Non-bank Deposit Takers Bill — In Committee Third ReadingText is incorporated into the Bound VolumeNon-bank Deposit Takers Bill — In Committee Third Reading[Sitting date: 19 November 2013. Volume:695;Page:15031. Text is incorporated into the Bound Volume.]Non-bank Deposit Takers BillIn CommitteeTIM MACINDOE (Junior Whip—National): I seek leave for the Committee to take the parts schedules and clauses of the Non-bank Deposit Takers Bill as one question.The CHAIRPERSON (Lindsay Tisch): Leave is sought for that purpose. Is there any objection? There is no objection.Parts 1 to 4 schedules 1 to 3 and clauses 1 and 2Hon DAVID PARKER (Deputy Leader—Labour): The question I would like to ask the Minister in the chair the Minister for Canterbury Earthquake Recovery is about the impact of this Non-bank Deposit Takers Bill on credit unions. This bill makes changes to the prudential requirements that are imposed by the Reserve Bank and extends these measures to non-bank deposit takers. These are people who take money on deposit from New Zealanders who are investing to get an interest return but who are not a bank because the banks are already covered by the prudential requirements that are managed by the Reserve Bank on behalf of the Government.My question to the Minister in the chair is whether the extension of the new measures to non-bank deposit takers applies to credit unions and whether that is wise. We heard from credit unions at the Finance and Expenditure Committee that they are concerned at their overall level of regulation. Credit unions generally take small amounts of deposit from New Zealanders and they lend it on small amounts of loans generally in the consumer finance area. They are concerned that the measures of this bill do not overly tie them up in red tape given that they are not really posing a great risk to the New Zealand financial institutions overall because they are such a small part of the overall financial services sector. They do not want to be tied up in unnecessary regulation that causes them more trouble.There are a number of things that need to be fixed for credit unions that are not addressed by this bill. If I might I will just mention them very briefly. One is that rather than have two trustees they effectively have to have a statutory trustee and then another trustee who holds investments in their name or on their behalf. They cannot hold the investments in the name of the credit union because the credit union is not a legal purpose for banking purposes. That is not fixed by this bill.They are currently restricted from lending to non-real people so despite the fact that a lot of people who used to be employed for example by the post office are now a tied contractor through a small corporate entity which might provide services to say Chorus any loan that was made for example to such a small company for a vehicle could not be made by a credit union if it was being made to a corporate entity. Those sorts of things also need to be tidied up. I would like to hear from the Minister as to whether he has a view on that.Dr DAVID CLARK (Labour—Dunedin North): I think we should acknowledge right from the start that the Non-bank Deposit Takers Bill is a complete waste of time.Effectively it moves legislation from one area to another and Parliament’s time could be better spent especially in urgency when we are supposed to be prioritising legislation that really makes a difference at short notice to our economy and to its settings. We have just debated a bill that has been sitting around for a long time in respect of the level of—what was it? It is slipping from my mind.Hon David Parker: Covered bonds.Dr DAVID CLARK: It was the level of covered bonds sorry. Thank you to my colleague. It was legislation that was important to have in place eventually. It has taken the Government a long time to get there. We are debating things under urgency that ought to really I guess have been tidied up earlier on.This is a Government though that seems to have its eyes off the ball. David Parker has already alluded to many other things that could make our economy more productive and that could change the relative balance between the productive and speculative sectors in order to make a more productive economy. That would help this Government’s fortunes. It does not seem to be interested in the wider interests of the New Zealand economy preferring instead the deals with the likes of Chorus that we see being cooked up at the moment; Skycity the casino deal that will build a convention centre off the back of problem gambling; and Rio Tinto. Actually the taxpayer is getting a pretty poor deal on the deals that are being done. They do not seem to have any advantages for the taxpayer other than getting the Government out of a hole when it has made commitments.This legislation as I said largely replicates legislation already in place. We heard from a submitter from Chapman Tripp who thought that one point worth noting was that the capital adequacy criteria tend to be much more stringent in practice than the advertised minimum capital of 8 percent due to the high risk weighting given to some asset classes—as much as 350 percent—and the market risk - operational risk multiplier. This is something of a variance to the original conception around second-tier financial institutions and may result in a shrinkage to the sector greater than is allocatively efficient. In layman’s terms that is really about perverse incentives to loan heavily into the mortgage market and away from productive areas. This bill may actually have a perverse outcome; when we want those firms to actually be investing in productive assets they may be forced to take on capital adequacy measures that hamstring them and make them less competitive in the market place.I will be interested in the view of the Minister in the chair Associate Minister of Finance Coleman and whether he is willing to defend it. He will have known that this bill was coming up having looked at the Order Paper overnight and no doubt will have studied the finer points of the legislation and have a view as to why the Government is choosing to disadvantage credit unions why it is making life very difficult for them and why it is trying to push more money