Smith StuartFRIENDLY SOCIETIES AND CREDIT UNIONS (REGULATORY IMPROVEMENTS) AMENDMENT BILLFirst ReadingSTUART SMITH (National—Kaikōura): I move That the Friendly Societies and Credit Unions (Regulatory Improvements) Amendment Bill be now read a first time. I nominate the Finance and Expenditure Committee to consider the bill. This bill is about the credit union sector which covers 13 credit unions and their 190000 members. Credit unions play a vital part in the country's financial system. Credit unions have become highly progressive in their development of innovative payment methods. This is despite operating within the confines of legislation that has not kept pace with developments in the financial services and payments industry within which they operate. This is an opportunity for a much-needed update to the legislation.Credit unions touch as many as one in 20 Kiwis and for over 50 years have provided a full range of banking services to diverse and far-flung community groups and industrial organisations. As such they play a significant part in the financial services market. Credit unions have access to the latest core banking services including New Zealand's largest ATM network which has 900 ATMs across the country. Payment services include ATM switching management and MasterCard services anti - money-laundering services and insurance and payment infrastructure services.The bill makes certain changes to the Friendly Societies and Credit Unions Act of 1982 which was enacted around the same time ATMs were first introduced to New Zealand well before the days of internet and mobile banking. The bill aims to remove unnecessary operating and compliance costs promote greater efficiency innovation and accountability bring credit unions into alignment with other financial service providers and maintain the element of mutuality and the requirement of a common bond between members. The bill also includes measures to reduce the minimum number of credit union members needed for an association. The bill provides for credit unions to be bodies corporate with what is commonly referred to as the powers of a natural person. However it is important to note that credit unions will be bodies corporate under the Friendly Societies and Credit Unions Act; they will not become companies under the Companies Act of 1993. As a result all of the following remain unchanged under the bill: the statutory objects of a credit union under the Friendly Societies and Credit Unions Act the requirement of a common bond for membership the one member one vote" provisions and the prohibition on transfer of members' shares to people who are not members.The incorporation of credit unions as mutuals with full capacity and powers in this bill is consistent with approaches worldwide. Australia Canada and the UK are already among those that have invested in this approach. It is also in line with the World Council of Credit Unions' model law. As a matter of fact the World Council of Credit Unions advised that it is not aware of any jurisdiction other than in New Zealand where a credit union is not considered a form of artificial legal entity. Article 3.10 of the model law states that licensing a credit union should render it "a body corporate with perpetual succession". Article 3.10 goes on to state that credit unions should have a range of powers including the power to "Exercise the powers rights and privileges of a natural person as necessary." None the less treating credit unions as bodies corporate is also consistent with other mutuals in New Zealand such as building societies and cooperative companies.So you can see why demutualisation of credit unions—that is removing the mutuality requirements of credit unions—and allowing for outside shareholders cannot happen under the bill. Importantly however credit unions and their boards will still have to exercise those powers with reference to their objects which remain unchanged under the bill. These include paying money into a fund to make loans to their members the use and control of savings for their mutual benefit and the training and education of members in the wise use of money and in the management of their financial affairs. Credit unions and their boards will remain subject to the controls on them such as legal and regulatory requirements under the Reserve Bank financial markets financial reporting and taxation legislation.The bill provides for a statutory transition process for credit unions from being unincorporated associations to bodies corporate in order to minimise compliance and transactional issues and costs. There will be two phases with the first being a period of up to 18 months for the substantive provisions to come into force. Consequential changes will be required to the rules trust deeds and product disclosure documents. The second phase will be a further period of 6 months for the application of credit unions for incorporation. However credit unions as bodies corporate will no longer need internal trustees to hold and deal with property or incur liabilities. All of these changes are intended to be neutral from a substantive regulatory tax and financial reporting perspective.In regard to lending the bill enables credit unions to directly lend to small and medium sized enterprises (SME) that are related to that credit union's members. These provisions are empowering rather than mandatory. This means that credit unions are not required to lend to SMEs.The other important provisions relate to associations of credit unions under the Friendly Societies and Credit Unions Act. There is currently one association the New Zealand Association of Credit Unions trading as Co-op Money NZ. Co-op Money NZ is a cooperative owned by 11 of the 13 active credit unions in New Zealand. It provides its member credit unions with a number of banking payment and related services such as ATM services EFTPOS and debit card services internet and mobile banking and anti - money-laundering services. This bill is intended to remove any uncertainty in the current Act and confirm that associations of credit unions have the flexibility to provide services to other parties where doing so is for the benefit of their credit union's members.So should this bill pass there will be a statutory transition process for credit unions from being unincorporated associations to bodies corporate in order to minimise compliance and transitional issues and costs. The operational date for the new entity in practical terms is generally the start of the financial year after the certificate of incorporation is issued. The detailed provisions of the bill are currently being studied by credit unions Co-op Money NZ and other interested parties including the regulators.The provisions of the bill have been subject to extensive work. This work includes work by the Ministry of Business Innovation and Employment at the time of the earlier exposure draft and I am informed that provisions have widespread support in the credit union sector. I am also aware that some credit unions do not support the provisions. I look forward to those matters together with any other issues arising in the bill being considered by the select committee.This is an important bill for the credit union sector and for the customer-owned banking sector—[Interruption]The ASSISTANT SPEAKER (Hon Trevor Mallard): Sorry I apologise for interrupting the member. I have now had I think three times from Aupito William Sio interjections attempting to direct me on matters that are solely my preserve. I do suggest that the member has a look at the relevant Speakers' rulings which do allow for more reading when a member has less experience or has a technical matter and I think both of these would apply in this case.STUART SMITH: The latter certainly. Thank you Mr Assistant Speaker. This is an important bill for the credit union sector and for the customer-owned banking sector of New Zealand but most importantly it will help ordinary New Zealanders who borrow from credit unions especially those starting out. I feel privileged to have the opportunity to modernise legislation that will bring immediate benefits to New Zealand. As such I am very pleased to move this bill through the first reading. Thank you."