Deposit Takers Bill

Members, we come now to Part 5. Part 5 is the debate on clauses 147 to 188 on enforcement. The question is that Part 5 stand part.

Just to briefly introduce Part 5, this is around enforcement. Essentially, the framework that we’ve set up here is to provide a range of options to allow for a proportionate response to misconduct in line with the approach and other comparable enforcement regimes. Obviously, the most serious offences are reserved for serious misconduct. The question of enforcement follows on from the question of supervision that we dealt with in Part 4.

There are three tiers of offences under the bill. The least serious offences are tier 1 offences, which, essentially, are things like failing to notify the bank on becoming aware of fit and proper concerns—that carries a fine of up to $500,000 for a body corporate or $50,000 for an individual. The most serious offences are tier 3—for example, carrying on a deposit-taking business without a licence, that would carry a fine of up to $5 million for a body corporate or, in the case of an individual, a fine of up to $500,000, or imprisonment for a term not exceeding two years, or both.

Throughout Part 5, you’ll see a variety of enforcement-related provisions, including the power to accept undertakings, pecuniary penalty levels, the procedure and related provisions to how that works in relation to criminal offences and infringement offences. It is an attempt to be proportionate, which is one of the concerns of the committee, and I think the part strikes that balance.

It’s worth noting that there is Supplementary Order Paper (SOP) 361 in my name, amending clause 177, which is intended to ban persons who engage in serious misconduct from participating in the deposit-taking business, including ownership. Given that many deposit takers are owned by a holding company, the ban would be ineffective, and so the SOP proposes to expand clause 177 to authorise the District Court to issue a banning order in relation to a licensed deposit taker and any holding company or subsidiary, so just to reflect the nature of the ownership of many deposit takers.

Thank you, Madam Chair, and I welcome the introductory comments by Mr Robertson. I thought we were going to have to rely on Shanan Halbert for some commentary on this section but we were holding our breath. We were holding our breath, Mr—

Stuart Smith: You can see the disappointment in his face.

ANDREW BAYLY: Yes. So what I wanted to talk about is clause 159, which did occupy the committee’s time quite significantly, as Mr Robertson highlighted. This is the “defences for person that contravenes prudential obligation”, and in plain terms this is about, what is the liability, particularly for directors, or senior management teams, in terms of meeting the requirements, and the ability to rely on other people within an organisation to provide the information.

I think the background to this is—personally I had a concern that we were running the risk with all the liability and the fines, etc., that if someone in a large organisation didn’t have some form of protection, inevitably what would end up occurring is that particularly directors would end up having to do their own due diligence and to make sure that, for instance, the bank was providing the right information to the Reserve Bank and the forms that were required, and if there were errors both in some of the figures or the way it was presented, potentially could give rise to a liability for that particular individual. The mere threat of that, especially when it was overlaid with significant fines, as the Minister has just highlighted, meant that progressively we may end up getting to the stage where already the regulation and regulatory oversight of banks is very significant, and we will end up possibly having people who are not prepared to go on boards of banks and other regulated financial institutions that are covered by this bill.

That would be a really bad outcome, and I think it’s slightly concerning that The Hongkong and Shanghai Banking Corporation has just recently pulled out of New Zealand. And one of the specific stated reasons for departing New Zealand and giving up its operations here is the degree of regulation—one of the explicit reasons given, not the only reason but it was an explicit reason. I think we’ve got to be mindful in New Zealand that we strike the right balance between adequate regulation, and one where we’re becoming overzealous and uncontrolled, and actually stifling competition, stifling innovation, but probably more importantly over time is actually stifling the appointment of good people who may want to be part of these organisations, but who look at their personal risk and say, “Look, I don’t want to be part of this because I cannot manage this risk adequately”.

Clause 159 does deal with that by providing a defence for someone that if a contravention, which, in terms of provision of information to the Reserve Bank, “was due to reasonable reliance on information provided by another person, other than a director, an employee, or an agent of A”—“It is also a defence for A to prove that—(a) the contravention was due to the conduct of another person”—or an accident, or some other cause beyond the control of A.

So what we sought to introduce in this section is really some mitigating factors because we do not want boards and directors of our large banks, and even large deposit takers having to get—coming to a view that they need to do all this work. So this is a way of dealing with it. I think hopefully we’ve struck a balance in terms of a defence. But I think, as I said before, we’ve got to be mindful that we do strike an adequate balance because that’s such an important part of our ecosystem—to have good, strong financial institutions, but at the same time we are promoting competition and innovation.

So I’d be keen on what the Minister’s view on it is, on those changes, and obviously he was supportive of them, but it’s a very important aspect, I think. It’s one of the most crucial aspects of this bill in terms of striking the right balance.

The question is that the Minister’s amendments to Part 5 set out on Supplementary Order Paper 361 be agreed to.

Amendments agreed to.

Part 5 as amended agreed to.

Part 6 Depositor compensation scheme