towards the speculative housing sector when that is such a problem for New Zealanders. Ordinary average Kiwis cannot get into their first home. This Government seems determined to make that worse. We have the loan-to-value ratio restrictions that have been put through by the Reserve Bank which are playing out in a strange kind of way because although first-home buyers cannot get into the market it is making it a little bit cheaper for property speculators to get in. We see the inequalities widening and here we have another measure that distorts the economy further. This is sadly indicative of a Government that has its eye off the ball. It is not about rebalancing the economy. The Minister in the chair should stand up and provide some technical advice as to why that incentive will not come to pass. I think it will be embarrassing if he is not willing or able to defend that.The Government ought to be focused on rebalancing the economy not on passing bills that simply shift legislation from one part of the book to another. It should be moreconcerned about creating jobs and supporting exporters. These are the things Labour wants to do. We know that our export economy needs to be supported. The high exchange rate is crippling our exporters. We hear that time and time again but the Government is reluctant to put monetary policy in place that would support that. It is reluctant to undertake pro-growth tax reform—the likes of a capital gains tax which would see money go towards the productive sector and out of the speculative sector. It is reluctant to support research and development in this country—and on it goes. It will not put in universal KiwiSaver which would also create capital depth and address the problems that this bill is in a way setting out to fix. Those bigger solutions have been looked over in favour of tinkering and that is a great disappointment.This legislation needs to strike a balance. It is not quite doing that in the right way and it is similar to those things we have seen in the past with the Crown Retail Deposit Guarantee Scheme where the Government took its eye off the ball. We saw in that case a 25 percent increase in South Canterbury Finance’s books the risk borne by the taxpayer and then we saw a ten-fold increase in another finance company. This is a Government that really does not have itself across the detail but it is interested in making sure that taxpayer money is handed over to get the deal and to get things out of the public limelight. We are seeing that with Chorus now. We have seen it with Rio Tinto where the Government handed over $30 million—30 million pieces of silver my colleague Clayton Cosgrove says—without a jobs guarantee. The very next day it is talking about laying staff off. This is a Government that is doing deals to get things off the front pages like the Skycity Casino deal. It is really not focusing on growing the economy which is what we really need. We need more jobs—jobs for Kiwis high-value jobs—and that will be created by having the right economic settings not by protecting the vested interests that this Government seems so determined to protect.We hope that the Government sees the light. We hope that in the future it applies the principles that I have outlined because on this side of the Chamber we are interested in ordinary Kiwis—those extra people who are unemployed. There is a much higher unemployment rate than when National took office. Unemployment has gone up and up and median wages are down under this Government in real terms. That is why New Zealanders are feeling the pinch. The cost of living has gone up but their wages have not. With the tax cuts that the Government put through in 2010 I note that 40 percent of the value went to the top 10 percent of earners and the bottom 20 percent got just 10 percent of the value. That is disappointing. That is growing the gap between rich and poor. The gap between rich and poor has never been so high in New Zealand as it is under this Government. Inequalities have grown and this Government seems happy to oversee the demise of this country.Hon CLAYTON COSGROVE (Labour): I want to pick up where David Parker left off in respect of the smaller end of town in terms of credit unions. I note that the New Zealand Association of Credit Unions and its members made a number of submissions on the Non-bank Deposit Takers Bill. Basically their thesis said that credit unions should not be lumped in with finance companies under the same non-bank deposit takers definition given that “A cooperative business model”—I am quoting from them—“is so inherently different from other financial institutions”.That does raise a valid point because if you look at the model of credit unions and friendly societies they have vastly different objectives based on the various Acts—the Friendly Societies and Credit Unions Act and others—that govern them and that they originate from. They are coupled with their own prudential supervisory requirements via trustees. In the case of credit unions they are all equal partners equal shareholders within that entity which is vastly different from the case of the financial sector. They have a cooperative model that is based on equal ownership and that is based on the veryneeds of the individuals in that entity and the communities interests and industries in which they operate. They are inherently conservative if you look at the history of credit unions in respect of their investments. They are involved in health schemes skilling schemes and all sorts of interesting and innovative processes and they are very entrepreneurial but they are inherently conservative and they are based on a cooperative model. Their approach to business is not driven by shareholders if you will who take risks; their basis for business is based on cooperation and collectivism. And it would be hard to see and it is still hard to see why those additional prudential requirements should be visited on them because of course they inherently have a whole series of additional compliance costs.So I would be interested to know from the Minister in the chair the Associate Minister of Finance Jonathan Coleman—and if he could answer some questions that would be helpful to us—why it is that the Government