Non-bank Deposit Takers Bill — Second Reading 
Text is incorporated into the Bound Volume 
Non-bank Deposit Takers Bill — Second Reading 
[Sitting date: 02 August 2012. Volume:682;Page:4248. Text is incorporated into the Bound Volume.] 
Non-bank Deposit Takers Bill 
Second Reading 
Hon Dr JONATHAN COLEMAN (Associate Minister of Finance) 
 on behalf of the Minister of Finance: I move  
That the Non-bank Deposit Takers Bill be now read a second time 
. I want to begin by thanking the members of the Finance and Expenditure Committee for their prompt handling of this bill. The committee received nine submissions and heard from four submitters. This bill seeks to implement the final components of a new regulatory regime for non-bank deposit takers which are referred to as NBDTs and comprise in the main finance companies building societies and credit unions. 
Hon Trevor Mallard 
: I raise a point of order Mr Speaker. I apologise for doing it during a changeover in the Chair but there was another changeover that also occurred. You properly called the Minister in charge of the bill who was in the House at the time and was here for at least a minute afterwards. I wonder how it is possible for another Minister to get the call in such circumstances. 
Mr SPEAKER 
: The member makes a perfectly valid point. It is not the first time that this has happened in the last couple of weeks where a Minister in charge of a bill has been in the House and not actually intended to take the call and the Speaker as a consequence has called on the face of it the wrong Minister. I called the Minister who was in charge of the bill who was present in the House and they then sought to leave saying “Oh no someone else is handling this.” I have called the Hon Dr Jonathan Coleman now and he is now leading the second reading on this bill but I think the point is well raised. I say to Government Ministers that they need to be watchful of this. It is not good enough to have a Minister in charge of the bill in the House and have another Minister seeking the call to lead off the second reading debate or whatever the particular debate is that requires the Minister in charge to be dealing with the bill. The point is well made and I would rather not see it happen again. 
Hon Trevor Mallard 
: I raise a point of order Mr Speaker. Can I seek an assurance that in future your practice will be to comply with the Standing Orders and call the Minister who is in charge of the bill notwithstanding the fact that they are indicating that they are leaving? 
Mr SPEAKER 
: Again the member is correct that strictly the Speaker should do that so I have I guess let the Government off on a couple of occasions in recent times by deferring to the Minister who is obviously intending to handle the bill in the second reading. I alert the Government that strictly I should not do that. The Hon Trevor Mallard is absolutely correct. That is why I do not want to see it happening again. 
Michael Woodhouse 
: I raise a point of order Mr Speaker. 
Mr SPEAKER 
: I will hear Michael Woodhouse briefly. 
Michael Woodhouse 
: Thank you; it will be brief. I think we run the risk because there is a transition at the end of question time for which many members are required to attend parliamentary business in other parts of the building. What we risk doing is having Ministers leaving before the end of question time and I think that runs the risk of disrespecting that very important part of the parliamentary process. So although I will certainly counsel Ministers to ensure that this does not happen again I would be disappointed if it did result in that occurring. 
Mr SPEAKER 
: Order! I simply repeat to the senior Government whip that the Standing Orders are the Standing Orders. It is not difficult for a Minister mindful of the Order Paper to leave at an appropriate time. The only time I could possibly see where it would cause a problem is if the Minister is answering the last question on the question sheet and it is the first business coming up. But there is a small pause as the Clerk announces the reading as the Speaker closes down question time and Ministers just need to be mindful of their responsibilities in that regard. The Hon Trevor Mallard has raised a perfectly proper point and he reprimands the Speaker appropriately. I have not strictly applied the Standing Orders and maybe in the future I should. 
Hon Trevor Mallard 
: I raise a point of order Mr Speaker. 
Mr SPEAKER 
: I will hear the member briefly. 
Hon Trevor Mallard 
: I want to make it clear right now that I am not sending you from the House; you were going to do it anyway. 
Hon Dr JONATHAN COLEMAN 
: What I was saying is that the bill seeks to implement the final components of a new regulatory regime for non-bank deposit takers and this is with the aim of promoting a sound and efficient financial system. It incorporates the prudential requirements already imposed under Part 5D of the Reserve Bank of New Zealand Act 1989. It also introduces new measures including the licensing of non-bank deposit takers suitability assessments for directors and senior managements 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. 
The bill continues with a broad definition of “non-bank deposit taker” in order to allow for potential changes as a result of market innovation while leaving scope for some entities to be exempted or declared out of the full regime. This definition targets the substance of deposit taking to ensure the activity is captured instead of particular types of organisations. The committee has recommended a number of refinements to this definition to clarify the scope and application of the bill. If a person was a deposit taker under Part 5D of the Reserve Bank of New Zealand Act before the bill comes into force or is a non-bank deposit taker under the bill once it takes effect the person will remain a non-bank deposit taker until all the debt securities it had issued are repaid. The new definition will not capture those entities that were not deposit takers before the bill’s introduction unless their activities mean that they have begun to meet the definition. 
An amendment has also been made to ensure that those entities the bill specifies as not being non-bank deposit takers such as registered banks remain outside of the regime regardless of whether they are otherwise caught by the refined definition. However the bill acknowledges that this definition might at times be too broad or too narrow. It does so by including a regulation-making power that would allow persons to be declared to be or not to be non-bank deposit takers. This has been amended to allow the Governor-General to specify additional detail and regulations as to the circumstances in which a person or class of persons is or is not a non-bank deposit taker. This approach provides useful flexibility to respond to market changes and to exercise control when circumstances mean that control is required. Regulations may also declare certain securities to be debt securities for the purposes of the bill. The Reserve Bank must not recommend such regulations unless satisfied the securities are similar in substance to debt securities. This is to ensure that other forms of investment vehicle such as collective investment schemes are not inappropriately captured. 
This bill introduces a licensing regime for non-bank deposit takers. The committee has recommended an amendment in relation to applications for licence by overseas persons for the Reserve Bank to have regard as to whether specified aspects of the law and regulatory requirements of the applicant’s home jurisdiction are satisfactory. 
Licences may be issued subject to conditions. The bill sets out the consultation procedure to be followed if the Reserve Bank wishes to add new conditions or amend or revoke existing conditions of licence. An amendment has been made so that the procedure does not apply when imposing conditions at the time the licence is initially issued. The committee has added 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. As trustees are the direct supervisors of non-bank deposit takers if the Reserve Bank intends to cancel a licence then it must notify the trustee of that intention and also notify the trustee if a licence is to be cancelled. 
The committee has recommended an amendment to the Government requirements that were in Part 5D of the Reserve Bank of New Zealand Act to clarify that if non-bank deposit takers include provisions in their governing documents that would allow directors to act other than in the best interest of the non-bank deposit taker then these are of no effect. The change of ownership requirements have also been clarified. These stipulate that the prior consent of the Reserve Bank must be sought for any transaction that would result in a person increasing their level of influence above a specified level or above the level previously authorised by the Reserve Bank. 
This bill enhances the powers of the Reserve Bank in respect of non-bank deposit takers and their associated persons. These include a direction-making power which has been amended so that the same range of directions are able to be given to non-bank deposit takers and their associated persons. The Reserve Bank can direct that a non-bank deposit taker replace its auditor and the committee has recommended amendments to ensure the non-bank deposit taker is able to comply with such a direction. In situations where a direction requires the trustee to disclose information the committee has recommended that trustees be protected against any civil criminal or disciplinary proceedings arising from such disclosure. The Reserve Bank is also able to remove and appoint directors where the non-bank deposit taker is in financial difficulty or is failing to comply with statutory requirements. 
