Deposit Takers Bill

We come first to further consideration of the Deposit Takers Bill. When we were last debating this bill, we were debating Part 4. This is the debate on clauses 98 to 146, “Supervision of deposit takers”. The question is that Part 4 stand part.

I seek leave for the remaining provisions to be taken as one question.

Members, leave is sought for that purpose. Is there any objection? There is objection.

Thank you, Madam Chair. I don’t know why Shanan Halbert is so keen to close this debate down. He was doing it the other night when we were debating this same issue. He didn’t make one contribution other than trying to close down the debate. So I hope tonight he’s actually going to stand up and talk about it, because from my understanding, he does sit on the Finance and Expenditure Committee; he should know about this bill. He should be contributing, because it’s a very important part of the banking regulation of New Zealand. But, obviously, he’s not going to. Thank you for seeing the Minister in the chair.

I just want to talk about the issue of confidentiality. If the Reserve Bank appoints someone to undertake an investigation, they may, under clause 130(3), make a confidentiality order, which states that “The Bank may make the order on the terms and conditions (if any) that it thinks fit.” So it’s a very one-eyed, one-sided power granted in favour of the Reserve Bank in terms of confidentiality. Now, there’s obviously, in clause 131, some issues—consent must not be unreasonably withheld, and some other mitigating factors.

But just turning to clause 145—there are times when the person or the entity being investigated may believe that the investigation is unwarranted. I’m referring to clause 145A(2)(a): “the applicant has established a prima facie case that the exercise of the power in question is unlawful”. So, obviously, to get to that point, you would have had to have gone through a process where the bank has talked about investigating and undertaken an investigation, and it’s only subsequently you find out that prima facie there isn’t a case for it.

So can the Minister give some clarification and comfort that the Reserve Bank won’t unduly use its powers. Because if someone was investigating a non-bank deposit taker or whatever—an entity—and the entity concerned thought there weren’t proper grounds for it, it is highly unlikely that the Reserve Bank is actually going to grant them powers to rebut the confidentiality order that a bank may impose.

So how do we have comfort that the Reserve Bank is going to pursue cases where it thinks it’s fine and appropriate, but not actually allow the entity concerned the opportunity to talk about it, even if it is contrary to the Reserve Bank’s view or interest? Because I don’t think it’s necessarily precluded under clause 131.

Well, thank you very much, Madam Chair. Just leading off on the contribution from my colleague Mr Andrew Bayly, in regards to confidentiality, and I’m going to give a different part of the Part 4, but I’ll give an opportunity for the Minister of Finance, who I acknowledge in the chair, to come back on some responses.

So my questions are around Subpart 8 of Part 4, around “access to information by overseas supervisor”. For those of you sitting at home, watching this, going, “Ask him some questions.”—or those that are potentially going—this is an interesting aspect of the legislation, because, in effect, it provides the ability to have confidential information provided to an entity which is based outside of New Zealand. There’s a number of questions and considerations—and rightly so—and potentially some concerns in regards to the Act.

So my questions to the Minister really relate to providing a degree of comfort and assurance around this process and that due consideration and thought has been given around the protection. So my questions particularly relate to clause 141, and I’m interested, from the Minister, in terms of how does he foresee that the Reserve Bank will be able to achieve or obtain sufficient provision or assurance that the data that’s potentially shared, or acquired and shared, with the overseas supervisor—that the confidentiality of this information is protected? What are the grounds in which, potentially, the bank may consider or would not authorise that provision of information—I guess, take into account whether it’s going to be a framework or what consideration around where that threshold lies, because I think there’s obviously going to be an element of subjectivity involved in that.

The other question in regards to data: we’ve had a number of examples of data breaches over the years—

Andrew Bayly: Many.

SIMON WATTS: —many, as Andrew Bayly has noted—and the challenge becomes even, I think it would be fair to say, more complex when the data is being shared in overseas jurisdictions which don’t necessarily share—in many cases do not share—the same rules-based system that we benefit from in New Zealand. So there’s a conversation around the assurance of the storage of that data and the confidentiality. But, actually, the other aspect is, if you fast forward five or 10 years in regards to that data, ensuring the longevity of the protection of that data and the confidentiality of that data, because, while in a different example, we saw the firearms registry, and data was left in the cabinets in the police station in Auckland, and, some 20 years later, it got lost. Conceptually, applying that same methodology to this consideration, how is the bank going to be able to get assurance around the long-term aspect around that?

So what are the grounds, how will the bank get assurance, and, particularly, has the bank considered or is it considering around the ongoing nature of ensuring the protection of confidential information? I’ll leave it at that, and then we’ll come on to another couple of clauses soon.

I’m just giving the Minister time to reflect and hopefully get an answer from his good officials over there.