believes that credit unions for instance and friendly societies and others that do indeed take deposits but operate completely differently on a far more conservative basis with a cooperative model and equity in terms of individual members should be lumped in with this. I do not know whether the Minister in the chair is going to take a call. I note that the chair of the Finance and Expenditure Committee Paul Goldsmith is here today. It would be very helpful if the Minister is not in a position to take a call if Mr Goldsmith took a call and gave the Government’s rationale for this. The cost of regulation of course is going to be borne by firms that did not collapse that actually did do the right thing—credit unions and others—that were fiscally conservative and that did manage their funds and their members’ funds and investments appropriately. Of course they are going to be the ones that along with others in the financial sector will bear the brunt of these compliance costs.We are all as I said in the last debate for financial stability. We are all for ensuring that the best prudential requirements are put in place to protect mum and dad investors or any investors. You would have to look—and I challenge the Government to provide some evidence if I am wrong—at the history and performance of credit unions. In many many respects in the management of funds that they have they outstrip many in terms of the conservative nature of their investment portfolios and how they manage funds. That is borne out by many of those they outstrip not being here any more because they collapsed.Those credit unions provide a pretty unique form of model and form of investment for their members. They are involved in a vast array of pretty unique activities for people who are in this sector in terms of providing opportunities for their members and they have a completely different model. It is a cooperative model. It is a very old model. They operate completely differently. So it would be helpful if somebody on that side could for the record put on the record the rationale for lumping in credit unions with every other non-bank deposit taker because I think they do make a valid argument that they can differentiate themselves off from most. If the Government still believes that it is appropriate that they be part of this regime then the Government needs to stand up in all fairness and articulate in a detailed way why it believes that. It may be helpful to do so I think in terms of the level of understanding. And it may—I doubt it but it may—allay some of the fears that credit unions and others in that area have in respect of this bill.I would be grateful if somebody from the other side would take a call. Again there is not a lot of politics if any really in this bill. I was on the Finance and Expenditure Committee for most if not all I think of this piece of legislation going through and I would acknowledge that there was a genuine effort on both sides to make it work. It is appropriate but these credit unions and friendly societies do have some genuineconcerns. They have put some appropriate propositions on the table in their submissions arguing that they should be differentiated off and dealt with differently or dealt with under the Acts that prescribe their activity anyway. I would be grateful if a member from the other side or Mr Goldsmith could provide the Government’s rationale for that. I am sure that that would be helpful for those submitters.The question was put that the amendments set out on Supplementary Order Paper 394 in the name of the Hon Bill English be agreed to.Amendments agreed to.Parts 1 to 4 schedules 1 to 3 and clauses 1 and 2 as amended agreed to.Bill as amended agreed to.Bill reported with amendment.Report adopted.Third ReadingHon Dr JONATHAN COLEMAN (Associate Minister of Finance) on behalf of theMinister of Finance: I moveThat the Non-bank Deposit Takers Bill be now read a third time. I want to begin by thanking the members of the Finance and Expenditure Committee and officials who have engaged with the industry the wider financial sector and other interested parties. The purposes of the bill are to promote the maintenance of a sound and efficient financial system and to avoid significant damage to the financial system that could result from the failure of a non-bank deposit taker. The bill will not create a zero failure regime but by completing the implementation of the regulatory regime for non-bank deposit takers which mainly comprise finance companies building societies and credit unions this bill will achieve those purposes.The bill creates a stand-alone framework for the prudential regulation of non-bank deposit takers. It incorporates the prudential requirements already imposed under Part 5D of the Reserve Bank of New Zealand Act 1989 and introduces new measures including the licensing of non-bank deposit takers suitability assessments for directors and senior managers restrictions on changes of ownership and new powers for the Reserve Bank to detect and manage instances of distress or failure of non-bank deposit takers.Licensing is at the heart of the bill with the establishment of a licensing regime and a requirement for all non-bank deposit takers to be licensed by the Reserve Bank. An important part of this is the suitability requirements for directors and senior officers of non-bank deposit takers and the opportunity this gives for the Reserve Bank to identify those who are clearly not suitable to hold positions of responsibility within the industry. Licences may also be issued subject to conditions. The bill sets out the types of matters that may be covered by conditions and the consultation procedure to be followed if the Reserve Bank wishes to add new conditions or amend or revoke existing conditions of licence. There is also an express obligation for non-bank deposit takers to comply with the conditions of their licence so that a failure to comply with a licence condition becomes a failure to comply with the Act. Breaching such a condition will be grounds for cancelling a licence.Following licensing the non-bank deposit taker must then comply with the prudential requirements that are already in place under Part 5D. Any substantial changes in ownership over a prescribed