The bill now provides that the Reserve Bank must give reasonable notice of its intention to remove a director as opposed to notice with a minimum period specified. Notice must also be given to the non-bank deposit taker’s trustee. The committee considered that in some cases it might be desirable to appoint an additional director without first removing an existing one and the bill has been amended accordingly. Where the Reserve Bank has made a decision regarding the suitability of directors or senior officers those persons have a right to appeal that decision. This has been amended to allow appeals by those who were proposed to be directors or senior officers but were prevented from doing so by a Reserve Bank decision on their suitability. 
The committee has introduced a new clause carried over from the Reserve Bank of New Zealand Act that allows the Minister to direct the Reserve Bank to have regard to a Government policy related to the Reserve Bank’s functions. A new clause has also been introduced in relation to incorporation by reference. This will exclude material that is made or issued in New Zealand is made under the authority of an Act and is freely available from the need to be certified and made available by the Governor of the Reserve Bank. It is necessary for the governor to certify corrected copies and make them available only if they originate outside New Zealand. 
There have also been a number of minor drafting changes. Technical changes have been made to the offence provisions throughout the bill to align more closely with the approach in the Criminal Procedure Act 2011. The bill includes a 12-month transition period for the licensing of existing non-bank deposit takers. As non-bank deposit takers are also required to be on the Financial Service Providers Register the committee has recommended delaying the commencement of some of the consequential amendments to the Financial Service Providers (Registration and Dispute Resolution) Act 2008 to allow for the licensing transition period. 
Once again I would like to thank the committee members for the work they have undertaken on this bill. It has been significantly enhanced through the committee process. It will increase confidence in the New Zealand deposit-taking sector helping to maintain a sound and efficient financial system. I commend the bill to the House. 
Hon DAVID PARKER (Labour) 
: 
 The Labour Party will be supporting the Non-bank Deposit Takers Bill through its continuing stages. One of the lessons from the global financial crisis is that regulators all around the world really became too lax in the regulation of the financial services sector following years of prosperity when people and regulators assumed this would carry on forever. It was really only after the collapse caused by some of the risky lending that took places in jurisdictions mainly overseas in respect of derivative transactions but also in New Zealand in terms of some of the non-bank deposit takers that the regulators and their masters including parliaments were sufficiently alert to the need to update regulation. 
Indeed it is only posthumously that one of the leading academics in this field Hyman Minsky an American economist has had his views gain currency. There is a reference I think now in the language around these things to the Minsky moment. That is effectively the point when it all tipped over and cascaded downwards and imploded upon itself; we had cascading failures in the financial sector locking up the financial sector around the world. Why this is particularly important in the financial sector compared with some other sectors is that if a business unit fails in the non-financial sector then the rest of the economy keeps working but when the financial sector wheels stop turning the rest of the economy stops as well because financial intermediaries are important to the functioning of the whole economy not just to the profitability of the financial sector itself. 
Hyman Minsky’s view of the world was that regulators have to constantly update financial regulation in order to keep the financial sector from embarking upon risky behaviour that puts at risk the operation of the financial services sector in a way that can impact upon the wider economy. Indeed Hyman Minsky pointed out that the longer the period of settled prosperity the greater the need there is for financial regulators to be staying ahead of the moves made by the financial services sector and that is because the longer the period of prosperity the dimmer the memories are as to the last time there was a clean-out and the dimmer the memories are as to what can be the consequences for both the financial services sector and the wider economy of too much risk-taking behaviour in respect of the financial services sector. He also made the point that the longer the period of financial security in the financial services sector the greater the expectation is that next year the profits will be higher and in order to have that building profit from year to year exponentially growing the only way banks and other financial intermediaries can do it is generally—well actually it is not the only way but a preponderance of later years of long periods of economic prosperity is risk-taking behaviour in respect of our financial institutions. 
How that manifests itself is that banks and non-bank deposit takers in order to do those things embark upon things that are not controlled because they do it around the outside of regulations and therefore they are not caught by some of the prudential rules that apply under the status quo regulations. Hyman Minsky said the regulator has always got to be keeping an eye on what is happening in the market and always got to be keeping ahead of these changes in practice on the part of the financial intermediaries in order to avoid these risks becoming heightened everything falling over at once and cascading failures leading to the financial sector grinding to a halt and effectively closing down other parts of the economy in part because consumers who are lending money to these deposit takers are so hurt by the sudden shock of not being able to get their money out of these financial intermediaries. They themselves then do not have money to spend in the economy and you get into a declining economy and a deflationary spiral or at least a recession. That is what happened around the world at the end of 2008 and 2009 and as a consequence we have seen financial regulators around the world taking steps to minimise the risk of that happening again. This bill is part of that. This is not in respect of banks; it is in respect of non-bank deposit takers. 
This bill imposes prudential requirements upon these non-bank deposit takers by incorporating prudential requirements that are already able to be applied by the Reserve Bank under the Reserve Bank of New Zealand Act 1989 pursuant to a new part that was introduced by this Parliament not so long ago but the provisions of which have yet to be applied to the non-bank deposit taking sector. That is what this bill does; it extends those prudential requirements through this bill. The Reserve Bank can now apply those prudential requirements to the non-bank deposit takers. 
This is therefore worthy legislation and that is why the Labour Party supports it. But—and you would expect a “but” from me in the Opposition because there are so many “buts” to be given at the moment—it really does not do anything substantial to overcome New Zealand’s problems. We heard the Minister of Finance saying today that New Zealanders are saving more. Actually New Zealand debt as he acknowledged quickly in the early part of his answer has gone down by 0.2 percent in the 4 years since National came to Government. The trade deficit is projected to go out. There was a 0.2 percent reduction in household debt and that is at a time of recession when people are losing confidence. They actually put their cheque books away for a while and they do not buy as many TVs and cars and they do not spend as much money on their house alterations etc. Therefore you would expect if New Zealand’s economy was performing relatively well that we would have household debt going down by more than just 0.2 percent in the last 4 years. That of course is one of the reasons why we are losing so many people to Australia including from our resource-rich area Taranaki. You would expect if the drive to Australia was because of the resources boom that Taranaki would be different to that trend even if it was apparent elsewhere in New Zealand but it is not. 
What does the Labour Party say is more important than the likes of this bill? We should be debating real pro-growth tax reform in this country. Does New Zealand need tax changes in order to put on a better footing investment in our productive sector rather than our speculative sector? I think we do. I think it is abundantly clear. Treasury thinks we do. The Reserve Bank thinks we do. The IMF thinks we do. The OECD says—but the National Party refuses to have a debate in this House as to whether we should be passing a capital gains tax. It is absolutely necessary for the health of the New Zealand economy but not at all on the National Party agenda. 
Dr David Clark 
: They’re worried about the 1 percent. 
Hon DAVID PARKER 
: No it is a 0.2 percent reduction in household debt. We do need to transition to higher savings. We need more New Zealanders saving. We need a universal KiwiSaver scheme. Improving the regulation of non-bank deposit takers is a worthy thing to do but if people are not saving more money then there is not going to be much more money to be lent by those non-bank deposit takers to sections of the economy. This bill does nothing to fix that. 
The bill does not change the shape of where investment money is going into New Zealand. It does not increase the amount of investment money in the New Zealand economy but it does further regulate the economy. So it is somewhat strange that we have got a National Government which thinks the answer to most things is further deregulation and I am pleased that it sees in this area that deregulation is not the answer and that there is a need for more regulation. But I do make the point that it does not lift New Zealand’s economic fortunes in the way we need in order to stem that flow of so many New Zealanders overseas. Forty percent of them now are aged 18 to 30. It is a terrible loss of that resource from New Zealand—those people who do not think they have got hope and opportunity in New Zealand but instead go overseas. They are going because of New Zealand’s problems because the Government is not discussing these other important issues. 
