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Bill read a first time.
Bill referred to the Finance and Expenditure Committee.
FINANCIAL MARKETS (CONDUCT OF INSTITUTIONS) AMENDMENT BILL
First Reading
Hon KRIS FAAFOI (Minister of Commerce and Consumer Affairs): I move, That the Financial Markets (Conduct of Institutions) Amendment Bill be now read a first time. I nominate the Finance and Expenditure Committee to consider the bill and to report back by 23 June this year.
This bill will create a broad regime governing the conduct of financial institutions such as banks, insurers, and non-bank deposit takers. The ultimate aim of this new regime is to improve the conduct of financial institutions and to help rebuild trust and confidence in our financial sector. This will serve the needs a...
There have been several recent reviews into the conduct of financial institutions, including the 2018 royal commission into financial services and the reviews into banks and life insurers in New Zealand undertaken by the Financial Markets Authority (FMA) and the Reserve Bank. These reviews showed that there are extensi...
Some of the examples that were heard, either in the consultation that was held by the agency or the investigation by the Reserve Bank and the FMA, were numerous. In one example, a 25-year-old with no dependents was sold a life insurance policy by his bank when he signed up for KiwiSaver. The bank, essentially, led him ...
Financial institutions and the products and services that they provide are an essential part of a well-functioning society. Financial products and services are a critical part of our everyday lives as well as our long-term wellbeing. They enable us to save for the things that we want, to borrow for a house, or to cover...
It is vital that New Zealanders can trust their banks and insurers and be treated fairly by them. Treating consumers fairly is essential to building trust in the finance sector. It will be a win-win for consumers and the financial sector if we can all have more confidence that banks and insurers are placing fair treatm...
The new conduct regime that this bill creates is seeking to help cement this trust. In order to address these problems and in turn build the necessary trust in the industry, the bill will implement a package of changes. The bill requires banks, insurers, and non-bank deposit takers to be licensed by the Financial Marke...
This bill also centres on an overarching fair treatment principle. Licensed institutions and their intermediaries must comply with this principle, which will require them to treat consumers fairly. Financial institutions will also be required to establish, to implement, and to maintain an effective fair conduct program...
The conduct programme will require licensed entities to have policies, processes, systems, and controls in place to ensure they're considering consumers' interests and treating them fairly in all aspects of their business. This requirement reflects that fair treatment of consumers is a broad concept that touches on and...
Our financial institutions as well as their intermediaries will be required to comply with the fair conduct programme. Where more detailed obligations are required, regulations can provide more guidance, but at its core this is about ensuring institutions think about customers all of the time. This approach allows flex...
Industry may have concerns about overlaps of regulatory requirements, such as with the consumer credit legislation and whether this new regime will require businesses to duplicate different compliance activities. The conduct programme requirement allows financial institutions to take a coordinated and a flexible approa...
The bill will also create the ability to prescribe regulations relating to incentives which financial institutions and their intermediaries will be required to comply with. These regulations will be the mechanism through which sales incentives based on volume and value targets will be prohibited, and this prohibition a...
I've taken this approach because conflicted remuneration and incentives are one of the biggest issues driving poor outcomes for consumers in the financial sector. As the Australia royal commission found, in almost every case the conduct at issue was driven not only by the relevant entity's pursuit for profit but also a...
The regime also contains strong civil pecuniary penalties if a financial institution or intermediary contravenes an obligation within the law. Compensation for affected consumers can also be sought by any persons. Officials have recently consulted with financial institutions about how the bill will work in practice, an...
New Zealanders do need to be confident that the financial products and services that they are buying will be appropriate for their circumstances and meet their needs. By introducing this bill to improve conduct in the financial sector, we're putting the consumer at the centre and helping banks and insurers to ensure tr...
BRETT HUDSON (National): Thank you, Madam Speaker. As I rise to speak on this bill in its first reading, I just want to note that both the bill itself and some comments we've heard tonight—both on this bill but also in the one immediately preceding it—show that this is a Government that's always on the lookout for perc...
ASSISTANT SPEAKER (Hon Ruth Dyson): Sorry to interrupt—
BRETT HUDSON: You needed to do the thing, yes.
ASSISTANT SPEAKER (Hon Ruth Dyson): I forgot to say, "The question is that the motion be agreed to." My apologies. Carry on, Mr Hudson.
BRETT HUDSON: Thank you. Well, we'll get to whether we agree to the motion in a few minutes, I think. This is a Government that clearly is always on the lookout for perceived problems. Now, looking for problems itself is not necessarily a bad thing. The problem with them is that they see the solution to any problem, re...
I want to start by referring back to the work undertaken and the reports issued by the Reserve Bank of New Zealand (RBNZ) with respect to banks and by the RBNZ and the Financial Markets Authority together with respect to the insurance industry. Both of those reports make it very clear that they did not find many actual...