threshold must have the consent of the Reserve Bank. The powers of the Reserve Bank to address breaches of prudential requirements have also been strengthened to be more in line with the Reserve Bank’s powers under thebanking and insurance regimes. In particular the bill provides the bank with the power to direct non-bank deposit takers and their associated persons in particular circumstances. Amongst other things the Reserve Bank can direct that a non-bank deposit taker takes specified action to address any financial or other difficulties it may be subject to.Under the bill the Reserve Bank is also able to remove and appoint directors where the non-bank deposit taker is in financial difficulty or failing to comply with statutory requirements. Under the bill trustees remain the front-line supervisors of non-bank deposit takers’ compliance with prudential requirements such as those relating to capital and related party exposures. To help ensure that the Reserve Bank can intervene where necessary when a non-bank deposit taker is involved in an actual or potential breach of its obligations under the prudential regime the bill provides the Reserve Bank with the power to direct trustees to take certain specified actions in these situations.During the Committee of the whole House stage additional amendments were included in the bill by Supplementary Order Papers 99 and 394. These amendments were largely technical in nature and in many cases were necessitated by the recent enactment or coming into force of other legislation most notably the Financial Markets Conduct Act. Along with the changes recommended by the Finance and Expenditure Committee these changes have helped to ensure that the bill is well designed and will operate efficiently.To sum up the bill will increase confidence in the New Zealand deposit-taking sector and enhance the Reserve Bank’s ability to promote the maintenance of a sound and efficient financial system. It represents an important milestone by putting in place the final components of the prudential measures applicable to the non-bank deposit taker sector. From its first reading in Parliament in August 2011 this bill has received broad cross-party support and the general support of industry. Again I want to thank the Finance and Expenditure Committee those who made submissions and officials for their work on this bill. I commend the bill to the House.Hon DAVID PARKER (Deputy Leader—Labour): I rise to take a call on behalf of the Labour Party to support the Non-bank Deposit Takers Bill. Can I thank the Associate Minister of Finance Jonathan Coleman for his contribution and acknowledge the work done at the Finance and Expenditure Committee and by officials. I add my thanks and respect for the work done by the officials. I believe that this is a good bill. It is important that the non-bank deposit takers be appropriately regulated. It is one of the lessons that we have had following the global financial crisis—that there is a need to properly regulate the financial sector so as to protect members of the public from inappropriate risk. You cannot eliminate all risk but you can properly regulate to stop some risks from being hidden.The bill defines “non-bank deposit taker” as being an entity that “offers debt securities to the public of New Zealand;” and then on-lends them. That second part of the test is necessary because if for example you are another company that offers just debt securities to the public—if you are a company that is not in the business of on-lending and the retail provision of money—then you ought not to be subject to the same regulatory regime.One of the improvements that has been made is providing a good definition of what “related party” means. That is important when trustees have day-to-day oversight of debt securities—that is when someone invests in a debt security in a deposit there is generally a trust deed that governs the terms upon which their deposit is to be held. The terms are generally overseen by a trustee which is often something like Trustees Executors or AMP—one of those trustee security companies oversees it. Their duties include making sure that the trust deed provisions that are intended to govern how themoney is held and what sorts of assets it can be invested in are conformed with by the entity that is taking the money from the public. Too often of course in recent years they were actually taking the money from the public and not giving it back. One of the reasons why that came to pass was that there was inadequate regulation of related party transactions where those that were in control of some of these non-bank deposit takers were effectively using the money to lend to risky ventures that they or a related party had an interest in and that went belly-up. The directors of the issuer of the debt securities did not have their own names on the guarantees and they managed to lose the money of the depositors and not face personal liability in respect of some of the losses that occurred to depositors. So tightening up regulation around related parties is a desirable thing to do so that there is less ability to do that in the future and so that it is less easy for people to pursue their private interests to defeat the interests of the people who have lent money through debt securities to non-bank deposit takers. I will not take any further time of the House other than to endorse the Associate Minister’s comments. Thank you.PAUL GOLDSMITH (National): I am very pleased to speak in favour of the Non-bank Deposit Takers Bill. It is a very important piece of legislation in terms of restoring mum and dad investor confidence in our capital markets after the global financial crisis. I am glad to see that there is widespread support for this bill across the House.I do want to draw attention to just one or two changes made by the Finance and Expenditure Committee—in particular around the Reserve Bank’s powers to remove and appoint the directors of these non-bank deposit holders. I think this is an important additional power to the Reserve Bank and it should be used carefully. When the Reserve Bank has made a decision about the suitability of the directors or senior officers those persons now do have a right to appeal that