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This bill has been around for a wee while coming through the process. You know, it's really not the sexiest bill this House is ever going to see. But Dr Russell and I will be very excited about it all, won't we? We'll talk about the grammar in it.

One of the things I think is interesting is that this bill has been around since 2015-16, after policy statements and work done by the Reserve Bank and the previous Government, of which I was part. Why is it that we're even doing it when everything seems to work quite well, one could well ask oneself? I guess the answer is probably because everything works pretty well and we haven't had any major issues but we really don't want to have any major issues in the future. So it's really about creating, as I see it, a bit of a safety net in relation to these payment systems.

Re-reading certainly this bill's digest, I was thinking a little bit about the anti - money laundering and countering financing of terrorism legislation, for which I have to say I confess to having been the poor Minister who had to bring that through the House. That, again, was all about international markets and international payments and how we could do things and how we were going to stop New Zealand being used for money laundering. But, actually, I'm not sure that it's made quite the big difference that people thought it was going to make. Why did we sign up to it? Because internationally we had to because, if we didn't, we were under some threat that, particularly, the European Union was going to take some measures against our banks and payment systems. So these are the sorts of things that we tend to sign ourselves up to.

In this particular case, it's worthwhile to note that even though we are a small country—smaller in population than Melbourne, although greater in size than the United Kingdom—around NZ$35 billion flows through our financing, retail, and wholesale payment system each day, and I have to confess to having been responsible for quite a lot of that payment system and money flowing through, because I like to shop and help the local economy. And then we have—it's just good to remember that on an annual basis that is around NZ$8 trillion flowing through the system. And yet, amazingly, it all seems to work quite well. So perhaps it's because of the light-handed touch that we already have had.

So we will be supporting this bill, certainly at first reading. We're not indicating anything else, but I think there's not a lot of politics in this, so hopefully the select committee will be able to look at this bill and consider all of the measures in it as a team, working cross-party, to see whether or not all of it is necessary, whether it will, in fact, achieve the purposes, which are to promote the maintenance of a sound and efficient financial system, which, strangely, has worked quite well to date, and to avoid any significant damage to that system at some stage in the future. So, on the basis that we shouldn't have regulation unless it's going to actually add value to the people of New Zealand, we will support this bill. We will be looking at it and, I think, working very constructively in the select committee to make sure that we produce a bill that comes back to the House that is even better than the one that we currently have.

FLETCHER TABUTEAU (NZ First): Thanks, Madam Speaker. It's a pleasure to speak, on behalf of New Zealand First, to this bill, and just to address some of the concerns that were, I think, fairly addressed from the Opposition speakers. Firstly, in response to the Hon Judith Collins, yeah, a very constructive contribution, and I do love the terminology of working as a team in the select committee. Sometimes it can be very contentious, as you well know, Madam Speaker, but in this I think both the Opposition speakers' contributions have hit the nail on the head in that this is a fairly non-contentious piece of legislation that is technical in nature, and I think we can get on with working towards a select committee recommendation to the House quite effectively.

Having said that and to put that in perspective, as both previous speakers in the Opposition noted, this bill comes to us over the length of several years. In fact, it was the IMA—the international monetary authority?

Dr Deborah Russell: IMF.

FLETCHER TABUTEAU: IMF—fund, sorry—who came to New Zealand in 2016 and had a conversation about the operations of these systems, the mechanics—"the plumbing", as it has been colloquially called in the House this afternoon. It was a fair observation from the IMF that there is a high degree of risk, which the previous speaker has touched on. Actually, in New Zealand, the operations of the systems have been quite sound and we haven't had the worry that other nations around the world have unfortunately been exposed to, but that does not preclude the fact that we are operating under that risk.

So I'll just touch on what it is we're technically talking about and what the bill sets out to achieve in the first reading. So the infrastructure legislation here, the financial market infrastructures (FMIs), refer to multilateral systems that provide trading, clearing, settlement, and reporting services in relation to payments, securities, derivatives, and other financial transactions. So that pretty much runs the whole gambit of financial interactions in markets in New Zealand. As, also, the previous speaker noted—although I think that she implied that it was this year—in 2016, in the retail and wholesale markets of those financial transaction markets, there is $35 billion of payments moving through those wholesale and retail markets every single day. That was a 2016 figure but it puts it in perspective. From memory, you're talking four times New Zealand's GDP in total over a year—it's quite a significant sum of money. It gives you an indication of just that financial system mechanism's importance to the New Zealand economy and our sound operation.

