Clark DavidFINANCIAL MARKETS (CONDUCT OF INSTITUTIONS) AMENDMENT BILLThird ReadingHon Dr DAVID CLARK (Minister of Commerce and Consumer Affairs): I present a legislative statement on the Financial Markets (Conduct of Institutions) Amendment Bill. ASSISTANT SPEAKER (Hon Jenny Salesa): That legislative statement is published under the authority of the House and can be found on the Parliament website.Hon Dr DAVID CLARK: I move That the Financial Markets (Conduct of Institutions) Amendment Bill be now read a third time.Until now providers of banking and insurance services in New Zealand have not been subject to any general obligation to treat their customers fairly. I'm pleased to say that this bill we're debating here today will change that. Before we get into the detail I'd like to start by thanking everyone who has contributed to the bill reaching this stage. I want to start by acknowledging and thanking my predecessor the Hon Kris Faafoi who introduced this bill in December 2019. I had the privilege of inheriting a number of bills from the Hon Kris Faafoi when I arrived as the commerce Minister. Ten pieces of legislation were in development or in the House and three of them were already introduced in the House at that stage. The Hon Kris Faafoi is a very busy and hard-working Minister and one who will be missed and we look forward to hearing his valedictory speech later today.Thank you also to the officials who have worked on the bill during its development and to members of the Finance and Expenditure Committee for their hard work considering the bill. Finally thank you to everyone who has submitted on this bill and taken the opportunity to share your feedback. I do really appreciate the efforts that people go to in terms of making the time to submit on these bills because they are improved by select committee processes—there is no two ways about it—and with officials then working with industry and others we ensure that we protect the interests of consumers as is intended with the intent of the bill. Banking and insurance are essential services. All New Zealanders use these services at some point during their lives whether through having a bank account a mortgage or insurance to protect you if something goes wrong with your car your house or your health. If there are issues with these services it causes great harm and not just for individual consumers but also for our wider society and economy. Since the global financial crisis in 2008 Governments and regulators around the world have moved away from product-focused regulation and a buyer-beware approach and have started paying closer attention to the conduct and culture of financial institutions. In 2018 an Australian royal commission found serious and systemic misconduct in the banking and financial services industry in Australia. Subsequent reviews here in New Zealand by the Financial Markets Authority (FMA) and the Reserve Bank identified worrying weaknesses in the conduct and culture of banks and insurers on this side of the Tasman. These reviews identified failings such as poor systems for managing conduct risks poor accountability for conduct and sales incentives that put profits before people. If these issues were ignored they could have caused significant consumer harm and damaged confidence in our financial systems and markets. The COVID pandemic has further demonstrated how important it is for financial institutions to support consumers especially those who find themselves in vulnerable circumstances.The bill introduces a conduct-licensing regime for banks insurers and non-bank deposit takers. These financial institutions will be required to treat customers fairly and that's what's known of course as the fair conduct principle. They will need to have fair conduct programmes in place that set out how they will comply with the fair conduct principle—in other words what concrete actions they'll take to treat their customers fairly. These programmes will cover a wide range of areas—for example a financial institutions distribution arrangement oversight of sales incentives and training and management of employees. These programmes won't be set and forget"; they'll be living documents that will require financial institutions to continually think about how to ensure fair outcomes for all consumers. The regime also isn't one-size-fits-all. In designing their fair conduct programmes financial institutions will be able to take a proportionate approach taking into account the size nature and complexity of their businesses. For example the conduct programme of a credit union is expected to look different to the conduct programme of a large bank.Financial institutions have generally supported the policy intent behind the bill and their feedback has been taken into account throughout the development of the bill. A number of valuable changes were made by the Finance and Expenditure Committee and we've since further amended the bill through a Supplementary Order Paper (SOP). These changes mean that the new regime will enable financial institutions to design processes which best fit their own business models whilst still upholding a high standard of conduct and consumer protection.Financial institutions will need to apply for a conduct licence from the Financial Markets Authority which will be supervising monitoring and enforcing the regime. Strong financial penalties will be imposed if a financial institution breaches one of its obligations under the bill. The FMA of course as members of this House know is a risk-based regulator and will take a proportionate approach to guiding the sector and regulating compliance. The FMA I'm informed has already started engaging with financial institutions to ensure they're prepared for the new regime and for licensing applications to open in mid-2023. We'll also be introducing some regulations to support the bill. The Government has already agreed that it is essential to ban incentives that are based on volume or value targets such as an overseas trip as a reward for selling a certain number or value of insurance policies. These kinds of incentives create a strong potential for conflict of interest particularly as a person nears their sales target. The full regime is planned to come into force in early 2025 after a transitional period. I do want to mention and acknowledge that the SOP that has been progressed through committee of the whole House has provided increased flexibility for agents for those intermediaries to be governed appropriately and I do want to thank industry for their feedback on that. We do want this regime to be one that is suitable for implementation and one that has customer protection at its heart.In closing New Zealand has been an outlier internationally in not having a conduct regulation of banking and insurance services. The bill will fill that regulatory gap. It completes the Government's response to misconduct issues in the banking and insurance sectors and it will ensure consumers are treated fairly when they deal with financial institutions. I'd like to thank again all of those who have had input into the development of the bill and helped it reach this stage. I commend this bill to the House.ASSISTANT SPEAKER (Hon Jenny Salesa): The question is that the motion be agreed to."