decision. This was also amended to allow appeals by those who had proposed to be directors or senior officers but who were prevented from doing so by a Reserve Bank decision on their suitability. I think that is an important rule-of-law aspect to this whole equation—making sure that we have the right people in the right places but also giving them the opportunity to defend themselves. So just drawing on that I would like to support this bill in its third reading. I commend it to the House. Thank you.Hon CLAYTON COSGROVE (Labour): I have got to say that whilst I share the sentiments of Mr Goldsmith’s speech it was disappointing in one particular way. Members on this side have raised a number of key questions. I do not think the Minister of Finance took a call at all throughout the debate on the Non-bank Deposit Takers Bill. One of the concerns that both Mr Parker and I raised were issues around credit unions and compliance costs around credit unions. No Minister decided to take a call at all on the differentiating factors and different strictures around credit unions the legislative framework and how they operate in a completely different way—a different model; a cooperative model. These are pretty venerable institutions. I am sure we all have people in our respective patches and constituencies who are members of these institutions who have invested wisely. Also I should say that these credit unions do a lot for their communities.What we simply asked for on this side was some rationale and some assurance around why these credit unions and friendly societies would be placed within this legislation. I do not think that is too much to ask of highly paid Ministers with highly professional and knowledgable officials behind them. But it got to the point where the Minister could not even sort of turn round and ask his officials for the answer and give us some assurance and nor could the now chair of the Finance and Expenditure Committee Paul Goldsmith—rather than stand up run through a few cursory items sit down and raise the white flag. So it is disappointing because I know that some of thesubmissions from the New Zealand Association of Credit Unions on behalf of its members and others raised some very valid points and would have appreciated I think as we go forward and process this legislation some sort of assurance or rationale for the record. But no one including Mr Hayes who I think is a member of the Finance and Expenditure Committee still Ms Barry Mr Goldsmith or others—but more especially the ultimate responsibility is with the Minister in the chair—was prepared to even give lip service to that request and just provide some background for the record in the Committee stage or the third reading. I have got to say that that is disappointing.Mr Goldsmith is right. There is widespread support across the House for this bill. But if we are at a stage where when we raise valid questions without politics to simply try to secure some level of confidence for various entities in the community and the Ministers simply sit there at 10 past 11 and just read their papers and do not even bother to seek the information even if they are not the Minister with portfolio responsibility then you have got to say that that is a bit rough. It is not too rough on us because we are not the ones with our backsides on the line; the credit unions and friendly societies are. Their members will be looking at changes that are made. Their members will actually be saying: “What does this mean for us? Are we going to have to change? What will these prudential requirements mean for us in terms of our investment structure in terms of our appointments in terms of how we manage funds and take deposits?”. As my colleague Clare Curran says obviously the Government over there does not really care about that end of town even though that end of town—credit unions and friendly societies—are a bit bigger and they have more substantial funds under management than many other entities in our community.So I would have thought that in the spirit of bipartisanship or non-partisanship that this bill has engendered Ministers or members of the select committee would get up and simply put on the record the rationale for this. It would have been helpful. Maybe it is going to happen when I sit down and a Government speaker takes the next call. That would be helpful. I make this genuine plea to the next Government speaker: could they provide that advice on the record? Mr Hayes Ms Barry or—well Mr Goldsmith has already spoken. Could somebody who is on the select committee take some advice from the Minister’s officials? I am sure Mr Hayes will because he is a reasonably responsible joker. Could he actually in his speech if he is allowed to get up and give that rationale as to why these credit unions are going to be lumped into this? It is a pretty simple request. There is no politics in it. We will accept the nature of it and take the information. We are all supporting it—I do not think there is anybody in this House who is not supporting this bill—but it would be a courtesy to those credit unions which will be the ones—Dr David Clark: To the listeners at home.Hon CLAYTON COSGROVE: —and to the listeners—that have to implement this legislation.I think it was the credit unions that rightly said in one of their submissions or perhaps to the media that it will be the entities that did not collapse as I said in the Committee stage that pay for this not the bad guys who did collapse. It will be survivors—including the credit unions which acted appropriately and were fiscally conservative and guard with a great deal of pride their members’ investments and money—who are going to have to bite the bullet on this. Even if it is appropriate and it may well be I think they are owed a duty of care from this Parliament and this Government to ascertain why they are lumped in. They raised some very very solid points—different model different membership structure different investment structure cooperative model different priorities and fiscally conservative with the investments. They are all the things that you would have to say that some in the big end of town areactually lacking especially those who came a gutser through their own lack of financial