However, in New Zealand the regulation of FMIs is limited. I think that's why we agree we've come to the House today. So what, I think, members will support is, fundamentally, this bill is about implementing new and more complete oversight regimes. Fundamentally, this is about accountability. So this has been a continuation of a long conversation, which is why I think the select committee process will be a productive one.

I just want to end on what it is we're trying to achieve in terms of—we've heard about designated and non-designated FMIs. Actually, no, I'll just touch on the bill in terms of general monitoring of FMIs by giving regulators certain powers, and I just want to touch on those powers: the power to require operators or participants to provide information, the power to require an operator to obtain a report from an independent export on aspects of the FMI's business or operations, the power to appoint an investigator to examine the financial position or operation of the FMI, and the power to seek a warrant to enter premises to obtain evidence relevant to an investigation. So those powers are about accountability, as I said.

So I, too, look forward to the conversations and, actually, the submissions, because this was well notified to the public in a draft form several years ago. There has been a lot of public consultation on this and contribution to the drafting of this legislation that we see before us now. So, I think, what we will see going forward is about refinement, and I'm all for that. So I look forward to that. Thank you, Madam Speaker.

ANDREW BAYLY (National—Hunua): Thank you, Madam Speaker, and lovely to see you back in the chair this year. It's my first opportunity to speak and I just wish everyone well and hope they had a great Christmas break and back for an exciting year, of course.

Now, we've already heard that National is supporting this Financial Market Infrastructures Bill. I think, to some extent, there's been a lot of canvassing of what it means. I thought, for many people listening in, there are a lot of acronyms, there's a lot of terminology being used in this bill. I thought it might be useful to just spend a couple of minutes trying to put into layman's terms what this bill is actually trying to achieve. Essentially, we have—and have for quite some time—had alternative mechanisms, financial instruments, called derivatives, and the like, which financiers have used to buttress and to help with their trading of different financial instruments in the market. The derivatives act in a way that they disaggregate the risk and returns and actually help manage it.

So, for instance, if you wanted to take on a fixed loan at a certain rate in a certain currency, and you were forced to do that—let's say borrowing in New Zealand dollars—you may at one point want to swap that out for Australian dollars and use a different interest rate. You can use derivatives to design the instrument that you actually, ultimately, want. Banks are the prime users of derivatives, but not exclusively so. A lot of our large financial institutions, ACC, all use these types of products to manage their risk and to, in a way, enhance their returns.

So people have been talking about trade repositories and swap data—this is the system by which all those derivatives are captured and actually collated so, actually, people can start to understand where the risk lies. You will recall, during the major meltdown in the world financial crisis, a lot of it was driven out of derivative trading and where people didn't actually understand the full amount of derivative risk that they had. So, as a result of the G20 coming together in September 2009, there were rules that were put together to try and make sure that from a worldwide perspective, there was enough understanding of where these liabilities lay and who was holding them, so that if ever there was a situation, it was clear where the liability actually lay.

There are two types of derivative tradings. One is over the counter, and one is exchange trading. Now, exchange trading is basically—the analogy is if you were selling and buying shares, you would be selling those shares over the New Zealand stock exchange, and, therefore, that's a very transparent transaction. There's no problem with those, and they're all accounted for, even if you're doing a derivative equivalent on an exchange. Where we have an issue is what's called over-the-counter trading, and that is where you have a direct trade between two parties that is not exposed to the transparency of an exchange. What this bill is, essentially, trying to do is put in place a better framework for dealing with those over-the-counter derivative trades.

Originally, it was this sort of opt-in arrangement where, if you're a financial institution—and I just use ACC as an example. If it was trading over the counter, possibly some of those trades would be recorded, and, obviously, they would be, because they're a very reputable institution. But what this situation allows is for the regulator to say, basically, well, we want to capture those trades, and making sure that they come into this arrangement, which is what this bill is all about. So the powers for the regulator are quite significant. It moves, basically, from voluntary to a system where, at the behest of the regulator, they can make sure that for people who are obviously trading a lot or may be perceived as a higher risk, there is greater transparency around their trades.

