Dalziel Lianne: Non-bank Deposit Takers Bill — First Reading 
Dalziel Lianne: Non-bank Deposit Takers Bill — First Reading 
[Volume:674;Page:20531] 
Hon LIANNE DALZIEL (Labour—Christchurch East) 
: 
 I am delighted to tell the Minister that the Labour Opposition will support the first reading of the Non-bank Deposit Takers Bill. We are absolutely delighted to see it introduced into the House. The decisions that underlie the introduction of this bill were taken under a Labour Government a number of years ago and were designed as part of a package of measures one of which was passed under the previous Government and this bill now adds the final stage to the implementation of the Review of Financial Products and Providers as it relates to non-bank deposit takers. 
Having been the Minister responsible for the commerce portfolio in the last Labour Government I have always been fascinated with the way in which the media commentated on the flow of events as they occurred. The Review of Financial Products and Providers which the Minister referred to was a series of nine discussion documents that were put out to the market at the same time in 2006. It was a substantial amount of information to put out at once and expect all of those engaged in the different components of our financial products and providers market to be able to contribute to the design of what we are seeing part of here today. What amazed me was that just after the original nine documents were put out into the market place the first three of the finance companies that were to fail actually failed. That was in 2006. Those three companies failed and as Minister of Commerce I thought that we would see the domino effect flowing on from that. I must admit to several sleepless nights at the time thinking that was the beginning of the end but it actually stopped at that point. However I had completely forgotten the reality that people who had invested in finance companies had done so for a fixed period of time as part of the promised return on their investment most of which was grossly underpriced which I will come to in a minute. The bottom line was that for a lot of people they were just holding their money in finance companies until the very moment they could pull out their money and get it into safe territory as quickly as possible. 
When the Government received the Cabinet paper that I presented to it in 2007 as Minister of Commerce with a series of recommendations about how we might proceed with the Review of Financial Products and Providers Cabinet agreed to all of those decisions in mid-June. Then at the beginning of July Bridgecorp fell. Bridgecorp was the beginning of the series of dominoes that became something that will never leave my mind because all of those companies that failed took money from the hands of ordinary New Zealanders who had no idea of the level of risk they were taking with their hard-earned money. For a lot of them it was more than money that they had saved up for a rainy day it was money that they had set aside to support their retirement in a fashion to which they wanted to aspire. It was just tragic. There is nothing that will ever make up for me how I felt as a Minister of Commerce completely powerless to do anything about something that had been set in train a long time before the Review of Financial Products and Providers had reported. 
Unfortunately when matters shift from the specialist business pages of our newspapers through to the front-page headlines things get lost in translation. I think a lot of investors could be forgiven for believing that there was no regulatory framework in place at all before the finance companies fell. They could also be forgiven for believing that the Government acted only because the finance companies fell. In actual fact a lot of hard work had gone into the fact that we inherited a regulatory wasteland when we became the Government in 1999 and we had to do a lot of work to get things up to speed. I accept that it did take too long and that the price that ordinary New Zealanders paid for that—the price that unsophisticated investors paid—was too high. I totally accept that. I also think that the media probably did the public a disservice by implying that no attention was being paid to this important matter before the finance companies fell. In fact we had made the decisions on the Review of Financial Products and Providers several weeks before Bridgecorp fell. 
The purpose of the Review of Financial Products and Providers and the process that we adopted were all aimed at strengthening the regulatory environment in order to promote confidence and therefore to increase participation in sound and efficient financial markets. I think that what the Government has done here is leverage off the work that we commenced and ensure that it is able to deliver on those ambitions as it were. 
I have used what occurred to remind people—and I want to remind them again—that Governments cannot regulate to eliminate risk. Risk is what drives our financial markets but it has to be risk that is real and it has to have a degree of reality for those who will be investing their hard-earned money. What happened in the earlier part of this century was that we had finance companies that deliberately mispriced the risk and used well-known figures to stand in front of their product and basically say to unsophisticated investors: “You are essentially putting your money in something that is the equivalent of a bank deposit.” In fact because the rate of return was very similar to a bank rate of return it actually underplayed the degree of risk that people were facing. It is really important that people realise that the problem we suffered from a few years ago with the collapse of the finance companies cannot be sheeted home to a former Government that did not regulate at all or to the Government that started the regulatory process. But I do think that the lack of a strong regulatory framework was part of the problem. I do not think we should ever get away from the fact that there were people who knew perfectly well what they were doing who took advantage of the naivety of those who were prepared to put their money into something that would give them a little bit more of a return than a bank deposit. I do not think we should ever lose sight of the fact that there were other people out there in the market place insufficiently regulated who took advantage of that situation and people lost a lot of money. 
This Labour Opposition will very much support this legislation. It strengthens the arm of the Reserve Bank and I congratulate the Government on the quality of the regulatory impact statement that accompanies this particular bill. It makes a nice change to be able to read a regulatory impact statement of such high quality—probably because it has come from Treasury rather than from some of the other departments that have been responsible for such statements. The reality is that it has defined the status quo. It has defined the problem and looked at a variety of options. One of the options is to look at the banking regime one is to look at the insurance regime and another is to look at a hybrid regime. Other options look at whether we recalibrate the banking regime. What they have come up with is a very sensible solution that I think we will have no problem supporting as it proceeds through this House. We will certainly support the bill’s referral to a select committee and we look forward to its report back to the House.