foresight.So I will conclude by simply making the request again for about the third time that some narrative be put down in a third reading speech from the Government to answer the points raised legitimately and professionally by credit unions. We will support this bill but I think that as we are doing this—I know some want to get home over the side—it is appropriate that proper information is put on the record of this House so that entities know what is going to happen and what they are up against and why they are caught by the sort of catch-all bill that this is. So I look forward to the next Finance and Expenditure Committee member taking a call.Dr RUSSEL NORMAN (Co-Leader—Green): I rise on behalf of the Green Party to speak to the Non-bank Deposit Takers Bill and to echo many of the sentiments expressed by Clayton Cosgrove who I thought made some really good points. The thing that people probably do not realise about this pretty obscurely named bill the Non-bank Deposit Takers Bill is that essentially it covers three entities: finance companies credit unions and building societies. People will be very familiar with the finance companies. The finance companies are of course the companies that collapsed and cost taxpayers many hundreds of millions of dollars as they had to be bailed out. I will get back to that particularly South Canterbury Finance where the bailout was mismanaged by the current Government.Finance companies are a very different kettle of fish to the credit unions and building societies but they are all being regulated together under this one piece of law the Non-bank Deposit Takers Bill or Act as it will become. That is a problem. It is a problem because credit unions and building societies have a very different risk profile to finance companies. In the Reserve Bank’s report that was delivered very recently about the review of the non-bank deposit taking sector there was some discussion of those differences. I think that this is a real missed opportunity to make sure that the regulation of the credit unions and the building societies accurately reflects the risk and performance of those two kinds of institutions which is fundamentally different to the finance companies.If one casts one’s mind back through the earlier part of this century and the emergence of the finance companies and the huge risks that the finance companies presented one sees that during all of that period all of our regulatory agencies completely failed. So you would have to say that the Reserve Bank Treasury and the trustee structure that was set up to provide oversight fundamentally and completely failed the people of New Zealand in providing adequate prudential supervision of the finance companies. The proof of that is the fact that the finance companies overwhelmingly—almost all of them—went belly up. They went bankrupt. At the end of the day it was the depositors in those companies and the taxpayer who ended up having to pay the cost of the fact that the finance companies went bankrupt.So it seems to me that we need to differentiate between those institutions the finance companies and their regulation and the credit unions and building societies which did not go belly up. But it became one of the mantras of the neo-liberal model of the 1980s and 1990s that one has light-handed regulation of things like finance companies. Unfortunately the Clark-Cullen Government was completely captive to the neo-liberal ideology as it applied to the regulation of the finance sector. It applied the same kind of laissez-faire regulation of the finance sector that has been the ideology from New Zealand since the early 1980s and that is why we ended up as taxpayers and depositors losing so much money because of the laissez-faire regulation that the Clark-Cullen Government continued through the early part of this century which meant that the taxpayer ended up having to pay the bill.This Government paradoxically a conservative Government came in at a time after the global financial crisis and has had to institute the regulation of these sectors but it is very much closing the gate after the horse has bolted. Most of the finance companies have already gone and so most of the institutions that are now being regulated by this bill which is a response to the failure of the finance companies are not finance companies. This is the paradox of the bill that we have before us. This bill is a response to the failure of the finance companies but this bill actually overwhelmingly regulates credit unions and building societies. So that is the paradoxical situation we find. So the incoming conservative Government had a complete overreaction and a poor response to the situation that we are in. We should actually have the regulation of credit unions and building societies done differently to finance companies because credit unions and building societies do not have the same level of risk associated with them. The proof of that is the fact that during the global financial crisis the finance companies went belly up but the credit unions and building societies did not. So instead of saying that we will have a differentiated regime we have just lumped them all in together into non-bank deposit takers.There is no question that we need to improve the regulation of the finance companies in particular so that is why we are voting for this piece of legislation. It is the right thing to do even if it is after the horse has bolted. Hopefully it will prevent a similar thing happening again. What it means is that there is a sea change in a kind of philosophy of regulation in New Zealand and a recognition that the failure—the complete and absolute failure—of the neo-liberal model of laissez-faire regulation has been recognised. I doubt very much that that is completely recognised by Treasury and the Reserve Bank particularly Treasury but certainly to some degree it has been and that is a good thing. But lumping the credit unions and building societies in under exactly the same kind of regulatory regime I think is a bit of a mistake and we need to differentiate. So in the implementation of this law given that it is going to go ahead it is very important that the Reserve Bank differentiates between the credit unions and the building