There's a whole lot of other stuff in the bill that we'll be going through in select committee, but, essentially, that is the purpose of this bill. Of course, it was a bill first proposed by National, and we're getting through to the stage where it's finally come back into the House. We need to move this bill through, but we will be making sure that it is appropriate and doesn't end up being inappropriate for a very significant level of financial trading that is done in New Zealand, but at the same time making sure we meet our international obligations. Thank you very much.

JAN LOGIE (Green): Thank you, Madam Speaker. Boy, did I get lucky today to get to speak on this bill, which, obviously, so many people have been fighting to get to speak on, and to offer the Green Party's support for the Financial Market Infrastructures Bill. This is, basically, setting up regulation of financial market infrastructures (FMIs), and I must put on record that I share the view of Dr Russell and the Hon Judith Collins, of my concern and discomfort with pluralising "infrastructure". I hope the committee does debate that quite thoroughly, because it's jarring, and I think we want our legislation, the titles particularly, not to be quite so jarring.

I would recommend anyone who's following this debate or looking at this speech randomly to go to the speeches of Dr Russell and the previous speaker, Mr Bayly, for, actually, a fuller understanding of what financial market infrastructures are. It was described by a previous speaker as the plumbing of our financial system, but I don't think I'm going to be the best person to represent the detail of it, and I would commend people to those speeches. I don't think that the phrase "[these infrastructures are] systems that provide trading, clearing, settlement, and reporting services [for] payments, securities, derivatives, and other financial transactions." will mean anything to most New Zealanders. But I am encouraged that we have James Shaw on behalf of the Green Party who will be engaging with the detail of this, along with others in this House who are more familiar with this context and language.

I have heard in some of the previous speeches an issue or concern raised that there doesn't seem to be a problem in the system, so just a questioning about the need for this legislation. I would note that the need or the value of this was raised by the International Monetary Fund in looking at this as our position within a global system, and that the Cabinet paper also recognises market failure in this area, in four particular areas. So, one, that there are currently coordination difficulties across the financial market infrastructure, high concentration of market power, which means if there's failure—and the example that was given previously of one financial market infrastructure being EFTPOS—in that system, that would have massive impact on our entire economy. So we have an interest as a country and a responsibility, I would argue, as this House of ensuring that we have appropriate oversight and can do whatever's possible to prevent any failure in that area. And imperfect information—that many people who are participating and using, say, derivatives or engaging in other aspects of the financial system; historically, we've seen the consequences of when people are not aware of the risks that they may be exposed to because of the complexity of many of these arrangements. So this legislation helps us create a system to give assurance to people and to reduce that risk or ensure people are aware of it where it exists.

The fourth point of market failure that was identified in the Cabinet paper was negative network externalities where a financial market infrastructure operator may not fully consider the wider social cost of their conduct. So I think that really is raising, in more simple language, I guess, that it can be very easy for businesses to consider their work in a very narrow frame without looking at the impact on the entire society. There is a responsibility for us, when we're looking at our financial system, to make sure that it is fitting with the rest of our social context.

So it will address this market failure by establishing information-gathering powers that allow for ongoing regulatory oversight and monitoring, will create a designation scheme to enable the creation of regulatory standards for FMI operators, and provide for different types of penalties for breaches, which will include civil penalties for technical breaches and criminal for high-level moral culpability. We do need to acknowledge the potential and the historical international experience of that. It also creates significant crisis management powers for regulators, including establishing statutory power to issue directions to financial market infrastructure operators or institute a statutory management plan when specific grounds are met. So they're the key parts of what this legislation does, and we are happy to support it. Thank you.

Hon JACQUI DEAN (National—Waitaki): Thank you, Madam Speaker. I hesitated to get to my feet because I was reading some quite interesting background to this bill in the debate pack. First of all, I have to confirm that National does support the Financial Market Infrastructures Bill at its first reading. The information I was reading as I was preparing related to retail and other payment systems in New Zealand, which up until now have performed relatively well but have been only lightly regulated. Issues around particularly retail payment systems have been highlighted for a number of years in New Zealand, and successive Ministers have been working progressively to address some of the more light-handed regulatory settings around matters to do with financial market infrastructures.