I am going to run out of time to talk about how this bill does not affect Treasury but maybe Mr Cosgrove or— 
Todd McClay 
: Ask for an extension of time. 
Hon Members 
: Seek leave. 
Hon DAVID PARKER 
: I hear Government members seeking leave for me to have an extension of time so I am happy to— 
The ASSISTANT SPEAKER (H V Ross Robertson) 
: No no— 
Hon DAVID PARKER 
: I seek leave for another 10-minute call in this debate in addition to the other contributions that are made pursuant to the Standing Orders. 
The ASSISTANT SPEAKER (H V Ross Robertson) 
: Can I say that the member of course is perfectly entitled to seek leave of the House but whether the House gives it to him is another matter. So I am going to put the question. Is there any objection to that course of action being taken? There is. I am sorry Mr Parker; there is objection. 
TODD McCLAY (National—Rotorua) 
: 
 It gives me pleasure to rise and speak on this bill the Non-bank Deposit Takers Bill. What I wanted to say was had the last speaker sought leave to speak after I have spoken I probably would have said yes. But in this case I am not able to. 
Mr Parker is correct that it is not often that the National Government wants to seek additional regulation. Indeed we are firmly focused on lifting economic performance and in many areas of the economy that is moving away from getting rid of unnecessary compliance and red tape that binds businesses takes up their time and stops them getting on and doing the things we want them to do—which is work hard and employ others—and often is meaningless. But in this case I do believe it is important that in looking at economic performance we make sure those who are taking finances on behalf of others are doing so appropriately and that there are appropriate and correct rules and regulations around this to offer the investor a protection but to hold to account those who as we have seen through our newspapers over some very long periods of time and under different Governments have not been held to account to the degree they need to be. Of course I am speaking of finance companies here. 
So the Non-bank Deposit Takers Bill completes several years of work to tighten up the regulation of the sector. I note that in 2006 deposits were about $8.6 billion in the sector and an amount of this was put at risk around finance industry failures. Both sides of this House have tried to work together to tackle this issue and I want to touch briefly on some of the things we have been able to do. We have not always agreed but I do want to say to my colleagues on the other side of the House who sit on the Finance and Expenditure Committee with me that at least in so far as this piece of legislation is concerned I think we were as harmonious as it is possible to be in moving forward. 
I want to say that the Government over the past 3 years has been supporting measures to ensure the right protections are in place to maintain and build investor confidence. And has not that been important as the world—as New Zealand—has struggled with a global financial crisis and great difficulty in investor markets. We have established a one-stop shop—the Financial Markets Authority—which has a sharper focus on the enforcement of the law. Already it is unbelievably active and is acting on behalf of New Zealanders. We are seeing people brought to account being prosecuted but more important than that the rules that have been put in place we see are having good effect when it comes to New Zealanders being able to rely upon the statements that are made by some of these other groups and institutions. 
We have tightened oversight of the working of the financial markets—the 33-year-old securities law leading to the Financial Markets Conduct Bill has been amended. I believe we have improved financial literacy. Minister Bridges is focusing on loan sharks and bringing some very important work to this House I understand and combating anti-competitive behaviour such as price fixing which will be dealt with. 
Hon Clayton Cosgrove 
: Tell us about wheel clamping. 
TODD McCLAY 
: Mr Cosgrove I know you are speaking next and I want to say some very nice things about you so you will do that to me in return. But do not make me think too hard because I might not be able to come up with as many things to say about you as no doubt you will find to say about me as a chairman. But what I did want to say is the bill is expected to become effective—and some of these previous bills—in October 2013 so it is important this House gets on with its job. 
In particular the bill does a couple of things. The Non-bank Deposit Takers Bill will ensure that the Reserve Bank’s ability to promote the maintenance of sound and efficient financial systems will be reinforced. We are going to give a lot of authority to the Reserve Bank when it comes to directors and senior officials being appointed in these non-bank deposit taker organisations and put in place sanctions where changes are made that are not in the best interests of these organisations or of the investor and also not in the best interests of adhering to the laws that we are putting in place. 
When we come to the Committee stage I want to delve into this important piece of legislation in much greater detail. Indeed I do want to say before we go on to my colleagues on the Finance and Expenditure Committee that this was an area where we were able to work closely together and although we did not agree on every issue we were able to debate it widely. I do note that we brought the bill back to the House quite quickly actually. We decided we did not need to take a lot more time because we had done quite a bit of work here together. I just want to commend Mr Cosgrove particularly for the way he is cooperating with the Government in this committee. I do not want to ruin his career but we have been able to move some things back to this committee much faster than they thought we would have been able to otherwise without his sterling cooperation and I thank him for that. 
Hon CLAYTON COSGROVE (Labour) 
: 
 For a moment I was almost in tears! My colleagues will note that very few things in life stun me into silence but for a moment there I became a tad misty-eyed I have to say. It is an emotional place the Parliament from time to time is it not? 
Getting back to this bill the Non-bank Deposit Takers Bill the Labour Party does indeed support this piece of legislation. It is part of a series of measures many of which were initiated when we were in Government in terms of preserving the integrity and credibility of the financial sector. But I have to say that when I read the bill given recent weeks and where it talked about non-bank deposit takers I thought for a moment that they were talking about John Banks. Because you could argue that John Banks of course was a non-bank deposit taker—in a number of ways! When we get to the Committee stage I just wonder whether we could ask the Minister of Finance when he is in the chair whether these provisions would apply to all sorts of banks including the Hon John Banks. 
 I am sure we could wax eloquent and in the spirit of Mr McClay’s fondness for my career prospects I will not delve into that— 
Andrew Williams 
: But did he take a deposit? 
Hon CLAYTON COSGROVE 
: Pardon? 
Andrew Williams 
: Did he take a deposit? 
Hon CLAYTON COSGROVE 
: Well the member raises a very—not Mr McClay; that would be unfair. Did John Banks take a deposit indeed? 
Dr Cam Calder 
: He is voting against the bill. 
Hon CLAYTON COSGROVE 
: He is voting against the bill is he? Oh that is interesting. But I have to say on a more serious note given that there is a lot of love in the room that this bill is about preserving the credibility and integrity of our financial system. 
But I would just make this other point in passing on a very serious note. Although these regulations are about the private sector and as Mr Parker said prior to the global financial crisis we had institutions in New Zealand that fell over and as a result of that—well you could argue that they fell over. I do not mean this in a humorous way but you could also argue that some were deliberately pushed by some of the individuals who now reside in the clink and yet it is the poor old taxpayer or the investors—thousands of them—some of whom for those reasons find their future financial security is in jeopardy. But I just say this: that is the private sector. 
There is also a scheme called the Crown Retail Deposit Guarantee Scheme. Although this is not absolutely germane to this piece of legislation I do note in passing that as the result of the scheme which was of course put in by the Labour Government—I know Dr Nick Smith will jump up and down and become possibly animated if he takes a call about this. It was put into place—and before Dr Smith makes the point on this I will do it for him. I remember the day it was put into place because I was an Associate Minister of Finance. It was the day of our party launch. I know Dr Smith is fond of saying that that was all done for political hanky-panky sorts of purposes but it was done because the Australians as I recall contacted us and said: “We are doing it. We are letting you know.” and we had to act that afternoon because we did not want the possible fiscal implication of people saying: “Our deposits are secure in Australia.” Therefore if the Government of New Zealand at the time was not going to do it there would have been a run on the banks—not John Banks—and deposits would flow out of New Zealand to Australia where in theory they would have been more secure. 
Dr David Clark 
: Faster than a helicopter to the Dotcom mansion. 