societies on one side and the finance companies such as they remain on the other.Unfortunately there is not a great recognition that that will happen. We had the Reserve Bank in front of the Finance and Expenditure Committee a few days ago when I raised these issues and there was some acknowledgment of the issues but I do not think a great acknowledgment. There was also the issue of trustees which I think we really have to address. For people who do not know these non-bank deposit takers—finance companies credit unions and building societies—have trustees who are meant to provide supervision. What we know about the trustee model is that it is a complete failure—a total and absolute failure. The proof of the failure of the trustee model is that depositors lost millions and millions and millions of dollars and taxpayers lost millions of dollars because they had to bail the thing out. So given that the trustee model has proven to be a complete failure why are we continuing with it as if it works when we know that it does not? It has been proven that it does not work. The trustee model does not work in terms of providing prudential supervision of these companies. The proof of that is what actually happened. But we carry on and pretend the trustee model works. It does not work.Why do we not actually introduce regulatory regimes that have a better chance of working? For example in the review of non-bank deposit takers there was talk about treating credit unions and building societies more like banks and regulating them directly more like banks because a lot of their behaviour is bank-like. Why would we not regulate them more directly more like banks and in the process get rid of the trustees who are useless because they do not protect these companies from actingpoorly as we saw with the finance companies? By getting rid of the trustees at the same time we also reduce the red tape and the regulatory burden on the credit unions—a regulatory burden that the banks their competitors do not face. So if you are a credit union you have got to have this elaborate structure above you of trustees and so forth. It all has to be supported. If you are a bank you do not. Yet we lumber the credit unions with this elaborate regulatory burden that they totally do not need. Why do we not regulate them much like we regulate banks? Let the credit unions compete with the banks on a fair even playing field. Reduce the regulatory burden on the credit unions so that they can compete for deposits with the banks.I think that in the implementation of this regime it would be great to see the Reserve Bank recognise the reality of the difference between the finance companies and the credit unions and building societies. That is one of the fundamental problems of this legislation. We are supporting it because I think we need it but I think it is important as we go forward that in the implementation of the law we recognise the difference. I think that in the future we are going to have to change the legislative framework around credit unions in particular to recognise the actual risks associated with credit unions. I also think we need to acknowledge that the trustee model completely failed. It did not work as a way of actually preventing widespread failure of the finance companies. It was a failed model. None the less we will be supporting the legislation but we look forward to future improvements of the regulatory framework in this sector. Thank you.ANDREW WILLIAMS (NZ First): I take a brief call on behalf of New Zealand First on the Non-bank Deposit Takers Bill. For those out there listening to this or watching this I will give just a reminder as to what the bill actually does. The bill seeks to implement the final components of a new regulatory regime for non-bank deposit takers. These are deposit takers in the finance industry that are not banks. This incorporates the prudential requirements already imposed under Part 5D of the Reserve Bank of New Zealand Act 1989 and introduces new measures covering the licensing of non-bank deposit takers suitability assessments for directors and senior officers restrictions on changes of ownership and new powers for the Reserve Bank to detect and manage instances of distress or failure of those non-bank deposit takers.Essentially what this bill does is tighten up the areas outside of the main banking stream and brings in a lot more controls via the Reserve Bank so that we will not have a repeat of some of the perhaps cowboy activities that have occurred in the past in some of our financial institutions—or what you could call fringe financial institutions.In looking at Part 2 of the bill clause 13 “Determining applications for licence” states: “The Bank must not grant a licence to an applicant unless—(a) the Bank is satisfied that the applicant if licensed would be able to comply on an ongoing basis with this Act the regulations and the proposed conditions … (b) the Bank has received a suitability notice for each director and senior officer or proposed director and senior officer of the … Bank …”. That is most important because what it basically says is that at last full applications to the Reserve Bank will be required for these various entities. They will also have to justify who the directors are and who is controlling these entities.In terms of the appointment of the directors if a licensed non-bank deposit taker is a company building society or overseas company “(a) the governing body of the [non-bank deposit taker] must include at least 2 independent directors; and (b) the chairperson of the governing body of the [non-bank deposit taker] must not be an employee of either the licensed [non-bank deposit taker] or a related party.” An independent director cannot be an employee of either the non-bank deposit taker or a related party. An independent director cannot have more than 10 percent of the voting securities of the non-bank deposit taker or related parties and are therefore in a sensetruly independent and able to provide independent advice to that entity. In the past these lines have been a bit blurred perhaps where employees have acted in this role. Senior management has acted in this role in some cases. Often as we have seen in the case of South Canterbury