Just continuing on the same thought, or line of questioning, I’m talking about clause 145A, “Effect of Proceedings”. My question is, let’s say that the bank has started to undertake an investigation, and during the course of it the bank comes to a view that the investigation is not warranted or there’s issues with the way it’s being conducted or whatever. Can the Minister just help identify: is the only recompense for the entity concerned clause 145 where they have to issue proceedings, or is there any interim step where there can be another outcome that doesn’t necessarily end up going to court? Because I’m not sure what happens with the court case. Is there a lengthy delay between the filing of the proceedings and until the judgment or court case occurs? And in the intervening time the Reserve Bank carries on its merry way doing the investigation—which may or may not be proved in hindsight to be wrong or incorrect or actually doesn’t arise in anything—and, in fact, the Reserve Bank was wrong in undertaking the investigation.

The reason I’m just highlighting this is it’s like a market study. It’s like the banking study that the Government’s just kicked off, or the fuel study—they’re very expensive for the entities concerned. We know the Commerce Commission cost for the grocery study was roughly three million bucks, but from the other side of it I understand the grocery industry has spent probably close to $20 million defending themselves. So these things have bad or significant impacts on entities’ brands, it has impacts on people’s reputation. And so having safeguards to ensure that only legitimate and well-researched and bona fide situations where investigations are undertaken are undertaken, and they’re not used as a fishing trip or whatever.

Because, as my colleague Mr Simon Watts identified, market rumours—it’s a very small market—start to seep out into the market that someone’s under investigation by the Reserve Bank. That in itself can be poor—in terms of stiltifying people who might want to engage with that business, new customers not wanting to engage with those types of entities. So that’s why I think it’s very important that there is some form of mechanism to make sure that entities are protected and have the ability to protect themselves if they think, especially if they’re proved subsequently to be warranted exercise of power by the Reserve Bank.

Well, I’m enjoying this interaction between myself and Andrew Bayly. It would be good with the Minister, I’m looking forward to his contribution—

Shanan Halbert: Take it easy, Wattsy—take it easy.

SIMON WATTS: —into this, but in the interim we’ll continue to have a dialogue between ourselves. Maybe Mr Halbert from Northcote could step up.

But related, actually, to the points you’re raising, Mr Bayly, in regards to that—my questions relate to clause 126(3) which is around the aspect of instances which you’ve referred to where the bank can appoint an investigator. I think that’s all reasonable and people would expect that that be the case. So clause 126(3) refers to: “The investigator must be an employee of the Bank”—yep, that makes sense; no issues there—“or any other person who the Bank is satisfied is suitably qualified.” Any other person. And why that potentially—and the question for the Minister in regards to this is around, what is that criteria? Because “any other person who is suitably qualified” is reasonably broad. But the reality is, when you move into clause 127, that individual—who in this case may be any other person, not an employee of the Reserve Bank, any other person, just they need to meet a threshold of being “suitably qualified”—has the power to obtain quite significant information under clauses 127(1), (2), and (3). But I guess the risk is always there that that individual may not carry the same level of appropriateness as a member of the Reserve Bank, and, therefore, that information that they have the power to obtain could potentially be used in a manner which isn’t appropriate.

I guess my question is in regards to clause 126(3): why did the Minister feel it was appropriate to broaden that out in such a broad way? And can the Minister assure the House that the risk that I’ve just outlined is something that is unlikely to occur; but, if it does, what protections or mechanisms are in place to be able to, in effect, monitor that investigator and ensure that that investigator’s actions do not bring the Reserve Bank into disrepute? Because the Reserve Bank would, in effect, have a role in that process, but, more broadly, not bring into disrepute this aspect, because they will also be interacting with the deposit takers in a broader sense and the access to power of information and the access to request. When one has that degree of power, there is always a risk that the power may be used inappropriately. And so I am seeking reassurance that there will be processes and procedures in place that will mitigate that risk sufficiently.

I’d like to refer the Minister, please, to clause 146(2) in Supplementary Order Paper 361 that the court in its discretion can order any information or copy of any document from a document that instead of being destroyed, be retained by the bank or an investigator subject to terms and conditions that the court imposes. It was interesting to note this week that JP Morgan’s retail division lost 50,000 emails on their clients’ activities. I just wondered in this clause if the advisers would take on board that maybe an overnight data feed between the bank and the deposit takers would make sense in terms of (a) protecting the integrity of the data and, secondly, if any fast decisions have to be made on the banking scenario, that this data was instantly there, instead of just being passive and waiting for it and waiting to go through the court system, that everybody was fully prepared.

Andrew Bayly: We are poised with expectation, hoping the Minister’s going to stand and actually answer one of our, I think, six questions.

Are you taking a call, though, Andrew, or are you still waiting?

Andrew Bayly: No, I’m just giving the Minister every opportunity.

There being no other calls, the question is that the Minister’s amendments to Part 4 set out on Supplementary Order Paper 361 be agreed to.