Shaw JamesHon JAMES SHAW (Associate Minister of Finance): Thank you Mr Assistant Speaker. I rise to speak on the first reading of the Financial Markets (Derivatives Margin and Benchmarking) Reform Amendment Bill on behalf of the Green Party and in support of the bill. I just wanted to pick up on where the Hon Judith Collins left off which is that this is obviously a highly technical but actually fairly significant bill and it is in the public interest. It is good to see that the Opposition is supporting it and I hope that they also support another important piece of legislation coming up soon also in the greater good—Chris Bishop: What's that one?Hon JAMES SHAW: The zero carbon bill. So returning to the Financial Markets (Derivatives Margin and Benchmarking) Reform Amendment Bill—the purpose of the bill is straightforward. Now what's proposed in the amendments in this bill are a number of changes to pieces of legislation that will basically keep New Zealand's financial institutions connected to the global economy. Andrew Bayly: You must be reading this.Hon JAMES SHAW: I am. The changes will allow our financial entities to access capital as other speakers have said most recently the Hon Judith Collins but also alluded to by the honourable Minister Faafoi in his introductory remarks. Now I think this is a really important point which is that if we don't make the changes to this bill—if we don't make those changes—it will actually cost all New Zealanders in the form of higher cost of borrowing. So while as Judith Collins noted it's not going to get a great deal of press attention the title of the bill obscures its intent and it's a pretty niche bill it does actually have a material impact on the lives of all New Zealanders if we don't pass it. So what we're now considering under this financial markets reform amendment bill are changes that will help keep us in line with international regulation reform. We're not the only country that's introducing these reforms; there are a number of countries that are lining up around this. These are changes I want to point out that have been prompted in part by the very painful lessons that were learnt in the global financial crisis (GFC) and that's some of the context that we're debating. Last year of course was the 10th anniversary of the Lehman Brothers bankruptcy and I have to say that met with a lot of reflection about how the financial world has changed in the 10 years since. What that reflection showed I think was that whilst there has been a lot of progress that's been made over the last decade in securing and making more stable and more resilient financial markets it also showed that debt levels now are actually higher than they were when the GFC hit us 11 years ago now.Now I have to point out obviously the New Zealand context there is a little different. We're carrying less debt than many other OECD countries but we're still highly exposed to the global situation. So I think that while things have changed there are some things that have outstanded and some of the lessons that ought to have been learnt may not have been learnt. So I think it is important that we keep going with these kinds of reforms. While we are in relatively strong shape by international standards it is important that we maintain and build on this regulatory regime. So the amendments in this bill really are towards that end and without them again as my honourable friend Kris Faafoi has pointed out and the most recent speaker the Hon Judith Collins we won't be able to comply with relevant commitments and the kind of new international rules that are aimed at keeping more resilience and protection against manipulation in the global financial system. As anyone knows that is a system and the players in that system are very fast-moving; they're very sophisticated. Every time a wave of regulation comes through they're usually able to get ahead of that and work out how to create new instruments and new ways of getting around it and create yet more levels of risk and uncertainty into the system and so it is quite a job for us to keep up with that in the national and international regulatory system. So what that means is that once a regulatory regime has been put in place it can't stand still. You kind of have to keep monitoring and learning and evaluating and seeing what trends are out there. Again that is I think where the amendments in this particular bill come from.The amendments in this bill will ensure that New Zealand banks and other financial entities in New Zealand can continue to access offshore funds with the kind of safeguards that they need. I notice that without the amendments in this bill certain aspects of New Zealand law as they currently stand would restrict New Zealand's financial entities from complying with rules around foreign margin where those rules would give our financial institutions protection when parties default or become insolvent. So that does carry with it some risk. I want to acknowledge the consultation that the Ministry of Business Innovation and Employment (MBIE) did the Reserve Bank did and the Financial Markets Authority did as this bill was being put together over the course of the last year. I do want to acknowledge that they were operating under time pressure to complete their consultation and analysis and subsequent advice. I note that MBIE felt satisfied that the time pressure didn't unduly compromise the process but I do know that when you're dealing with something this complicated it can be hard for people to participate in that. But I think that where we've landed is pretty good.So I want to highlight some of the concerns from some of the consultation documents that it picked up around the over-the-counter derivatives aspect of the bill—derivatives of course being financial contracts that banks and other institutions enter into in order to protect against exchange rate risks. In relation to those where exchange of collateral—the margin—is involved submitters to the consultation were worried that under existing law there would be some impediments that this bill needs to address. So those impediments related to the fact that under existing law there are no margin requirements in over-the-counter derivatives but there are several banks that are registered in New Zealand which would likely have to comply with margin rules that are being implemented overseas.The consultation process also pointed out that some features of New Zealand laws which cover statutory management and creditor priorities could prevent or impede the prompt and free availability of margin provided in New Zealand banks. The possible result of that is that there could be difficulties for New Zealand banks across derivative products in markets used for funding and hedging. Minister Faafoi in his speech pointed out the example of the kind of implications for the big four banks in this country if we were not to bring the amendments proposed in this bill. Those implications estimate $1.1 trillion of gross exposure just for those four big banks to parties in the European Union if we don't align with the over-the-counter derivatives reforms being established by the G20.So it is one of those kind of quiet bills but I think it's lit and I think it's great that everyone's supporting it and I commend this bill to the House.