Hon CLAYTON COSGROVE 
: “Faster than a helicopter to the Dotcom mansion.” Mr Clark said. Well I could not possibly comment. But the point is that that scheme was put in place to ensure that there was not a run on deposits. 
The point I am getting to because this is an important point as we return to the bill is that that scheme was then inherited by the National Government. We heard before the Finance and Expenditure Committee that there was we think—the Auditor-General of course did a report and there was $300 million possibly even $500 million of excess losses right? Excess losses that the taxpayer had to pay for as banks ramped up because when the Auditor-General actually came in and spoke to the select committee I recall her saying that there was no written communication between Treasury and the Minister of Finance over a period of I think a month or a couple— 
Dr David Clark 
: Oh 3 months. 
Hon CLAYTON COSGROVE 
: —3 or 4 months. So that money just sort of washed out the door. You could argue that the financial sector gamed the Government because with a guarantee in place that guaranteed every deposit that was put in there and when you give a guarantee you have an absolute right to seek information and demand information to ensure you are not being gamed. So for there to be no traffic and no paperwork and no questions asked by the Minister of Finance at the time Bill English over a 3-month period it is absolutely evident in my view and the view of most of us on the committee— 
John Hayes 
: It’s not related to the bill. 
Hon CLAYTON COSGROVE 
: —on our side that we were gamed. It is interesting that Mr Hayes makes an interjection because I was about to come to “Sir Les Patterson” and it is this and I thank him for reminding me that I had to come back to him. In the Finance and Expenditure Committee we were actually very concerned—very concerned—that there was not appropriate oversight. Members will recall that the Government blocked us from getting Treasury and actually having a proper examination of this. We wanted to do that because the estimates were $300 million to $500 million of losses to the taxpayer and Mr Hayes interjected in the committee: “That’s loose change.”—loose change. 
John Hayes 
: No I didn’t. Quite wrong. 
Hon CLAYTON COSGROVE 
: Oh he denies that now. I would be very careful denying that on the record given the number of witnesses who there were. But putting that aside—putting “Sir Les Patterson’s” comment aside—that shows that it is not loose change to lose $300 million to $500 million. Returning to the bill the comparison I will make is this— 
Hon Trevor Mallard 
: Is this Dotcom’s bank? 
Hon CLAYTON COSGROVE 
: No no we were talking about non-bank deposit takers and I had already referred Mr Mallard to John Banks. I know that Mr Mallard having been a former Associate Minister of Finance will be eager to take a call on this bill given his intricate knowledge of non-bank deposit takers one of whom I think may be residing in this Chamber as we speak—from up north. But getting back to it we have a set of regulations here that are very appropriate—and we support them—to secure and maintain the security of our private sector financial markets. But the point I make in briefly alluding to the Crown Retail Deposit Guarantee Scheme is that you could argue that because of the lack of oversight from this Government it was gamed to the tune of $300 million to $500 million. It refused any retrospective oversight by the Finance and Expenditure Committee or to have this debated in the Parliament so you could ask: does the Government need to up its game in terms of ensuring that there are not unintended financial losses to the taxpayer? I would have thought the loss of $300 million to $500 million is not as John Hayes said to the committee “loose change”. It is a substantial amount of money. 
So I would argue that if it is good enough for us—and it is and it should be and the Government has done the right thing in carrying on the work of our previous Government. I am not point-scoring on that. I think both Governments have worked—and certainly Mr McClay is right about the Finance and Expenditure Committee as we work well together in New Zealand’s interests. But I think if it is good enough for us to make sure that there are strict requirements on the private sector in terms of non-bank deposit takers and ensuring that the private sector’s integrity and credibility is locked in and therefore that confidence is maintained to invest in that market and in that sector the Government has an equal responsibility to ensure its house is in order. I just say for the record that it is interesting through the passage of this bill that there has been a lot of appropriate effort put into this but the committee and Mr English and every Government member has refused any form of Government inquiry into the Crown Retail Deposit Guarantee Scheme. 
 Even when the Auditor-General came before a committee and said that there was no written communication between a finance Minister and his department the Minister of Finance did not say: “Am I being gamed? Are there any controls in place to ensure that financial institutions do not rip the taxpayer off”—if you like—“and ramp up the deposits they take because they are guaranteed by the Crown?” and the Minister of Finance failed to ask any critical questions. I think one of the excuses that was brought up by Dr Nick Smith Mr Hayes and whoever else was on the Finance and Expenditure Committee was that there was an election. Well for 3 months after the election the Minister of Finance was derelict in his duty to ask the critical questions as he provided a guarantee to depositors to ensure that the Crown was not gamed. 
So if it is good enough I think for us through this bill to ensure that there is credibility and integrity around the private sector I say for the record that it should be good enough for the Government and its Ministers to at least wake up in the morning and ask the critical questions when they provide a Crown guarantee for deposits. I know Dr Nick Smith—as I said—will get up and say it was all politics. The record is that the Aussies went ahead and did it and if we had not moved on it that very day—that very day—there was the potential that Sunday for a run on the banks. He will get up and talk about politics campaign launches and stuff but I say this that “Sir Les Patterson” should get up and tell us why he called $300 million to $500 million “loose change”. Maybe it is because some of the change is a bit loose between his ears. 
DAVID CLENDON (Green) 
: 
Tena koe Mr Speaker. Kei te mihi nui ki a koutou. I am pleased to make a few comments about the Non-bank Deposit Takers Bill as it proceeds through the House in a reasonably brisk fashion I have to say which is appropriate given that the content of it is important. It seeks to plug a reasonably large and gaping hole in our regulatory and oversight legislation. This bill sets out of course to improve the level of financial oversight and prudential regulation of the rather inelegantly named non-bank deposit takers including obviously everything from credit unions through to building societies through to the many finance companies some of which have fallen into considerable disrepute in the last few years. 
The breadth of the spectrum of organisations this bill set out to cover was one of the initial barriers one of the initial concerns and I know that this was reflected in the consideration of the Finance and Expenditure Committee. Clearly organisations like credit unions are honourable institutions. They have a very long history. To my knowledge we have never had a failure of a credit union and in fact contemporary credit unions agree amongst themselves that none of them will be allowed by their peers to fail in a way that would disadvantage their investors. I think that is a very solid and good approach. Similarly many of the building societies have a good long history. So the key was to punish the wrongdoers if you like and to put barriers in place to the sort of unregulated unconstrained incompetent and often illegal activities that we saw were rife in recent years but not to impose too much compliance cost or regulation inappropriately on some of the smaller and more honourable institutions. 
I have to say that the outcome of this bill does seem to be that that quite difficult balance has been struck and I have to compliment the members of the Finance and Expenditure Committee who seem to have navigated that difficulty very well. Ideally we want sufficient regulation and we want to minimise compliance but also to ensure the integrity of these organisations. The point has been made by a couple of speakers already that we do need to give people places to invest their money other than in more bricks and mortar. We need to rebuild confidence that people can invest their money in productive enterprise using mechanisms like perhaps the new generation of finance companies. To the extent that this House can increase that level of public confidence based on genuine integrity and reliability that clearly will be a good thing. 
We know of course that the situation that occurred in the 1990s and indeed in the early 2000s was to a large extent driven by the excessive deregulation—the madness of deregulation—that was upon us in the 1980s and through into the 1990s. We hope the lesson has been learnt—we fear it has not—that sufficient regulation is necessary to the operation of a genuinely free and fair market. Excessive deregulation counts against that. Hopefully that lesson has been learnt and this bill goes some way to putting that in practice—the lessons of that time. 
