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10. ANGIE WARREN-CLARK (Labour) to the Minister of Health: What recent announcements has he made about child and maternal health facilities?

Hon Dr DAVID CLARK (Minister of Health): The Prime Minister's ambition is to make New Zealand the best place in the world to be a child. To support that, as part of the New Zealand Upgrade Programme announced two weeks ago, $83 million has been set aside for child and maternal health facilities. We're investing in neonatal and paediatric intensive care units in Counties Manukau, Auckland, Hutt Valley, and Capital and Coast. We're investing in better maternal facilities in Hutt Valley and South Canterbury, as well as new and upgraded dental vans in Hawke's Bay, Lakes, and Wairarapa DHBs. These projects will make a real difference to families up and down New Zealand.

Angie Warren-Clark: How will patients at Starship hospital benefit from the New Zealand Upgrade?

Hon Dr DAVID CLARK: Starship is home to New Zealand's only specialist paediatric intensive care service. They do amazing work there. They look after the most unwell children from all over the country, including those who need cardiac surgery and transplantation. So I'm particularly pleased that we are investing $25 million into the expansion of the paediatric intensive care unit—or PICU—at Starship. This will take capacity at the unit from 22 beds currently to more than 30 beds, as well as provide for improved whānau spaces.

Angie Warren-Clark: Why is this investment needed at Starship?

Hon Dr DAVID CLARK: Starship's PICU currently treats around 1,100 to 1,200 children each year. Demand has grown by 30 percent over the past three years and is expected to continue to grow. We need to act now to ensure that we have enough beds to care for these most vulnerable of patients. Construction work is planned to begin in early 2021.

Question No. 11—Broadcasting, Communications and Digital Media

11. MELISSA LEE (National) to the Minister of Broadcasting, Communications and Digital Media: Does he stand by all his actions and policies?

Hon KRIS FAAFOI (Minister of Broadcasting, Communications and Digital Media): In the context in which they were given, yes. In particular, I stand by my statement that New Zealanders must have access to a strong and independent public media service for the decades to come. This will ensure that New Zealand audiences will have access to content which reflects the language and experiences of New Zealanders, including those currently underserved audiences. In Budget 2018, we increased public media funding by $15 million. In Budget 2019, we increased Radio New Zealand's (RNZ) baseline by a further $7.25 million. This was in direct contrast to the previous Government's nine years of funding freezing for public media.

Melissa Lee: When was he first made aware of RNZ's plan for the axing of RNZ Concert and the removal of its broadcasting from the FM frequency in favour of a youth radio station?

SPEAKER: Order! I'm going to let this question go but warn members that in future, when they're asking about actions and policies, the supplementary question has to relate to that.

Hon KRIS FAAFOI: I was briefed by Radio New Zealand that they were working on a youth strategy in August and October of 2019. They brought their final proposal around the youth strategy and the impacts of that to me on 29 January of this year. As has been said publicly, I raised a number of concerns with them; most substantively was the issue of moving Radio New Zealand Concert off its current frequency of 93.5 FM. I said I would go and work on making sure that their youth strategy could have another alternative frequency to operate on, and that's what I did.

Melissa Lee: Why did he say, and I quote, "It's not for the Government to decide what it's utilised for." in regards to the youth radio spectrum, when the Prime Minister has said, "[The new frequency] was always intended for youth radio and youth programming,"?

Hon KRIS FAAFOI: Because that question that the member herself asked me at the select committee in June of last year pertained to frequency for both Māori and youth. In my reading of the transcript, I was saying that it wasn't for Government alone to decide how the spectrum should be used. Both of those 103 and 102 frequencies are assigned for Māori purposes, or the 102 for a youth network strategy, and in one of those, it's not for Government alone to dictate exactly how that spectrum is allocated or used.

Melissa Lee: Does he agree with the statement by former Prime Minister the Rt Hon Helen Clark that the Concert FM issue has been, and I quote, "handled disastrously"; if so, does he accept responsibility for this disastrous handling?

Hon KRIS FAAFOI: It's very important that Governments keep away from operational decisions that public broadcasters make, and the decision to run a consultation with their staff around a youth network strategy was theirs. They have subsequently taken action to keep Concert FM where it is. The former Prime Minister is entitled to her opinion.

Question No. 12—Research, Science and Innovation

12. Dr PARMJEET PARMAR (National) to the Minister of Research, Science and Innovation: Is the Government delivering improved outcomes in research and innovation?