So the background to this bill—and I congratulate Minister Grant Robertson for picking up this work and then bringing it to the House—really started to form in 2015 and 2016 when the Reserve Bank placed forward some policy proposals to update the regulatory regime for financial market infrastructures. The National Government of the day endorsed those proposals and, several years later, we now have the bill giving effect to them.

The bill, effectively, replaces the existing regulatory regime for financial market infrastructures, and they are contained within the Reserve Bank of New Zealand Act. The purpose of the new regime is, overall, to promote the maintenance of a sound and efficient financial system. That has got to be the prime purpose of this bill and its Act, but also importantly as a safety net to avoid significant damage to the financial system that could result from problems with a financial market infrastructure—promote participation in businesses, investors, and consumers in financial markets. One of the features of the New Zealand sharemarket—the NZX—is that the market is finding it hard to find companies to register, and also investors, and often people in financial circles talk about the lack of depth in the New Zealand financial markets. So one of the prime reasons that New Zealand supports this bill is the very fact that this bill seeks and intends to strengthen that confidence in financial markets.

One more point—because I know there are other speakers to follow—the new regime will apply to more entities than the current one. So the scope of the Financial Markets Authority will widen and capture more financial markets institutions. We do support this bill. I do have a question—regrettably, I don't sit in the committee, but I will follow this—on just how the new regime will capture over-the-counter trades. It was an issue that was raised by Andrew Bayly just before. I will be interested to see the mechanism by which that comes about. That is the work of the select committee. So I commend the bill to the House.

TAMATI COFFEY (Labour—Waiariki): Thank you, Madam Speaker. I'm so pleased to actually join the chorus of support for this bill, the—let's get it right—Financial Market Infrastructures Bill. I've stood here and I've listened to all of the speeches that have gone before me and, as my colleague Dr Deborah Russell said, it is a very, very technical bill. In fact, I'd be very surprised if people are still watching Parliament TV right now and actually following what is going on, because a certain few people actually understand what goes on inside our financial market infrastructures.

I guess, to cut a long story short, we've obviously, as a Government, as a Parliament, had some learnings off the back of the global financial crisis. If this bill is going to help us to be able to better navigate ourselves whenever there is a financial market failure, then obviously it should be supported. I'm not going to go into the detail of it. I know that, when it comes to our Finance and Expenditure Committee, we will go through it with a fine-toothed comb. Everybody around the House seems to support it; so I do too. I commend it to the House.

DAN BIDOIS (National—Northcote): It's a pleasure to rise today and to give my first speech in the House in 2020, and can I say I'm looking forward to the year ahead. No matter which side of the House you sit on, welcome back to Parliament. It's a pleasure.

We're here today discussing the Financial Market Infrastructures Bill. We've certainly learned a lot today in the House, whether it's from Andrew Bayly about derivatives, whether it's about the definition of learnings or lessons from the Hon Judith Collins, or whether it's the technicalities of FMIs—or financial market infrastructures—from Deborah Russell. But I just want to recap, for the readers at home, the purpose of this bill, because it is a very important bill and important to the ongoing sustainability of our financial system here in New Zealand.

The purpose is, really, to introduce a new regime to designate some financial market infrastructures as systemically important. For those of you at home, you may remember back in 2008—and I remember very clearly—learning this terminology called "systemically important". It was in relation to Lehman Brothers, which, of course, is not covered by this bill. It's a bank; it's not an infrastructure. But the purpose of this bill is to extend the definition of "systemically important" to financial market infrastructures. That includes everything from payment systems, reconciliation systems, and IT systems that go with our financial infrastructure.

I want to be clear to those at home who might be thinking, "Well, The National Party is about minimal regulation. What are they doing supporting this bill?" I want to be clear about why we're supporting this. Firstly, the payment system every day—have a guess at how much goes through our payment systems here in New Zealand. Thirty-five billion dollars goes through our payment systems here in New Zealand every day, or annually $8 trillion, which is around a third of the US gross domestic product. So it's a really important part of our financial system, and we want to make sure that for those businesses and organisations that underpin that system, in terms of infrastructure, if these organisations are systemically important, there is heightened awareness and regulations over those systemically important infrastructures.