There is a great deal about integrity in this bill. In the Greens we consider that in much of our legislation around business and financial practice there are still too many legal mechanisms allowing individuals to escape responsibility for their actions. We have no sense that all business failures are the result of incompetence or indeed dishonesty. Clearly things do go wrong businesses fail and companies can fail but we do feel that too often there are too many means by which people can legally avoid individual responsibility. Over time we would like to see further amendments in the broader picture to ensure that where excessive risk is evident or where individuals have not acted responsibly or with integrity there should be much more personal liability. This is partly because we think that would engender a much more thoughtful approach to doing business. 
There is an absolute responsibility. If people choose to be reckless with their own money or their own resources good luck to them but when people are managing resources on behalf of other people then that is the point at which the appropriate level of risk has to be ascertained and that liability must be sheeted home to those who have acted irresponsibly or without due regard for the well-being of the investors. 
I have made the point already that this is quite a complex piece of legislation. There are many stakeholders in this and there are many relationships between this bill and multiple other pieces of legislation each of them in its own right quite complex. I claim no expertise or experience in commercial law but even for the reasonably informed layperson it is easy to see that a bill like this could have a lot of unintended consequences. There could be fish-hooks in it that would lead to further difficulties down the track. Again I would have to say that I think the select committee has probably done a pretty fair job of navigating through that. The idea of delaying the commencement date was I understand an acknowledgment that there could otherwise be unintended consequences or consequences that were not preferred by the committee nor indeed the affected parties. 
So all in all it does seem that a useful piece of work has been done here. It by no means gets us to the end in terms of assuring people that their investments will be secured will be responsibly managed and will be surrounded by integrity and a reasonable degree of individual responsibility and liability when things go wrong but it is a good step in the right direction. For those reasons the Greens will be happy to continue to support this bill. Kia ora. 
Hon Dr NICK SMITH (National—Nelson) 
: 
 The Non-bank Deposit Takers Bill is part of National’s sensible agenda for restoring public confidence in our financial markets. It is an essential component of the Government’s broader programme around improving regulation investing in infrastructure developing our natural resources investing in skills and opening up new markets—a whole packet of measures that can provide the brighter future for this country. It gives the Reserve Bank considerably tougher powers to be able to deal with finance companies building societies and credit unions that are long overdue. I want to make only a brief contribution given the wide consensus around the importance of this legislation but I am very happy to also engage in the broader debate about financial regulation. 
I did think it was with gall that the former Associate Minister of Finance Clayton Cosgrove had the audacity to challenge Bill English over being derelict in his duties. Let us put the record very straight. During the term of the previous Government when Clayton Cosgrove was an Association Minister of Finance ordinary New Zealanders lost over $7 billion in savings as a consequence of a lack of oversight and regulation of the financial sector. My simple challenge for Mr Cosgrove and his colleagues is to say whether they passed a single piece of legislation to deal with that massive debacle. And the answer is: not one. 
Before members opposite get on their high horses and give the sorts of speeches they give I have a simple challenge for them: please get to your feet and do the honourable thing and apologise to New Zealanders to those tens of thousands who lost their lifetime savings. I have not heard in over 3½ years that they have been in Opposition any acceptance of responsibility for the financial mess that they left which has had a disastrous impact on the lives of so many New Zealanders. 
The reality is that this Government since 2008 has gone about very responsibly addressing the deficiencies in our financial regulations with the establishment of the Financial Markets Authority and with bills of this sort. So I just simply say to the next Labour speaker: “Where is the apology?”. I ask Labour members to please say sorry because in my view they have absolutely no financial credibility or economic policy credibility until they accept the responsibility for their poor economic policy. 
My worry is this. In the last 2 weeks of parliamentary debate Labour’s answer to New Zealand’s financial woes has been to tax more and to spend more. We have a bill from a Labour member to double paid parental leave—a “nice-to-have” but when Governments are running deficits of $8 billion and when you have got developed economies around the world teetering on the edge of bankruptcy I simply say to Labour members: “Get real. Get real.” 
More spending more holidays and sideshows on issues like gay marriage are not the issues that this Government should be focused on in these difficult financial times. It is a National Government that is doing the things that are required in these challenging times. We are getting our regulatory environment right balancing the books growing our natural resources and opening up export markets. That is the agenda that is the right one for New Zealand at this time. This bill is an important part of it and we need to get on with the business of ensuring we build that brighter future for New Zealand. 
ANDREW WILLIAMS (NZ First) 
: 
 Kia ora. I take a call on behalf of New Zealand First on the Non-bank Deposit Takers Bill 2011. Is it not a shame when there was so much loving going on in this Chamber and so much fondness and goodwill coming from the chairman of the Finance and Expenditure Committee and other members of the committee that that was all tossed out in one swift stroke of the pen by the Hon Nick Smith? But that is the case. It is unfortunate— 
Hon Clayton Cosgrove 
: He’d gone troppo though. 
ANDREW WILLIAMS 
: It is but it is quite normal for the Hon Nick Smith because there is never a lot of loving coming from the Hon Nick Smith normally. I used to find when he was the Minister of Local Government that there was no loving there at all. In fact I do not think he liked local government one little bit. He hated local government so this is just a continuation of that. 
But it was interesting. He alluded to the fact that the next Labour speaker should raise this point but I am not going to wait for the next Labour speaker to raise it; I am going to raise it myself. He did overlook the fact that during the last term of this last National Government in the last 3 years Government members sat on their hands for more than 6 months during that Crown Retail Deposit Guarantee Scheme while it was in operation. The Reserve Bank and Treasury under this Minister of Finance allowed billions of dollars of deposits to continue to be put into that Crown Retail Deposit Guarantee Scheme—billions of dollars—including South Canterbury Finance which took massive amounts of deposits during that period only to subsequently fail. It failed under this Government and members of this Government sat on their hands. For a period of 6 months there was no policing of the system there was no oversight by the Minister of the system and there was no good governance by this Government to ensure that that Crown Retail Deposit Guarantee Scheme was well and truly under control. As a result the taxpayers of New Zealand can thank this Government for losing a huge amount of additional money—there was already money being lost but additional money—that may well not have been lost had the Government been on top of the case had it been on the ball and had it actually been keeping control of the books. So it is disappointing to hear the Hon Nick Smith having a huge dig at the former Labour Government over this when in fact in more recent times—in the last 12 to 18 months—there have been some serious wrongful actions on the part of the Government in not keeping a closer look at the books. 
But I go back to the Non-bank Deposit Takers Bill. This is a good bill. As we have said in this House before New Zealand First will support good policy. This is a case of some more good policy coming out of this particular Government and we will as a result support it. We have always said we will support good policy. And why would we not when this bill legislates a bolstering of the Reserve Bank’s powers? We are in favour of that because what it allows for is for the Reserve Bank to vet the suitability of directors and senior advisers appointed or elected to any of these non-bank deposit taker organisations. Well that is a good thing. It is a good thing for the Reserve Bank to be able to vet the suitability of those directors and senior advisers. It also empowers the Reserve Bank to delicense a non-bank deposit taker in prescribed situations. Again that is a good thing. We like the idea that it can delicense them if they are not up to scratch. 
This bill also requires the consent of the Reserve Bank in order for ownership changes to be given approval where a person acquires 20 percent or more of that non-bank deposit taker’s voting securities. Again that is a good move because if you start acquiring more than 20 percent that starts becoming a significant stake in such an organisation and it should therefore have the consent of the Reserve Bank in such a situation. The bill also allows the Reserve Bank to gain more information from those very same non-bank deposit takers. Again as we have seen in the instance of South Canterbury Finance and some others had the Reserve Bank been in the position to gain more information at a much earlier stage and had it not sat around for 6 months doing nothing perhaps many of the investors in some of these organisations around New Zealand would not be in the sad situation they are in today having lost most if not all of their money in some of these organisations. 