Hon Dr MEGAN WOODS (Minister of Research, Science and Innovation): Yes. In the two years we've been in office, we've delivered across a wide range of areas in research and innovation, but there is always more to do. An edited list of our highlights of things that we have done: we have invested $1.1 billion in a 15 percent tax incentive, which we've yet to see the impact from; we've funded Callaghan Innovation's campus redevelopment and established a National New Energy Development Centre to ensure we have world-class innovation infrastructure; we've signed international agreements to foster greater collaboration on research and innovation with Governments and the private sector; we've made significant investments into important areas of research, such as renewable energy, agricultural and climate science; and can continue to develop our space research capability, including hosting mission control for New Zealand's first space mission. This Government has set out to lift—

SPEAKER: Order! Order! You know, that is enough. The member gets a 10-minute speech later.

Dr Parmjeet Parmar: How can she say her Government is delivering improved outcomes in innovation when New Zealand's ranking on the Bloomberg Innovation Index fell by five places this year to 29 in the world?

Hon Dr MEGAN WOODS: The Bloomberg innovation survey to which the member refers is measured across seven domains out of 100, all of which are weighted equally across that. It is important to note that this is a composite survey that doesn't only take into account innovation. The seven domains are R & D intensity, manufacturing value-added, productivity, high-tech density, tertiary education, researcher concentration, and product activity. In fact, the area where New Zealand did drop the most was in the manufacturing value-added rather than the innovation measures that are captured in that survey. In fact, in some of the innovation domains that are measured in that, we actually performed ahead of every country except for three or four that are ahead of us. What the member also should note is that the New Zealand score, the raw score on the index, has been in decline from 2015 to 2018. That decline was reversed in 2018 and stabilised only in 2019. We as a Government believe that, actually, what sits behind that is our drive to lift our very low percentage of GDP that we spend, which we as a Government have seen movement of. I seek leave to table this graph, which shows the fact that New Zealand's score on the Bloomberg weighted average has been in decline for a number of years but has indeed stabilised over the years 2018 to 2019.

SPEAKER: Is there any objection to that? There appears to be none.

Document, by leave, laid on the Table of the House.

Dr Parmjeet Parmar: Why is she blaming the last National Government, because when she came into Government, New Zealand was 18 on the Bloomberg Innovation Index ranking, and now we are on 29 under her watch?

Hon Dr MEGAN WOODS: I think I gave quite a thorough answer to the initial question—that, in fact, what I'm saying is there are a range of domains that that is measured across. So I am going to go through some of those raw numbers in terms of that. So in 2013, the year in which Callaghan Innovation was established, 57.73 was our weighted number. That did jump slightly in 2014 to 75.09 but then did decline all the way through to the beginning of 2018 to 67.4. What we have seen over the years 2019 to 2020 is 68.12 and 68.08. I think what all members of this House, regardless of what side they sit on, should be dedicated to is the fact that New Zealand has a woeful percentage of GDP expenditure, and that is something that this Government has seen real movement on, unlike the previous Government.

Dr Parmjeet Parmar: Is she at all concerned that New Zealand had the largest fall of any single country, making New Zealand the biggest loser in the latest Bloomberg Innovation Index?

Hon Dr MEGAN WOODS: I am always concerned about where New Zealand ranks in the world, but I will reiterate again that that is a composite index the member has referred to. In fact, the area where it had its biggest fall was not one related to innovation, but that doesn't stop me being concerned. What I would also point out to the member is that these are proportionate to GDP, and I will remind the member that New Zealand had higher GDP percentage growth than other advanced economies that it has been compared to in that table. So while we maintain our growth in GDP—

SPEAKER: Order! That concludes oral questions.

FINANCIAL MARKET INFRASTRUCTURES BILL

First Reading

Hon GRANT ROBERTSON (Minister of Finance): I move, That the Financial Market Infrastructures Bill be now read a first time. I nominate the Finance and Expenditure Committee to consider the bill.

This is the moment that the House has been waiting for. The Financial Market Infrastructures Bill establishes a new framework for the regulation and supervision of financial market infrastructures—or FMIs. FMIs are sometimes described as the plumbing of the financial system. They include payment systems which are used to effect payments in the financial sector and real economy, and other types of infrastructures like securities settlement systems and central counterparties, which support the buying and selling of financial products in various ways.

FMIs play an essential role in the sound and efficient functioning of the financial system and in the operation of the real economy. Many transactions in the financial system and all electronic payments ultimately rely on the operation of one or more FMIs. As a consequence, it is not uncommon for large FMIs to handle transactions worth billions of dollars on a daily basis. FMIs also play a key role in supporting the efficient operation of the financial system by reducing transaction costs; reducing counterparty, custodial, and other risks; and fostering transparency.

The operation of FMIs is often taken for granted, Mr Tabuteau, and unless the services they provide are disrupted, there can be extremely serious consequences if an important FMI fails. Failure to complete payments or other transactions or even a failure to complete these on time can subject the financial system or individual market participants to severe solvency or liquidity stresses. In extreme cases, this can result in contagion risks and a cascading series of defaults across the financial system. The disruption of key payment systems will often disrupt the real economy, preventing businesses and consumers from being able to buy and sell goods and services.