But what does that mean? It means, in effect, it's not going to be over-regulation. What we're really talking about is a tiered approach to regulation. Some financial infrastructures will be designated as "Tier 1, systemically important"; "Tier 2"; or "Tier 3". For those who are Tier 1, systemically important, we're really just talking about contingency plans. These financial market infrastructure companies need to have contingency plans in place in case, can I say, the shit hits the fan. The second tier, Tier 2, is where the regulatory bodies can, in fact, give directions to financial market infrastructures, which is a little bit more involved. The highest tier is Tier 3, which is where we appoint a statutory manager.

So that is, at the moment, the extent of the regulatory powers. I think it's the right level of regulation. The National Party will support this to select committee, and we support this bill in the House.

JAMIE STRANGE (Labour): Madam Speaker, thank you for the opportunity to take my first call of the year in the House and follow the member from Northcote, Dan Bidois, with his rather colourful language, but I certainly appreciate the contribution. Thank you, sir.

We've heard from various speakers around the importance of sound and efficient financial systems. Generally speaking, we do have sound and efficient financial systems, but we have heard for a number of years from agencies like the International Monetary Fund, and particularly work done by the Reserve Bank, that we do need a bit more regulation. Hence this bill has come to the House. I acknowledge the Minister Grant Robertson for bringing it to the House, and I acknowledge the previous Government for the work they did on this bill as well. It's good to see that there is cross-party support.

We heard from Dr Deborah Russell around the aspect of EFTPOS transactions, just using one example of what this bill might cover. Now, if we look at society and we go back many years—I'm not sure anyone in this House remembers—there was a period of bartering as a society, when we didn't have any cash.

Then we moved to cash, and for many years people used cash to fulfil transactions. However, we're quite quickly moving to a cashless society. In fact, for me personally, I very rarely carry cash, which gets rather embarrassing when raffles are put in front of my face. I'm sure many members of this House and many people at home do not carry cash. So we're particularly reliant on financial systems, financial transactions, and we've heard that there is $35 billion a day worth of transactions going through. Now, it's absolutely vital that this system is robust, that it is sound, and that it is efficient. So as a Government, and, in fact, as a Parliament, we're doing the right thing by putting some regulation in place.

I mentioned before that the Reserve Bank has done a little bit of work in this area. The Reserve Bank oversees New Zealand's financial market infrastructures—the FMIs—such as payment and settlement systems for the purpose of promoting the maintenance of a sound and efficient financial system. FMIs are a critical element of the financial system and are highly relevant for the Reserve Bank's core responsibilities that stem from its financial stability objective. The Reserve Bank, in March 2015, following consultation, published a policy statement on its oversight of FMIs to reflect the recently updated Principles for Financial Market Infrastructures issued by the Committee on Payment and Market Infrastructures and the Technical Committee of the International Organization of Securities Commissions. So the Reserve Bank has effectively been leading a piece of work, which has now come to Parliament and is about to be, I expect, passed into law.

There's a second point that I'd like to highlight, and that is the fact that this bill provides a framework that would bring the regulation of FMIs in New Zealand broadly into line with international standards. We heard from the speaker Judith Collins around the IMF and other international agencies who have been talking with New Zealand about needing a bit more regulation. So in a way we have been a little bit of an outlier compared to many other OECD countries. So it's good to see that we are coming into line with international standards in a sensible and proportionate manner that avoids unnecessary costs. And we heard from the speaker before that we do have to be careful around regulation, and I absolutely agree with that. But carefully placed, sound regulation certainly will help to ensure the robustness of our financial systems, which is absolutely important. We all rely on these financial systems.

The new regime is tailored to the needs and systemic importance of individual FMIs. This approach focuses regulation on the most important FMIs while minimising barriers to entry and compliance costs, which might otherwise hinder new entrants and the development of new products.

We've heard, I think, a range of views and a range of information. I've just added in a little bit there just to highlight a few extra points. Without further ado, I commend this bill to the House. Thank you.

Rt Hon DAVID CARTER (National): Thank you, Madam Speaker. As I listen to this debate on the Financial Market Infrastructures Bill, it strikes me that we all take our banking system absolutely for granted. We think it's safe. Our salaries, our wages; for everyday New Zealanders, it goes into their bank accounts and over the next week or fortnight they withdraw it out with a number of transactions—and, as Mr Strange says, probably more by EFTPOS these days than by cash—little credit or little doubt is given to the fact that that system could actually fail. I recall quite vividly, it was the National Government that came in in 2008 as the world entered the global financial crisis, and suddenly we realised that those financial institutions we deal with may not be as safe as we thought they were. Whilst New Zealand was relatively immune from the collapse of our own financial institutions, the same certainly could not be said for the likes of America.