Lastly this bill allows the Reserve Bank to remove directors in special circumstances. Well that is very good and we like the idea that directors can be removed. We like the idea that perhaps directors who have been found to be acting either incompetently or in a misleading or fraudulent manner can be removed. So that is a good thing. It is sad that so many people have had to put up with such huge losses around New Zealand while those very same organisations that have incurred those losses have had directors building mansions on Paritai Drive buying luxury launches on Auckland harbour buying overseas holiday homes in the likes of Hawaii and buying all sorts of other luxury items. These sorts of people need to be taken to task. The Reserve Bank does need to have the ability to remove such directors in special circumstances where clearly they are out of order. In the past 5 years or so there have been a lot of instances in this case. 
This bill brings New Zealand better into line in relation to our partners such as Australia and other major investment countries that we deal with and in terms of our banking system with the Australasian banks and the major banking organisations in this country. This is the non-banking sector. This is what you would call the others. But it is important to note that this legislation tidies up a lot of our financial services area and brings in a lot of controls that were not there previously. 
It is important to point out that building societies and credit unions are also exempt from this piece of proposed legislation so although people out there might perhaps think that this is taking away a huge amount of the risk we do have to bear in mind that there is still a level of risk for any investor and they still must be very very vigilant in terms of what they do and how they deposit their money in various schemes. We do still expect a great deal of caution on the part of any New Zealander and investor in any such banking scheme or any deposit scheme as we all would do with our own money. 
I would just like to close by saying that New Zealand First supports any initiatives in this area to tidy up the financial markets in this country. There have been a number of bills in this House in the last month or so in other areas of international banking law in other areas of international contract law and in areas to do with the Commerce Commission and tidying up some of these areas. Many of these are long overdue. It is sad that some of these bills have taken 2 3 or 4 years to get to this House. It is I think incumbent on the members in this House from all parties to do our very best to try to tidy up many of these grey areas and many of these loopholes to provide a much higher level of security for the people in this country who are putting money into what is often their major savings scheme or their way of saving for retirement. Therefore anything we can do in this regard is supported by New Zealand First and we support this bill. 
JOHN HAYES (National—Wairarapa) 
: 
 It is quite interesting to reflect that on the right-hand side of the House as I stand here there has not been a speaker this afternoon on this bill the Non-bank Deposit Takers Bill who is not a list member of Parliament. I sat there listening to what they were saying. What I perceived was a disconnect from the community that electorate MPs represent and a detachment from the community in New Zealand that those other members purport to represent. I would simply say to the last speaker Andrew Williams that I am deeply disappointed that Winston Peters was not available to take a slot this afternoon because he made a really tremendous contribution to the development of this legislation and I do not recall the last speaker being on the Finance and Expenditure Committee that was discussing this subject at all. 
Particularly I felt that the last speaker misunderstood the intent and the value of the legislation when he said that its most desirable quality was the bank being able to dismiss directors. The point of this legislation is that it enables the bank to vet directors before they arrive. That is a much more important point because we are trying to stop people getting into the House before we run into trouble. Nothing as an MP in the last 7 years has caused me greater anguish than listening to people in my community who have come into my office and said “I’ve lost my life savings because I took advice from people like Money Managers - Masterton.” and their whole retirement savings have been lost. That is something that I felt very deeply about and I am very pleased that our Government has been able to bring this legislation to Parliament and process it through the Finance and Expenditure Committee in relatively very fast time. 
I think that Mr Parker was also critical of the pace at which the economy is moving but I draw his attention to a document that I noticed this afternoon in Copperfields. It comes from the Parliamentary Library. It is a research paper and it sets out trends in the economy. It points out that economic growth is averaging 1.7 percent in 2010-11 and 2011-12 and goes on to say: “The rate of economic growth in the March 2012 quarter exceeded expectations with the economy expanding by 1.1 percent over the quarter. The main contributors to growth came from manufacturing business services and agricultural industries.” Those are all things that employ people in this economy. If you look at unemployment it is consistent at around 6.6 to 6.7 percent. If you look at inflation it has dropped from 4.5 percent to 1.6 percent. If you look at interest rates they have dropped from 2.65 percent in 2010-11 to 2.61 percent in 2011-12. 
Hon Clayton Cosgrove 
: How many people are leaving New Zealand? How many people are going to Oz? 
JOHN HAYES 
: When we come to the list member for Christchurch or wherever it is—he used to be an electorate member of Parliament but his electorate tipped him out. Mr Cosgrove I think his name is. Why did they tip him out? Because as Associate Minister of Finance he was responsible for losing $7 billion of taxpayers’ money. That is why they got rid of him. 
This bill is another step in the Government’s programme to restore investor confidence in capital markets. That is what this bill is about. In the context of the global financial crisis and the collapse of finance companies this bill at least enables the Reserve Bank to have much stronger powers to deal with the non-bank deposit taking sector—that is anybody who is not a bank. The Non-bank Deposit Takers Bill completes several years of work to tighten up the regulations of the sector. From 2006 deposits of about $8.6 billion were put at risk by finance industry failures. Some of the directors are actually in my electorate and I know them personally. I know they tried to do a good job but they did not and so a key focus of the Government over the past 3½ years has been supporting measures to ensure the right protections are in place to maintain and build investor confidence. 
So what have we done? We have established a one-stop shop Financial Markets Authority with a sharper focus on enforcing the law. We have tightened up oversight of those working in the financial markets sector by putting in a new regime for financial advisers requiring licensing of trustees and auditors and strengthening disclosure requirements. We have rewritten the 33-year-old securities law leading to the Financial Markets Conduct Bill. We are working on improving financial literacy. We are cracking down on loan sharks and we are combating anti-competitive behaviour such as price fixing. 
The bill requires non-bank deposit takers to be licensed by the Reserve Bank when deciding whether to grant a licence and the bank is required to satisfy itself that an applicant can comply with the sorts of prudential requirements that you would require of a trading bank. All directors must be suitably vetted in advance by the Reserve Bank and I think that by doing that we will eliminate a whole lot of people from the governance structures of financial markets who are beyond their competence to be involved with. I think the bill also will allow the Reserve Bank to delicense non-bank deposit takers in prescribed situations. 
I think this is a particularly good piece of legislation. It is really important for people in my electorate my constituents who want to invest their money safely without risk of losing it. And with that view I support this bill unreservedly. Thank you. 
Hon TREVOR MALLARD (Labour—Hutt South) 
: 
 I want to thank the previous speaker John Hayes and say that generally like members on this side of the House—list members and constituency members—we are supportive of this bill the Non-bank Deposit Takers Bill. I was pleased to see that he did not repeat in his speech the comments that he made about the $700 million or $1 billion of taxpayers’ funds that was lost as being small change as he did by way of interjection. I am not one of the people who think that that unnecessary loss is a matter of small change. 
I do want to refer to the speech made by the Hon Dr Nick Smith— 
Hon Clayton Cosgrove 
: Who? 
Hon TREVOR MALLARD 
: Nick Smith. I wonder why he did not quote that financial expert whom he appointed as chair of the ACC board John Judge. We disagree with many of the things that John Judge did but he is a person of impeccable integrity. He achieved the financial turn-round for ACC and someone of his financial expertise was necessary if the Government was to do what it was going to do and of course we disagree with it. But he has integrity and he did a very good job. I want to quote from Mr Judge’s comments on this ministry. He has called this ministry “pathetic” today. He has said that one of the Ministers needs to become acquainted with the truth. He has said that one of the Ministers just tries to go and blacken good people’s names. 
Hon Clayton Cosgrove 
: Who is that? 
The ASSISTANT SPEAKER (Lindsay Tisch) 
: Order! 
Hon TREVOR MALLARD 
: This is John Judge. 
