry when we’ve actually got businesses that are falling over and really need help, and we need an economy that’s growing.

💬 SPEAKER: The member’s had his introductory comments. He will now talk on the bill.

Yeah, and so what I’m saying is that’s why the National Party will be opposing this bill: because we think there are more structural things that the time of this House should be used on in making better decisions for New Zealand going forward. So we do oppose this bill.

Thank you, Mr Speaker. It is my pleasure to take a short call on this bill and remind people in this House, unsurprisingly, given that it is a Labour Government, that this might look like it’s about money and finances, but actually it’s about people.

This bill is about people; this is about making sure that we have better support to improve conduct and culture for our banks and insurers. This is about making sure that the people who work in those institutions are supported to do the best that they can for their customers and about looking after those customers.

When I was a kid, my dad worked at the ANZ bank in Molesworth Street—yes, back when we had little branches all over the city—and I remember his pride at being able to bring his expertise to his clients when they were discussing their potential mortgage or other financial contracts that they were considering entering into and really supporting those people to make the best decisions possible. Because the implications if you get it wrong can be incredibly difficult for those involved.

I’m really pleased to see this bill that brings some humanity back to the sector. I commend the bill to the House.

Mr Speaker, thank you very much for the opportunity this afternoon, on a Thursday, to discuss the Financial Markets (Conduct of Institutions) Amendment Bill, second reading. One thing that you notice when you listen to speeches that go before you is that a lot of the conversation today, one relatively short—but in terms of the actual ability to add any specific detail in regards to what actually is going to happen as a result of this legislation, it’s pretty narrow.

So I want to talk a little bit in regards to this legislation, because my background and experience is in banking and finance, having spent most of my career working in banking. Looking at this legislation, in effect, the purpose is in order to require financial institutions—so banks and other institutions like that—to comply with prescribed regulations, regulations that mean that they need to do things around sales incentives or meet conduct or licensing. For those at home, I’ll give you a clue what that is. That’s just regulation, compliance, and burden on business. And what you’ll hear from the other side of the House is that this legislation is out to protect the consumer. But what I heard, listening to some of the speeches that have come before, is actually an ideological attack on these big entities saying they are big, bad banks. Well, one of the biggest banks in this country employs 9,000 Kiwis, hard-working people across this country that work in that institution. So when you attack that “big business”, you’re actually attacking all of those individuals within that entity.

This legislation is absolutely a legislation or a solution looking for a problem. And I’ll tell you why that’s the case. Because the Reserve Bank of New Zealand and the Financial Markets Authority (FMA) undertook two projects looking at the conduct in regards to financial institutions in this country, and that was off the back of what was, rightly so, inappropriate behaviours that were occurring across the Ditch in Aussie. But I can tell you what: New Zealand is not Australia, and luckily it isn’t. But I can tell you, in regards to the way in which our financial institutions act, it is night and day in regards to that. Our financial institutions, in regards to this legislation, actually have a number of controls and monitoring and processes in place to deal with some of the issues around conduct that this legislation is meant to deal with. This legislation is not necessary in this country. It’s regulatory oversight and burden on a business trying to deal with a problem that doesn’t exist. It’s not just me that is saying that this is a problem that doesn’t exist. The actual findings of the Reserve Bank NZ and FMA review did not find major systematic misconduct when they looked at New Zealand’s financial markets. I’m not sure how much clearer one needs to be in terms of a report, but, as I said, this bill is looking for a problem.

The challenge that we see with this Government, time and time again, is the increase of cost burden on hard-working Kiwis in this country. Middle of New Zealand is squeezed at the moment and this legislation will bring an increase in burden, an increase on red tape on businesses that will be passed on to consumers. So you hear the lovely comments on the other side about “Oh, this is going to be great.”

Well, I tell you what: for those hard-working Kiwis in Hamilton, in the North Shore in my electorate, or in Southland with my colleague in front of me, they’re the ones that will end up being burdened by the cost impact of this regulation and compliance in this bill. It is legislation that is unnecessary. It is ideologically driven by a Government that says, “Well, Aussie’s doing it; we might as well do the same.” Well, I tell you what: we are different in that regard, and there is no need for us to go down this path, because the value created is not going realise the benefits that are needed and have been realised in other countries, because we don’t have the same problem.

