Hudson BrettBRETT HUDSON (National): Thank you Madam Assistant Speaker. I rise in support of the Financial Markets (Derivatives Margin and Benchmarking) Reform Amendment Bill in this its first reading and I congratulate Minister Kris Faafoi for his stamina and endurance. He's been in the House for quite some time this evening waiting to deliver that eight-minute speech to the House. We do support this bill. It relates to linkages between our financial markets and international financial markets which are a critical source of funding for the lending that New Zealand banks do. We support reforming legislation to achieve the outcomes for this bill because fundamentally it's the only way for us to keep some of these markets open to our banks. It's important that we don't have laws that are impeding the access to those international markets particularly in this specific case of over-the-counter derivatives. They are therefore needed to ensure the ongoing soundness and efficiency of our banking systems. Our banks need access to capital principally because they need to be able to lend to New Zealanders—New Zealand consumers and businesses. Along with continuing to permit access into EU markets for derivatives we also support the licensing regime as well. It is a simple fact that in New Zealand a great deal of our lending is sourced from overseas borrowing. It is a fact that New Zealanders either—well it leads to the same outcome. Either they don't deliberately save sufficiently or they spend so much of their incomes that our banks cannot source the capital they need to permit borrowing from domestic markets alone so banks will seek to borrow money from offshore. Now that has a flow-on effect that moneys are often borrowed in multiple currencies and our banks use derivatives to protect or to hedge against exchange rate risk from them borrowing in those foreign currencies. So it's a very important—well the banks would consider it critical for them and ultimately it's most important to New Zealand consumers and businesses because it's those dollars those loans that they need access to whether it's to build the home or buy the home they want to raise their family in or indeed if they are looking to expand their business. Expansion will lead to more people being employed and to more incomes and therefore it is of benefit to all those involved. So it's important to look at this. While talking about the legislation the language is principally about financial markets and banks but we shouldn't lose sight of the ultimate beneficiaries of these changes—should they be enacted—and those are New Zealand consumers and New Zealand businesses. These are being in effect—shall we say—gently persuaded upon us. These have been forced upon us through changes in international markets. In the case of this first part—the derivatives piece—they are the changes to the G20 rules. So they now require that parties to what they call over-the-counter uncleared bilateral derivatives provide security—also known as margin—under that contract to support it. If one party fails to honour its obligation under the contract the other party can call on margin to shield it from any losses that might result and it's that certainty that allows the two parties to the contract to enter it with confidence that not only allows the contract to be undertaken in the first place but helps to keep the costs of the contract and then ultimately the costs of borrowing to New Zealand businesses and consumers down. There were some reforms introduced by the G20 as a way of reducing systemic risk as a result of what they've learnt from the global financial crisis particularly in these derivative markets. But there are certain features of our current domestic law—particularly around insolvency statutory management and personal property securities laws—that could impede the banks' ability to comply with the margin requirements or with these new rules from the G20. So the option to us obviously is we continue to maintain our laws as they currently are but the most likely consequence of that is either the exclusion to New Zealand banks for these sorts of contracts or with the uncertainty that might be deemed to exist there an increased cost of borrowing. The last thing we need to do to New Zealand businesses as we—well certainly we on this side—seek to wish to continue to grow the economy grow jobs and incomes in New Zealand the last thing we want to do is to be abetting by not passing such legislation the increase in borrowing costs for those New Zealand businesses. Of course also when we see news especially also from the Council of Trade Unions around Christmas time evidence of rising costs of living to New Zealanders the last thing we want to be doing is exacerbating that by refusing to take action which would ultimately see the borrowing costs for those New Zealanders whether it's borrowing costs—most likely mortgages but potentially also other borrowings—increase. So it is important we argue that we agree to these reforms and that we make sure that those derivatives are still accessible or derivatives contracts are still cost-effectively accessible to our banks.Now there was some talk about what the value of these might amount to. The information I have is a little different but it could've been using a different source or a different representation. If we look at the gross flow of cross-currency basis swaps transacted by the four big banks against international counterparts we see the total of that annually is as high as $8.7 trillion. But the risk element the part that would be where the margins could or this could come into play is about $90 billion for those four big banks. And by anyone's reckoning in this country at least that is a great deal of money. I don't think it would take too difficult a leap for New Zealanders to see a risk of that size as very readily potentially leading to interest rate impacts on them if the banks weren't able to continue to access these moneys in foreign markets. So we certainly support Part 1 we think it's an extremely good idea even if obviously the idea was somewhat imposed upon us through the actions of a global community. But as a community we wish to participate and we need to and we support it.The licensing regime for administrators of financial benchmarks is also something in this first reading we are supporting. Although we always like to question and actually this question is unfortunately so much easier to answer but we always like to question the need for such regimes: to what level do they add in terms of process and compliance? Well in this case quite frankly it's as simple as if we wish to still access EU financial markets for these derivatives contracts we really have no choice but to accede to the changes that are being made in the EU and to ensure that we have a proper licensing regime for administrators of financial benchmarks. The financial benchmark for New Zealanders there may be a few listening is a reference index or indicator used to determine the price value or performance of financial instruments like derivatives—for example interest rate swaps and cross-currency basis swaps. The EU was somewhat concerned about potential benchmark manipulation and those countries made a decision to prescribe new standards around the process for setting the benchmarks which administrators must meet if the benchmarks they set will be accepted by the EU. Those new regulations will take full effect on 1 January 2020.So intervention—or the Government's intervention it's their bill; but Parliament's intervention—is necessary to avoid loss of access to those EU financial markets. A non-regulatory response is simply not possible because of the certainty and the measures that the EU requires which is through a European Commission - equivalence decision based on our legislation. So we can't simply say we'll do something; we've actually got to evidence it through our law. On that basis as we've said for Part 1 although the language of the bill and much language around the debate and possibly the submissions will be about financial markets and it will be about banks ultimately the result of all of that the true end points are New Zealand consumers and New Zealand businesses and their ability to access borrowing for home family or indeed more importantly some would argue for the ability to support economic growth through the continued expansion of New Zealand businesses employing more people and therefore raising incomes.So we do support this bill in the first reading. We look forward to the debate—I guess in the Finance and Expenditure Committee—in select committee.