The ASSISTANT SPEAKER (Lindsay Tisch) 
: Order! The member must come back to the purpose in the content of a second reading speech. 
Hon TREVOR MALLARD 
: The point I am getting to is that the purpose of this bill is to provide integrity within the financial markets. John Judge is someone who is I think universally accepted as having integrity and he is commenting that this ministry does not. You just then wonder what right what moral authority the Government has to bring in this sort of legislation and to promote it when the very Ministers who are in charge of it are being questioned as to their own integrity. I just say that when it comes to a question of Judith Collins or John Judge on a question of truthfulness I will go with John Judge. He is the person whom I believe in that circumstance. I am very surprised that Nick Smith who was the Minister who appointed Mr Judge to ACC has not suggested that he be used further given his integrity and given his expertise in this financial markets area where his expertise is absolutely clear. 
I would now like to go to the list of contents of the bill and look at some of the headings. It is called the Non-bank Deposit Takers Bill. It is a bill that I have not been involved in a lot and I will be happy if the National Party speaker who follows me wants to elucidate on some of the questions. I am just looking around. Is there a Minister of Finance who is able to answer the questions? No but I will put the questions down and I am sure that the Minister when the Minister becomes available will answer them. 
Where there is a non-bank deposit taker does that include people who get brown paper bags or plain envelopes from Dotcom or Skycity? Are they a non-bank deposit taker if there are large cheques that are either anonymous or not anonymous you know? They apparently had the name on them. They were not bank cheques. I wonder whether a non-bank deposit taker could take anonymous deposits or not and if there was a name on a cheque whether for this purpose that would be anonymous or not. And if it was put into a non-bank account—a “John Banks account” might be a good description or a “John Banks account”—would there be a requirement to record the source of the deposit or not? It is a relatively simple question about the purpose there. In fact there are probably some interpretation issues around that as well. 
Clause 4 is the interpretation clause and the question I want to ask members opposite is whether within the clause there is anything that will clarify whether John Banks is included as a non-bank deposit taker at the point he receives the plain envelopes—or even the addressed envelopes—with the large tens of thousands of dollars’ worth of cheques. If in that case he is a non-bank deposit taker is he also a non-bank deposit taker when he receives brown paper bags stuffed with cash? If he receives a brown paper bag stuffed with cash is he a non-bank deposit taker? 
I want to refer the Chair and the members opposite to clause 6 “Related party defined” which is within Part 1 “Preliminary provisions”. I want to ask in this particular circumstance whether if the ACT Party gets a brown paper bag full of money and it discusses it at a tea party with the National Party in front of a whole pile of cameras that makes the National Party a related party to the ACT Party for the purposes of this legislation. I do not know. I mean the National Party is clearly a related party now. I think it is fair to say that the National Party—I do not think I can use the expression—is having something done to it by the ACT Party at the moment that is normally seen to be done within a marriage. It is basically being rooted is it not? I mean it is being stuffed. The National Party— 
The ASSISTANT SPEAKER (Lindsay Tisch) 
: Order! I think that word is completely unparliamentary and I ask the member to withdraw it. 
Hon TREVOR MALLARD 
: I withdraw. My question is whether John Banks should have at some stage. So there is a related party question. The next question is whether clause 9 applies in this. Clause 9 in this particular bill states: “This Act binds the Crown.” Well again it is clearly a case—well there is a bit of S and M involved in this particular case. I think it could well be that John Banks is putting the National Party in handcuffs for part of this relationship. Certainly there appears to be a binding of the Crown on the part of John Banks in this legislation. Money is being transacted a non-bank deposit has been made and the Crown is being bound by ACT. That is exactly what it says in here; that is exactly the heading of the clause: “Act binds the Crown”. 
If I was John Key I would not want to be bound up by John Banks. If I was John Key I would not submit to the handcuffing on the part of John Banks. The way that he is at the moment I think I would be cutting the links—I would be cutting the links. I would be undoing the chains that are binding the National Party the Government the Crown to ACT. I think the classic is clause 11. That is the clause that is headed “No holding out”—no holding out. It is clear that John Key has not been holding out on John Banks. 
DAVID BENNETT (National—Hamilton East) 
: 
 Thank you Mr Speaker— 
Hon Clayton Cosgrove 
: How do you compete with this? 
DAVID BENNETT 
: How do you compete after that last speech? It was really “Thursday afternoon - itis” for Mr Trevor Mallard who really needs to take a break I think and come back at a different stage. Everybody in the House left with the lack of decorum in that last speech from that member. 
But Mr Mallard did ask one question and I want to give him one answer to that one. The answer to that is that a non-bank deposit taker does include those people who take deposits outside their electorate office when they are selling items on the street. So just for his clarity: you would be covered by this bill Mr Mallard. Just for your own purposes this is something that is important for you as a member. 
It is important that we look at the nature of why this bill is here. Many New Zealanders over the last few years have really felt the impact of the world recession and the financial crisis through the loss of money through finance companies and the like. That second-tier debt you could say—where people take more risk on the debt and they expect a higher return—has found itself out to be a very delicate and bad investment for many people. Anybody in their electorate office would have seen many sad stories where people especially later in life had invested their whole life-savings and lost it; sometimes they have even borrowed to put into finance companies and the like. 
We cannot protect people from making some mistakes. The nature of Government and the world especially in finance is that you make some choices you take some risks and every reward has a risk—the higher the risk the higher the reward. Many people forgot that and the financial crisis was a wake-up call that brought back to home that there is nothing out there for free and if you think you are going to get a higher return by just investing passively well you have to take that risk with it. 
So we have had to make some big changes. These changes will not solve all the situations. Do not expect the Government to solve all the situations. I think that is the message for everybody in the second-tier debt market. We are not there as a Government to protect in all circumstances and nor can this Parliament because whatever rules we make there will be an incentive in the market to provide other instruments that get around these rules. That is just the nature of it and that will always happen. But what we can do is close up those gaps when we see them. It is very sad when the New Zealand First Party comes in here and abuses this Parliament around this issue. 
 The Labour Party when it was in Government previously started the process of trying to deal with this situation. The National Government took that over and tried to deal with that process as well. It is all right to come in here and say you are lily-white and had nothing to do with it but that is not how it works. We cannot tell the future—nobody ever can—and it is a matter of dealing with those situations as they arise. 
This is a good bill in that it promotes new reforms in this area to give some confidence and some comfort to investors. It will not change everything. It will not solve all the problems. The big lesson for all New Zealanders is that you take a risk on some investments and that the Government and this Parliament cannot deny that risk or take that away. But what we can do is work towards being as constructive as possible in reducing that risk so that we give investors the most protection that is possible. This bill does that. It goes some way to achieving that. That is good for our people. It is something that we need to mix and match with good education and an awareness of the dangers of investment as well. Thank you. 
Dr DAVID CLARK (Labour—Dunedin North) 
: 
 I want to begin with some words of wisdom that were offered to us in the Finance and Expenditure Committee when we heard submissions on the Non-bank Deposit Takers Bill. We have heard some great submissions in the debate this afternoon. There have been some light-hearted contributions and we have had some fun with it but there is a point that needs to be made and this point was made in relation to this tax legislation by a senior partner at one of the large law firms in town. He said that basically this bill moves legislation from one area to another and it is a total waste of Parliament’s time. That is a direct quote—or he said words very similar to that which I wrote down immediately. 
He was concerned that we are concerning ourselves with matters that are not of significant importance that most of these matters have already been addressed and that in fact what we are really doing is shuffling paper in this Parliament. I think that this speaks to a wider point which is around the Government’s priorities and its agenda in the area of financial management tax change and so on. We have a Government that is not pushing the big ideas. Instead it is focused on changing legislation from one Act to another because it needs to be seen to be doing something. In its current form the bill is largely window dressing. 