The legislation also looks at sales incentives. And I heard from the other side, “Oh, we can’t have sales incentives; that’s a bad thing.” Well, that shows you a number of individuals have never worked in business, would not have a clue how to try and incentivise people to sell things. I don’t need to go back to the people that, you know, in terms of a sales culture—but a little bit of incentive financially in order to get things done is not a bad thing, you know? We shouldn’t have Government overreach in order to try and put regulation like this bill, that is going to force and try and control that aspect.

The other aspect is that the Reserve Bank and the Financial Markets Authority (FMA) conduct and culture review found little evidence of widespread banking-conduct issues in New Zealand. And the small number of issues that they found actually related to individual people. It wasn’t widespread or systematic issues with the system. And you’d expect that; it’s a complex business—it’s a big business. I mentioned one of the banks has got 9,000 staff. So you don’t need to be a rocket scientist to expect that you’re going to have a couple of people in this country that maybe haven’t followed the rules appropriately.

But what I am confident about is that the banks and the financial institutions in this country treat this very seriously already. They don’t need this legislation coming in and putting a burden on them, and side tracking them from focusing on what they want to be focusing on as well, and that is supporting their customers. I tell you what: business do things quite well. They actually understand how to focus and work with their customers, how to get value, how to achieve outcomes, and how to deliver. But, again, this legislation is going to place a burden and red tape on those businesses. And then when the FMA and the Reserve Bank did not find evidence of systematic failure in the current model of sales incentives, why are we trying to put in place through this legislation, limitations and restrictions in that area? It simply does not make sense.

In the short amount of time that I’ve got left, I wanted to reflect on the fact that the backdrop of this bill is in the backdrop of where Mr Grant Robertson is going to prepare and announce a Budget with $6 billion of additional spending. Kiwis are under a lot of pressure, and legislation such as this conduct bill on financial interest on financial markets is going to put more burden on those hard-working Kiwis. And it simply shows that we have got a number of aspects that we could be focused on in this House but we aren’t using the opportunity to put that through, because, as I said before, there is very little evidence, or they did not find any evidence at all, in regards to the problems that this legislation is meant to be dealing with.

So that’s a real great shame. It’s a disappointment in terms of the fact that the opportunity here by this Government is actually to do something positive. They’ve decided in this case to focus on the ideology of attacking a big business, a big bank, because they’re “big and bad”, which is not the case. Who funds the mortgages of hard-working Kiwis? Who funds the loans and finances of our agri-sector? Who funds the investment required across our businesses? Well, our banks do. They’re part of a system. They’re part of the solution. And they do a good job in terms of supporting those people, and they employ a heck of a lot of Kiwis across this country, Kiwis that are hard-working, and that I, for one, am proud of.

I am going to finish it there. The National Party strongly oppose this legislation. It is unnecessary legislation. It is not required. It is not going to add value. It is a solution looking for a problem and I do not support this legislation. Thank you.

Thank you, Mr Speaker. Look, I just want to be able to finish the end of the parliamentary week with a really short call.

This bill is all about improving the conduct of banks and insurance companies. The submissions that were heard in the previous term were all about asking banks and insurers to treat consumers fairly. They wanted us to improve the trust and confidence in the financial market, and one of the small changes that the select committee made, which I think should provide some assurance to the House—because this is a new regime; however, it was a regime that had to fill a gap because there is no fair conduct across the board for all banks and for all insurers—and that’s the statutory review of this regime.

I have to applaud the Finance and Expenditure Committee, who’ve now recommended, in clause 9, to insert a statutory review within five years and to be completed within seven years.

So on that point, I’d like to commend this bill to the House and wish everybody a good Friday.

The House stands adjourned until 2 p.m., Tuesday, 17 May 2022. Have a good weekend, everybody.

The House adjourned at 4.58 p.m.