So this piece of legislation is largely the result of work carried out by the IMF—the International Monetary Fund—following the global financial crisis, which is now 12 years ago, which shows how long it takes for countries right around the world to accept that financial institutions need to be regulated. And, of course, now we have the work done by the Reserve Bank of New Zealand, finally culminating in this legislation presented to the House today, which National will support to the Finance and Expenditure Committee.

As I've listened to the contributions from many of the speakers, most of them—in fact, I think all of them—have remarked on how complex this issue is. We have words like "securities" and "derivatives" and "depositories" and "trade repositories", all of which come together in the settlement of funds on a daily basis to ensure that we have a banking system that works, and that is safe for all depositors wherever they live—but, particularly, the ones that we're concerned about are New Zealand depositors—to know that their money deposited in a bank is safe, and that they can get their money out when they want. That's the essence of this legislation today.

So we'll support it to select committee. The two things I want to particularly watch before the select committee are: what are the benefits—and if it results in a safer banking system, which is required in this day and age, then I'm all for it—but I'll equally be watching for the costs, because this reform may well come at a cost. If it comes at a cost, I suspect already that cost will then not be picked up by the banks; it will be a cost that's passed on to those people who are the customers of the bank, particularly the borrowers. So I think as we analyse the work through the select committee—and the Finance and Expenditure Committee will do the job thoroughly—they're the two things we need to watch: identify the benefits and be very, very aware of the costs that, ultimately, will be imposed on to the depositors.

But, having said that, as I said at the start of my contribution: above all else, we all require a banking system in this country that we have faith in and that we know will not fail. As we move from those dim, dark days of 2008—12 years ago—of the global financial crisis, it's important that we move with the time, modernise our banking system, and make sure it's securer, and safe to deliver that security to New Zealanders.

GREG O'CONNOR (Labour—Ōhāriu): I think the previous speaker has alluded to what happened in 2008. I think what really happened in 2008 is that New Zealanders, and, indeed, many around the world, suddenly understood how vulnerable they were to what happened on the world markets, particularly Wall Street.

No one had heard of derivatives outside the financial markets at that stage. I do recall reading some literature about the lead-up to 2008—there was a meeting in Davos, Switzerland, where one of the leading regulators in the world stood up and some of the biggest, greatest financial brains and investors were at that meeting. He explained derivatives to the crowd, and, at the end of it, he asked: "How many of you really have any idea what I've just said?", and there were very few hands that went up. Yet there was hardly a financial institution, especially the major banks in the United States, that didn't have extreme exposure to those derivatives. What they were was a gathering up of very poor quality loans, mortgages into multimillion-dollar packages—the theory being that the good ones would offset the bad ones if anything went wrong. The problem being: they were all bad ones. These whole derivative packages would be made up of loans that had been made to what were called NINJAs—no income, no job, and no prospects. Bringing that forward then, what it did is it made us all understand just how vulnerable we all were to this.

So bring us forward to this piece of legislation: the Financial Market Infrastructures Bill. What we need to assure and reassure those who are in managed funds, those who may even have their money in the bank, is that there is a playing field which is being regulated so that those who were rendered vulnerable, those who lost money—and you can think of any number of organisations in New Zealand. Blue Chip investments was one that, again—so many of those who'd worked hard all their lives and had their savings, and had those savings decimated through a number of these activities.

So it's incredibly important that we, those who have money that is moving through the financial systems, have some confidence that there is some regulation. Just to give an example of what happens if there is no regulation—of course, we've got the block chain, bitcoin, which is actually happening, which is completely unregulated. We are continually hearing of problems in that industry, if you will call it that, which are a net result of absolutely no regulation; the jungle rules. That is why it is only the courageous who are putting their money into that area.

So I have no hesitation in commending this bill as the last speaker on this, the first reading of this bill today. And I think that those who are watching, those who've survived this long through the debate, should feel some satisfaction that there is now some work across the House being done to inure them against future financial shocks. I commend this bill to the House, Madam Speaker.