Smith StuartFRIENDLY SOCIETIES AND CREDIT UNIONS (REGULATORY IMPROVEMENTS) AMENDMENT BILLSecond ReadingSTUART SMITH (National—Kaikōura): I move That the Friendly Societies and Credit Unions (Regulatory Improvements) Amendment Bill be now read a second time.This bill is about friendly societies and credit unions. A friendly society is formed to provide for the relief or maintenance of members and their families during sickness old age or in widowhood by voluntary subscription or the aid of—ASSISTANT SPEAKER (Adrian Rurawhe): My apologies to the member. Sorry for interrupting but it is time for me to leave the Chair for the dinner break.Sitting suspended from 6 p.m. to 7.30 p.m.STUART SMITH: As I was saying—maintenance of members and their families during sickness old age or in widowhood by voluntary subscription of their members or the aid of donations.A credit union is a financial cooperative which encourages saving thrift and education to enhance the social and economic well-being of its members. Any surplus the credit union makes is reinvested for the benefit of its members. The credit union sector covers 13 credit unions and their 190000 members with assets of $1.7 billion and transactional values totalling nearly $10 billion. The sector plays a vital part in the country's financial system.Credit unions have become highly progressive in their development of innovative payment methods. This is despite operating within the confines of legislation that has not kept pace with developments in the financial services and payment industry within which they operate. This is an opportunity for a much-needed update to the legislation.Credit unions touch as many as one in 20 Kiwis and for over 60 years have provided a full range of banking services to diverse and far-flung community groups and industrial organisations. As such they play a significant part in the financial services market. Credit unions have access to the latest core banking services including their own ATMs; payment services including domestic EFTPOS cards and MasterCard debit cards; anti - money-laundering services; and insurance and payment infrastructure services.The bill makes certain changes to the Friendly Societies and Credit Unions Act of 1982 which was enacted around the same time ATMs were first introduced to New Zealand and was well before the days of internet and mobile banking. Most of these changes relate to credit unions although the Finance and Expenditure Committee has also recommended one change to the Act to be made in relation to friendly societies. Credit unions have a very important social role as well in areas where traditional trading banks no longer want to operate such as smaller communities.The bill aims to remove unnecessary operating and compliance costs; promote greater efficiency innovation and accountability under the current Act; bring credit unions into alignment with other financial service providers; and maintain the element of mutuality which can be defined as being owned and operated by the members for the benefit of the members one vote per member and the requirement of a common bond between members. The bill also includes measures to reduce the minimum number of credit unions needed for an association.The other important provisions relate to associations of credit unions under the Friendly Societies and Credit Unions Act. There is currently one association: the New Zealand Association of Credit Unions trading as Co-op Money NZ. Co-op Money NZ is a cooperative owned by 11 of the 13 active credit unions in New Zealand. Co-op Money NZ enables credit unions to offer banking services similar to those offered by the traditional banks. In fact Co-op Money NZ operates a tier one banking platform and owns and operates the largest ATM switch in the country with over 1000 ATMs connected to the banking system through them.Co-op Money NZ made a submission to the Finance and Expenditure Committee strongly supporting the bill stating The changes set out in this Bill … are … very welcome absolutely necessary and long overdue." This bill is intended to remove any uncertainty in the current Act and to confirm that associations of credit unions have the flexibility to provide services to other parties where doing so is authorised by their rules.At the select committee stage the bill was examined by the Finance and Expenditure Committee. I would like to acknowledge their consideration. The committee heard 20 submissions from interested groups and individuals and received advice from the Ministry of Business Innovation and Employment. The committee has recommended the bill should be passed with amendments and I would like to address some of those key changes now.Allowing friendly societies to offer securities—a submission from the Manchester Unity Friendly Society sought to allow friendly society insurers to issue securities so that they could meet their minimum capital requirements under the Insurance (Prudential Supervision) Act of 2010. The select committee added new clause 9B so that friendly societies can issue financial securities to raise money from their members meaning that they can grow to meet the demand of their members.The second area was around allowing members who have a small to medium sized enterprise to borrow directly for that enterprise from their credit union. Changes have been made throughout the select committee stage to allow small to medium sized enterprises related to a credit union member to operate more efficiently. An example could be either a lawnmowing company or a hairdressing company currently owned by a credit union member who operates such a business—they are not able to borrow money to utilise financial products and services in the name of their business. This can lead to members reluctantly leaving the credit unions for the trading banks. Credit unions can now provide other financial services including credit cards debit accounts and trading accounts for a member's small to medium sized enterprise.Initially the bill would have considered a member to be related to a body corporate when they had the power to exercise 25 percent or more of the voting products or shares if you like of the body corporate. It didn't have a similar rule however for partnerships and trusts. So the select committee added new clause 25A to replace section 110 of the Friendly Societies and Credit Unions Act. New section 110(3)(b) provides that a firm under the Partnership Act can receive a loan if the member of the credit union was a partner of the firm and they had a 25 percent or more share of the voting products or (c) in the case of a trust the member or a member of his or her family has a beneficial entitlement to 25 percent or more of the trust's assets. The select committee has also recommended excluding limited partnerships registered under the Limited Partnerships Act from loans to enterprise provisions.Mutuality was a concern of some submitters—that incorporating credit unions may compromise mutuality and therefore lead to credit unions not acting for the benefit of their members. I would like to acknowledge the help of Dr Duncan Webb who worked with me on a recommendation to officials for an amendment to allay the concerns of some submitters. The select committee has accommodated for this by amending clause 15 to insert new subsection (1AA) into section 101 of the principal Act to state "A credit union is to operate on the basis of this Act for the mutual benefit and assistance of its members."High Court powers to make a restraining order—if a credit union is acting outside the Act there is now an additional check adding in clause 24 new section 107F to the Act. This is a useful intervention giving the High Court the power to make an order restraining a credit union from acting contrary to the Act. Officials have advised in the departmental report that this was a good way to mitigate fears that a credit union might go rogue. The select committee also reinstated the power of the Registrar of Friendly Societies and Credit Unions to suspend the business of a credit union as a useful means of protecting the interests of the members.So in summary this bill is a much-needed update to the Friendly Societies and Credit Unions Act of 1982. It removes uncertainty in the current Act and confirms that associations of credit unions have the flexibility to provide services to other parties where doing so is for the benefit of their credit union members. It allows friendly societies also to issue financial securities to raise money from their members. So it is with great pleasure I commend the bill to the House."