The existing regulation of FMIs is limited. Parts 5B and 5C of the Reserve Bank of New Zealand Act establish information-gathering powers in respect of payment systems and the designation regime for settlement systems. However, the regime in Parts 5B and 5C is no longer fit for purpose. For example, in most respects it's a voluntary opt-in regime. It lacks a full suite of supervisory enforcement and crisis management powers. More generally, it's seriously out of step with international standards. The systemic importance of many FMIs and the deficiencies in the existing regulatory regime were recognised by the International Monetary Fund (IMF) when it carried out its Financial Sector Assessment Programme of New Zealand in 2016-17. In the context of that review, the IMF assessed and specifically recommended the adoption of the framework that is reflected in this bill as one of its more high-profile conclusions.

The regime in the bill is administered jointly by the Reserve Bank and the Financial Markets Authority, except in relation to payment systems where the Reserve Bank will be the sole regulator. It also provides different treatment for the regulation of designated and non-designated FMIs. Designated FMIs are those that are identified as systemically important and brought into the regime or have opted into the regime to access the current legal protections around settlement, finality, netting, and the enforceability of rules which are being carried across into this FMI bill.

The new regime is tailored to the needs and systemic importance of individual FMIs. Designated FMIs are subject to a range of regulatory powers, whereas non-designated FMIs will be subject only to certain information-gathering and investigative powers. This approach focuses regulation on the most important FMIs while minimising the barriers to entry and compliance costs which might otherwise hinder new entrants and the development of new products—for example, around retail payments.

Under the bill, regulatory requirements for designated FMIs will be set—their standards made by the regulators. The power to set standards is designed, among other things, to allow standards to cover the matters in the global guidelines for FMI regulation, the Committee on Payment and Settlement Systems and the International Organisation of Securities Commission's Principles for Financial Market Infrastructures. For example, the bill permits standards to be made for matters such as FMIs' governance, risk management, and financial resources.

For the purposes of day-to-day supervision of designated FMIs, the bill provides the regulators with information-gathering powers and powers to oversee the rules of those FMIs. For example, changes to the rules of a designated FMI must be approved by the regulators, and the regulators must also require that the rules of the designated FMI be changed. Furthermore, the bill requires designated FMIs to have credible contingency plans for how they will manage risks and continue to provide or promptly restore essential services in the face of operational or financial distress. Detailed requirements for contingency plans can also be set in the standards made by regulators. Under the bill standards, oversight of FMI rules, contingency plans, and supervisory powers will all help lower the risk of a designated FMI failing and ensuring that failures that do occur can be managed with the least amount of disruption.

As a backstop to these measures, the bill also provides crisis management powers, specifically direction powers and a tailored statutory management regime for the operators of designated FMIs. Directions may require a designated FMI to take a range of actions to address problems. For example, under a contingency plan, participants in a FMI may also be directed to comply with the FMI's rules in certain situations—for example, to facilitate orderly resolution of a designated FMI.

The statutory management regime in the bill is the crisis management power of last resort and provides an alternative to normal insolvency processes such as liquidation, which are not suitable for managing the failure of a designated FMI, because this will disrupt the provision of essential services that they provide. The crisis management powers are likely to be some of the most important—if rarely used—powers in the bill. The lack of crisis management powers is one of the most significant gaps in the existing regulation of FMIs. Not having these powers available makes it much harder to deal with an FMI failure and avoid disruption to the provision of essential services, with potentially very serious impacts on the financial system due to the stresses that will be placed on market participants.

As noted, the bill provides the regulators with a much more limited set of powers in respect of non-designated FMIs, and this reflects that these will not be systemic nor have access to the legal protections around settlement, finality, netting, and the enforceability of rules that are afforded to designated FMIs. The more limited information-gathering and investigative powers that will apply to non-designated FMIs will be used mainly for the purpose of monitoring the broader sector and identifying whether an FMI has become systemic and should be further regulated under the regime.

For clarity, it is worth noting the connections between the FMI bill and phase two of the Reserve Bank of New Zealand Act review. While they are separate matters on different timelines, there are connections in certain areas in particular crisis management. At a later point, after this bill is enacted, we may look to review some aspects of the regulatory regime of FMIs to take into account the detailed conclusions of phase two. In the meantime, there are two or three years anticipated before all of that legislation comes into effect, and this bill is an important step in its own right and should advance ahead of the phase two legislation.

Finally, the bill contains a graduated set of remedies for breaches. These include criminal and civil penalties, enforceable undertakings, and remedial notices, which will require an FMI operator to take action to remedy a breach. While the operation of FMIs is often taken for granted on a day-to-day basis, they are vital to the operation of the financial system and to all consumers and citizens, and ensuring that they operate in a sound and efficient manner is important for people to go about their daily lives. Because most transactions in the financial system are, and all electronic payments ultimately rely on FMIs, their disruption or failure can have a serious adverse impact on the operation of the financial system and in the real economy and the day-to-day ability of businesses and consumers to buy and sell their products.