Another point made by the same submitter was that this legislation which has capital adequacy criteria will tend because of that to be more stringent in practice than the advertised minimum capital of 8 percent and that that will push some unusual behaviours. It may well cause a perverse incentive to loan heavily in the mortgage market and to drag capital away from productive areas of the economy. If that is indeed true and if that perverse incentive plays out what we have here is something that goes in the opposite direction to pro-growth policies. Indeed that would be consistent with what the Government has done so far. This is a Government with the worst—worst—economic growth record in 50 years. In part that is because where there is real change to be made it is shying away. Instead in this bill we are dealing with matters that are largely already dealt with. 
The previous speaker David Bennett mentioned the need to strike a balance in terms of making things clear for investors about risk and also in terms of making sure that there is appropriate regulation in place. I want to agree with that member. That member sometimes has some wise ideas and this is one of them. I think that that balance does need to be struck but we do need to be wary of creating perverse incentives though and stepping too far away. 
The New Zealand Association of Credit Unions in its submission said that it felt that it was ironic that the regulation that is being introduced is going to be borne by the firms that did not collapse. The association was concerned that in its case this regulation is a bit tight. The credit unions all have skin in the game in the cooperative business model and the association felt that perhaps this legislation goes a bit far in terms of regulation rather than in terms of signalling to businesses what the risks are so that they can make the decisions for themselves about where to invest their moneys. I think it is worth taking that into account as we progress this bill. 
The Labour Party will support this bill because although it is ultimately window dressing there are one or two things that it tidies up that can and should be tidied up. So we are not going to oppose that certainly. We are concerned that there be integrity within financial markets which is ultimately the purpose of this bill. That goes to the confidence in the Government as a regulator. We know that that is something that is highly desirable—indeed necessary—for the future of our country. 
Mr Cosgrove earlier in the debate made a germane point about confidence in the Government as a regulator and about the finance sector and the Government’s handling of the Crown Retail Deposit Guarantee Scheme. That discussion is very germane to this bill because here we have people taking deposits in a scheme that did stop a roll on banks and that did stop flight of finance to Australia but it is clear from the report that we got from the Auditor-General which we asked the Minister of Finance about that a full investigation has not yet been conducted into the avoidable losses of that scheme which are really the responsibility of this Government. The avoidable losses of that scheme have been estimated at somewhere between $100 million and $500 million. That is the biggest loss of Crown funds—the biggest preventable loss of Crown funds—in the history of New Zealand. It seems to me— 
Hon Clayton Cosgrove 
: Didn’t we invite Bill English to come in and talk about it? 
Dr DAVID CLARK 
: We did invite Bill English to come and talk about it. 
Hon Clayton Cosgrove 
: What happened? 
Dr DAVID CLARK 
: He has so far resisted any suggestion that he should look into this and answer for the fact that we have potentially the biggest loss of taxpayer funds in New Zealand history—far bigger than INCIS or any other scandal—with additional losses as a result of mishandling this scheme. There were no reports for 3 or 4 months on the additional losses that were incurred. We know for example that there was an increase in South Canterbury Finance’s balance sheet in terms of the risk that it was carrying of 25 percent during the period that there was no effective Crown monitoring of the scheme. We know that there was a 10 times increase in another finance company’s loan book—all risky loans. This was all as a consequence we would argue of the mismanagement of the scheme—the failure of Treasury to intervene after it had written effectively an open cheque on behalf of the taxpayer to preserve taxpayer interests but did not monitor effectively beyond that. This is something that we feel needs to be investigated fully. This gets to the integrity of New Zealand’s position within financial markets and confidence in the Government as a regulator which is what this bill is designed to ensure and we would argue that that is a more poignant and pressing concern than the matters raised in this bill. 
Talking further about this bill we can look at some of the other things it does. One of the things it does is it develops and completes work that the Labour Government started. Although it is tinkering it is tinkering in a way that is consistent with addressing the concerns that were raised in the finance sector when we were faced with finance company collapses and the world financial crisis. New Zealand faced those challenges and the Labour Government introduced for example the Crown Retail Deposit Guarantee Scheme to ensure that Kiwis could invest with confidence. It is not the scheme itself that we find fault with; it is the handling management and monitoring which the Auditor-General has pointed to and where the Auditor-General has found clear fault. It is that handling of the scheme that has not been addressed or investigated thoroughly. And so it is very hard for New Zealanders to have confidence in the Government as a regulator if it does not address those bigger issues and seems to be focused on addressing smaller issues around the finance sector. 
 It was 3 years as well until the Government got around to the second part of this reform package which was started by the Labour Government. Since the first reading of this bill another year has passed. We have got to ask why if this legislation is so important it has taken so long to get through the House. This is a Government that seems to be out of ideas. It is not facing up to the reality that we as a country need pro-growth tax policies we need research and development policies we need proper savings policies and we need monetary policy reform to ensure that exporters are supported so we can start earning more than we are spending as a country and so we can address the real problems with our economy rather than tinkering around the edges as this bill attempts to do. 
In closing although Labour will support this bill we take seriously the words of wisdom from submitters and the legal companies that told us this is really a waste of Parliament’s time. We as the Labour Party if we were in Government would be doing more serious things to ensure confidence in the finance sector which is so important to our future as a country. 
MAGGIE BARRY (National—North Shore) 
: 
 I rise to take a short call on the second reading of the Non-bank Deposit Takers Bill. Like many of my colleagues such as David Bennett we have heard a lot of things a lot of difficult and sad stories about people who require assistance and who need a restoring of confidence and this is what this bill has achieved. It is against a background that has been outlined by other speakers today. There was a need when Australia moved for New Zealand to move quickly and there is now a raft of measures that this Government has brought in to restore confidence in the capital markets. After the global financial crisis after the collapse of so many finance companies there were many people who felt that they would never invest again. As my colleague David Bennett said there were some very sad stories indeed: older people on fixed incomes who borrowed to buy were in difficulties. And this bill which has rare accord across the House does complete several years of work to tighten it up. 
John Hayes has already gone through some of the regulations that are going to be changed; we have introduced some very good protections in this to maintain and build confidence. I will not go through them all but the Financial Markets Authority was long overdue. It was needed to have a one-stop shop and that does the job. There is a new regime for financial advisers again and we have rewritten a lot of the old laws—the 33-year-old securities law—and we have cracked down on loan sharks. These are all things that needed to be done. 
Sitting as I was on the Finance and Expenditure Committee on the Non-bank Deposit Takers Bill we had nine submissions. We had Chapman Tripp we had the Financial Services Federation and we had the Trustee Corporations Association of New Zealand which all came to us and were very happy about the outline. They had some suggestions and in amongst some robust debate some changes were made—some drafting changes—that have made it a better piece of legislation. 
I would have to commend the chairman. I think Todd McClay has done an excellent of job of expertly corralling some of the troops. Is he still in the Chamber? He is here now. I can lavish more praise upon him. He has done a great job. 
Todd McClay 
: I had to run. 
MAGGIE BARRY 
: He had to run—he had to run to come back. See that is the kind of dedication you like to see in a chair. You know when you are faced with irascible individuals who will argue with their own shadows who will pick holes in anything at all—I am not talking about their hairdos. Members in our own team of course are above and beyond reproach. But I have to say it has been a rare opportunity to actually agree with some members on the Opposition benches. Every now and again as a novelty in this House people do join forces and try to work for the greater good. I believe that that has happened with this bill and I think it is an excellent piece of legislation. So for its second reading there is not a lot more to be said. It has been covered in great detail. There have been some frivolous and unusual moments as often occurs in this Chamber but I commend this bill to the House. Thank you. 
Bill read a second time.