Now, business controls are a good thing in any business, particularly a larger business. They help to ensure that the business is run well and that instances such as this, where they interface with customers, are run appropriately. But having come from, at least, actually, more than one multinational business in my his...
Ultimately, because they add cost and effort and time, they add no real benefit—true benefit—to the business either. But what they do and why they come about and why more and more of them get layered on is because a group of people feel more confident within the business that they can prove that something was done the ...
Now, arguably, that doesn't need a whole rule book of processes and documents to evidence that. The Minister himself in charge of this bill actually saw through to conclusion the Financial Services Legislation Amendment Bill, which the previous National Government introduced, which had a very simple way of dealing with...
Now, you could achieve the same thing here with what he's doing about what he calls his fair conduct programme simply by having a provision that the institution is responsible for ensuring that the actions of the institution and its employees and intermediaries are in the interests of the customer. There are already pr...
Because if an institution is going to suffer that sort of penalty for getting it wrong, they're going to make sure they don't get it wrong. If they're going to suffer that sort of potential penalty, if one or more of their employees or intermediaries takes actions for personal gain ahead of the interests of the custome...
And that flows on to the point I also want to spend some time on, which is this regulation-making power, which the Minister's own words tells us pretty strongly is all about banning incentives. Well, first problem is it's simply a blanket regulation-making power, which means that if we agree to this, then the Minister ...
But first of all, even the fact that the regulation-making power they want is far too powerful. The first problem with it is that it actually shows a lack of understanding of business, certainly in the Government, but I worry also with officials. Because here's the reality—how are these businesses going to transact if ...
So this idea of regulating sales incentives to the extent that, one, the Government might ban some or potentially all of them simply cuts across a fundamental necessity of operating a business. Now, I met with a business in the industry. I won't name them. They had voluntarily taken sales incentives from their own sale...
Also, to that point, of course, which worries me deeply because I've heard this before—the Minister tonight said that the sales incentives they want to ban are the ones that are based on volume or value. Well, here's a challenge which backs up my immediate previous point. I challenge anyone to name me a sales incentive...
There are better ways to deal with this. There are better ways to ensure that businesses are transacting and behaving appropriately with their customers. I fear that this is rooted in this belief on the other side that if you're doing something for profit, you're bad, and if you make profit, it only comes at the expens...
ASSISTANT SPEAKER (Hon Ruth Dyson): I'm very, very sorry to interrupt the member, but the time has come for the House to adjourn for the dinner break.
Sitting suspended from 6 p.m. to 7.30 p.m.
BRETT HUDSON: Well, this bill is actually a lot like the Prime Minister's speech today: very, very long on promises and good intentions, but woefully let down in the execution. We'll be constructive on the select committee, but we will not support the bill in the form it's currently in.
Dr DEBORAH RUSSELL (Labour—New Lynn): I'm delighted to hear that the Opposition will be constructive on the select committee. I know that the promise that Mr Hudson has made is a sincere one because in the recent firearms legislation bill that we've worked on together on that particular committee, that has indeed been ...
This bill seeks to regulate the conduct of financial markets institutions, and Mr Hudson in his speech raised a couple of interesting points and they're related. He said, first of all, that on this side of the House we perhaps didn't understand the need for businesses to make a profit and that we felt that making a pro...
What we want to make sure of is that there is fair trade between institutions and their customers, and Mr Hudson raised the point. He said, "Was there any evidence, really, that, in fact, there had been problems with financial institutions, and, in particular, the financial institutions of the sort that are being dealt...
Now, a soft commission is when we're talking about individual consumers—retail consumers like you and me. They are commissions where the person, the employee—the member of the institution—is paid, not necessarily in hard dollars, but in a benefit. In particular, an overseas trip might be the reward for selling a partic...
It turns out that in May 2018, the Financial Markets Authority looked at soft commissions in the life and health insurance industry, and these people are quite hard-nosed. They concluded that soft commissions were effective sales incentives for financial advisers. They found that a higher value of these soft commission...
It's a tricky problem. Of course we want to motivate people to do their jobs and to do them well, and of course, in a sales-oriented industry, making sales is critical. But at what point does a commission provide an incentive, so that instead of selling the customer a product they genuinely need or a product that will ...
Now, this bill does not set out to make that judgment in itself, but it does require institutions to set up rules for themselves as to how they will conduct themselves to set up understandings in institutions as to what is a reasonable way to remunerate sales staff and what is not. I think it is worth remembering that,...
Now, I agree there are some pretty complex issues in this bill, and I think it is worth spending our time discussing it at select committee as to whether or not this will be effective and as to whether or not the rules will actually work in the way in which they are intended. I know from my previous experience of worki...