Finance and other such institutions there have been instances where governance and management and other things have overlapped.It is also interesting in terms of credit ratings that a licensed non-bank deposit taker must have a current rating of its creditworthiness or as required by the regulations in clause 23 the creditworthiness of its borrowing group. Again that will be of great comfort to investors—the mums and dads of New Zealand who are perhaps putting money into such financial institutions. The non-bank deposit takers must have a current financial rating and creditworthiness to substantiate what they are doing in terms of taking the deposits.This is a further bill today following on from the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill which we had just before and following on from other financial ones last evening. It is a tranche of various bills aimed at tightening up the financial markets in New Zealand. This is another one that New Zealand First supports because we believe that there were some glaring anomalies in our financial legislation that were allowing less than satisfactory business transactions to take place and indeed putting New Zealanders at risk in the case of their investments. This is another way of tightening that up and giving more surety to the financial markets making New Zealand a much safer place in which to invest money and making it a far tidier situation for the New Zealand economy. New Zealand First will support the bill.Dr DAVID CLARK (Labour—Dunedin North): The point I have made consistently through this debate on the Non-bank Deposit Takers Bill is that it is a wasteful use of Parliament’s time to be shifting legislation from one place to the other. It does not make the changes perfectly that it ought to make. We have heard about the difficulties for the credit unions that are put into this bill. We know that today we have debated covered bonds in the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill 2 years after they were implemented overseas. We know that the Crown Retail Deposit Guarantee Scheme may have cost the taxpayer up to $500 million because of the Government’s mismanagement. The Government is not focused on the big issues and it seems to be slow in getting this kind of legislation in place.We will support the bill because broadly it is OK. It could be better. We wish the Government would get on with supporting our export sector with worrying about the exchange rate with introducing pro-growth tax reform with bringing through increased savings with universal KiwiSaver and with looking out for ordinary Kiwis’ interests with the type of policy that we are putting forward with NZ Power and the kinds of policies like KiwiBuild which we are putting in to make sure that ordinary Kiwis can hope to own their own homes. We want a Government that is taking the interests of New Zealanders forward.This Government is sitting on its laurels. I am increasingly told by people whose doors I knock on in the weekends that this is a Government out of touch. New Zealand is going backwards under National. It does not seem to have a plan for the economy. It is disappointing that we are here debating fixes to problems that would be solved through a stronger economy. We would have more jobs if this Government was focused on the real issues if it was focused on the big changes that are needed in our economy and not just tinkering.CLARE CURRAN (Labour—Dunedin South): I will take a short call on the Non-bank Deposit Takers Bill. I spoke on the first reading of this bill back in 2011. I did not sit on the select committee that heard the submissions the Finance and Expenditure Committee but I did speak in the first reading and it has taken a long time for it to getto this point. When you look back to the genesis of this bill it actually comes out of work done by the previous Labour Government in 2005 and 2006. How many years ago was that? It was 7 years ago. It took 7 years to get this bill to this stage in the House. It came out of the Review of Financial Products and Providers. This was the second bill as part of that work which was required to implement the registered non-bank deposit taker regime and included licensing and fit and proper requirements.We support this bill obviously. I think you have heard from this side of the House that there has been quite a bit of concern around some of the measures particularly around credit unions which have not been addressed and answered by the Minister of Finance or by any of the National Party members who sat on that committee which makes you wonder whether they were actually paying attention whether this piece of legislation was just slipping through and whether the Minister in charge of this bill who I think was actually Bill English was asleep at the wheel and not really paying attention to the concerns.On the issue around credit unions which has been raised by my colleagues Clayton Cosgrove and David Clark I just want to go back to officials’ advice around their concerns. The credit unions believe that this regime should apply only to finance companies and that cooperatives should be carved out because they are different. The advice that was given—and it was very brief advice which really did not go into any detail and should have provided a lot more of an explanation—was that it would provide a legal loophole in the regime whereby simply adopting a particular form would mean falling outside the regulatory regime. I contend that that was not sufficient and that has not been properly explained by the Minister during the passage of this bill.I would also like to draw the attention of the House to a bill we discussed last night the Financial Reporting Bill where there had been a lot more intelligent discussion around some of the measures in that. That bill singled out members of friendly societies it singled out not-for-profit entities and it looked at how the regime around financial reporting would or would not apply to each of those entities. In the bill that we are discussing today that has not happened. I think that is a big mistake. However we do support this bill. It comes out of work that was done by the previous Labour Government and I commend it to the House.Bill read a third time.