Ardern Jacinda: Reserve Bank of New Zealand (Covered Bonds) Amendment Bill — In Committee Third ReadingText is incorporated into the Bound VolumeArdern Jacinda: Reserve Bank of New Zealand (Covered Bonds) Amendment Bill — In Committee Third Reading[Sitting date: 19 November 2013. Volume:695;Page:15009. Text is incorporated into the Bound Volume.]JACINDA ARDERN (Labour): It is my pleasure to give a contribution in the Committee stage of the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill. Labour will be giving its support to this bill. We do have some reservations though in giving that support but we will traverse that over the course of this debate.The purpose of this bill—obviously covered bonds are debt securities issued by a financial entity. But at the moment the legislative framework for covered bonds in New Zealand is somewhat lacking. So opposing this legislation—and this is something that Labour has considered in giving its support—would not prevent the issuance of covered bonds but it would leave New Zealand without regulation and we would be concerned by that situation. That is one of the reasons why we are giving the bill support with reservations.To cover the purpose of this bill—briefly given that we are at the beginning of the Committee stage—the key feature of a covered bond is that bondholders both have an unsecured claim over the issuing entity and hold a secured interest over a specific pool of assets called the cover pool. New Zealand banks have been active in issuing covered bonds over the last 2 years and this has been carried out under contractual arrangements. However most jurisdictions—and we often look to jurisdictions like Australia when assessing whether or not we are keeping up with the play in terms of those jurisdictions that are similar to us—with banks active in the covered bonds market which includes Australia now have a legislative framework for issuance in place. The lack of a similar legislative framework in New Zealand does put New Zealand issuers at a disadvantage and that is one of the reasons why obviously this bill has been brought in.The bill establishes a legislative framework for covered bonds the purpose of which is to improve financial stability by ensuring that New Zealand banks have effective access to the covered bond market as a source of long-term relatively stable finance as an alternative source of bank funding. But the main problem that has been identified—which we are obviously trying to remedy with this bill—is a lack of certainty over the effectiveness of legal arrangements to segregate the cover pool assets from the assets of an issuing bank. So that is something that this bill is trying to address. The second problem that this bill seeks to address is ensuring that there is an adequate level of independent monitoring of information provided by issuers on cover pool assets. So the three things that we are likely to debate in this Committee stage are: first the requirement that covered bonds issued by New Zealand banks be registered subject to meeting registration requirements; second the independent monitoring of cover poolsby an asset monitor; and third provisions to amend the legislation including the Companies Act 1993 to clarify the treatment of registered cover bonds in the event of issuer insolvency.I think that anyone would agree that in this current environment and with the state of our financial markets in the past few years regulation is better than the absence of regulation. Hence Labour is lending its support to the bill because to not do that would mean a continuation of the status quo where we have an ad hoc arrangement which is contractually based as I understand it. That leaves us at a disadvantage when we are looking at comparable jurisdictions like Australia but that does not mean that simply having a regulation in its current form is going to necessarily tick off all the boxes that we would be looking for—all of the acid tests that we would have—for legislation such as this. My colleagues who have been involved in this area a little more closely than I have will I am sure traverse some of that in their contributions.One of the things though that we are also likely to cover is that the effect of covered bonds currently is to create a class of lenders to banks who have a higher level of security over banks compared with other lenders. That is unfairness in that it creates a two-tiered system. Most covered bond holders are foreign institutions. So the question is where does this leave mum and dad investors whom we have so frequently heard about—