JONATHAN YOUNG (National—New Plymouth): Thank you, Madam Speaker. I have so looked forward to speaking on this nonsense bill. It's obvious to me that the Government have a very low legislative programme and they have thought, "What can we do to fill the Order Paper?", and here we are. We have a bill that's addressing a...
Can I say, one of the goals of this bill is to protect the interests of the consumer, but it was probably less than two years ago that this House passed a bill called the Financial Services Legislation Amendment Bill. The purpose of that bill required all people who give regulated financial advice to comply with standa...
It's quite interesting, because one particular firm who I respect—Chapman Tripp—analysed this bill, and they said this. They said that you have to be very careful regarding this bill because "The proposed legislation regulates the banks, insurers and non-bank deposit takers which are already subject to registration and...
So this bill that was passed within the last couple of years, the Financial Services Legislation Amendment Bill, was to bring those elements of care to clients regarding commission payments—that if somebody was going to receive a remuneration from selling a financial product, they had to disclose it and they had a limi...
So it's interesting that if you go to the FMA website—and they make this comment about the Financial Service Providers Register, which the bill established two years ago—they said, "All financial service providers in New Zealand must be registered on the Financial Service Providers Register to legally provide financial...
Chapman Tripp went on to say, "However, significant costs are expected to fall on banks, insurers [and non-bank deposit takers] and their intermediaries selling products to retail customers. Compliance costs are expected to be moderate to high as noted by the Ministry for Business, Innovation and Employment in their Re...
Every head on the other side is looking down at their desk. Why? You should be embarrassed. Minister Faafoi, you should be embarrassed. What you are doing is already being done. You're wasting this House's time. You're putting further expenses upon customers in New Zealand for elements of protection that are already be...
I don't need to say anything else. I think I've said enough. I think that what we see here is a bill that is a duplication, and that's why we don't support this bill.
FLETCHER TABUTEAU (Deputy Leader—NZ First): Thank you, Madam Speaker. It's a pleasure to stand in support of this fantastic piece of legislation despite the moans from the Opposition there. Just an observation of the argument made by the previous speaker, Jonathan Young: first of all, he said that National had already ...
What the Opposition speaker previously failed to realise in his argument, when he said there were no problems in the insurance or financial services industry, was kind of an asymmetric information breakdown between those parties of the contract. All that fundamentally means is that when a person sits down to sign an in...
So, to the members opposite, I know that more needs to be done. They are an essential part of modern life. We're dealing with banks, we're dealing with financial advice, and we're dealing with insurance companies, but what we have seen recently—and we have seen it in New Zealand; in fact, the previous speaker himself s...
So this is what this legislation is fundamentally about. We've had reviews of New Zealand banks, life insurers—in 2018, a joint one from the Reserve Bank of New Zealand and the Financial Markets Authority—that there is a gap in our regulatory settings and there is currently no explicit legislated mandate for the regula...
I've spoken for longer than I intended. This is a sensible piece of legislation. It is about protecting consumers and customers. It is about making sure that those undertakings that we would all expect are fair and reasonable and have the customer at the forefront of an organisation's thinking. So I very much support t...
MELISSA LEE (National): Thank you, Madam Speaker. It's a real pleasure to rise to speak for the first time in 2020. Although, I did actually have a question—this is the first time I'm actually speaking on a bill. I am, with my colleagues on this side of the House, opposing this bill. To give the reasons, I'll actually ...
The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry in Australia actually found widespread abuses within the financial sector, which has actually led to a raft of legislative and regulatory changes in Australia. In New Zealand, following that royal commission, the Reserve...
So, in terms of this particular bill, I am a little bit baffled as to what Fletcher Tabuteau was actually talking about in terms of why we need this bill when my colleague Jonathan Young had earlier said that in this very House we had passed legislation within the last two years that actually deals with some of these i...
This bill doesn't actually deal with, I guess, something called caveat emptor or buyer beware. There is always this issue when someone is purchasing a financial product or an insurance that they should really read into it. Fair enough that there are some financial literacy issues that we have in this country; we need t...
Earlier Dr Deborah Russell also gave an example of the sales incentives and the commissions that she was apparently particularly concerned about. I think when there is bad behaviour we all are concerned about it, but one of the examples that she actually gave was that there was an increase in sales which was correlated...
Of course, all of us in this House are concerned if there is bad behaviour happening in the market place, or that banks or institutions like insurance companies are actually behaving badly, and we want to make sure that we protect consumers to make sure that they're getting a fair deal for the purchases that they actua...
I think a long time ago someone said something about using a sledge hammer to hammer in a little nail. I think I don't know what that, you know—
Stuart Smith: Crack a nut.
MELISSA LEE: Cracking a nut. I think when you need a very small instrument to actually fix a problem—I think this Government is trying to introduce a massive ban on something that does not prove that they are, in fact, a bad thing for the market place. I stand with my colleagues on this side of the House and oppose thi...