As noted, the IMF has expressed support for the approach reflected in this bill, and the bill closes an important regulatory gap in New Zealand by ensuring that these vital but often little noticed infrastructures are subject to effective supervision and oversight. In doing so, it marks an important step in supporting financial stability and the effective operation of financial markets, aligning with international standards in a reasonable and proportionate manner, and supporting confidence in the New Zealand financial system and the operation of the real economy. I commend the Financial Market Infrastructures Bill to the House.

Hon PAUL GOLDSMITH (National): Thank you, Mr Speaker. It's my pleasure to speak on this, the first reading of the Financial Market Infrastructures Bill and to signal that the National Party will be supporting this legislation through—certainly at the first reading. We do want to—I mean, this was a piece of legislation which relates to improving the regulatory framework for financial instruments, market infrastructures, that relate to, as the Minister of Finance said, to the plumbing of the financial system, which we don't think about very often, we just assume that it works. And, for the most part, it does work. It works effectively and New Zealanders are very well-served by the system that we have in place right now.

That is a fairly light regulatory framework. We've had many visits from international institutions, such as the IMF over the years, which say we should regulate more in this area. And they said that again in 2016, and the previous National Government, of which I was a part, agreed with recommendations from the Reserve Bank that we should move in this direction. And that's why we support the overall thrust of the bill, which, in essence, is establishing a regime whereby the Reserve Bank and the Financial Markets Authority (FMA), as joint regulators, would have information-gathering powers for all financial market infrastructures (FMIs) in order to monitor the broader sector and identify potential systemic risks.

Then, secondly, an FMI which is identified as being significant could be required to be designated under a revised designation regime. And then, thirdly, the joint regulators would have enhanced regulatory oversight powers for designated FMIs, including the powers to set regulatory requirements, oversee their rules, investigative and enforcement powers, and crisis management powers. And finally, where relevant, designated FMIs would be able to access the legal protection around settlement finality—that is, some final clarity around where they sit and netting that currently exists under Part 5C of the Reserve Bank of New Zealand Act.

Now, of course, the critical question is: in all these fine arrangements, have we got the details right? And this bill's been actually well signalled and well consulted over a number of years with the industry and so we have a reasonable confidence that the balance will be right. But we're interested, particularly, in when to test whether the broad powers of intervention given to the Reserve Bank and the FMA are justified, and, in particular, when bodies consider the market or specific institutions are in a state of distress—the limit, where they make that decision, and whether that's set appropriately.

I suppose the point that worries me slightly is that when we look at the regulatory impact statement from the Reserve Bank, they make the point that the nature of the analysis of the regulatory impact statement—which is where the officials sit down and work out whether the costs of a proposed new set of regulations are justified by the benefits, or that the costs are less than the benefits gained, which is what you need to do—they're not particularly reassuring, to be honest.

It says, "The Reserve Bank requested cost estimates from [the] industry during … consultations but only one organisation provided such figures. … A full cost-benefit analysis would normally provide more certainty that the proposals … have a net benefit for New Zealand. However, given the lack of cost estimates, alongside the low probability high impact nature of [an] FMI failure, [etc., etc.,] … [that any] full cost-benefit analysis is unlikely to be robust enough to provide meaningful additional information and could be misleading."

So the upshot of that seems to be that they're really just having a guess as to whether the whole regime is justified, and so we will certainly be taking a great deal of interest in the select committee process, hearing directly from market participants to reassure us that this step towards greater regulation in this space is justified, that the appropriate levels are laid down, and that New Zealanders—who, ultimately, pay for any costs imposed by regulation through fees in the banking system—are getting something for that extra cost.

We need to actually see some numbers around that and have some real effort, because what often happens is that Government departments write a regulatory impact statement early on, at the start of a bill, and say, "Well, we haven't actually got the detail. We don't really know, but we'll come back and come up with something more detailed later on in the process in the future.", and they never do. So once we've started the process, it just rumbles on and we never actually get to the bottom of it. So we just want to signal right here, right now, that we'll be paying very close attention to that.

But, in the broader sense of the word, we're very supportive of the instinct behind the bill, and we're going to work constructively and collaboratively with the Government in the development of this legislation. Thank you, Mr Speaker.

Dr DEBORAH RUSSELL (Labour—New Lynn): Thank you, Mr Speaker. I thank the previous speaker, Mr Goldsmith, for the support for this bill to work on it at the select committee stage. I will, I think, look forward to working on it. It is quite a technical bill, and I just want to speak about a couple of things in connection with it today. What the bill does is it regulates financial market infrastructures.

My guess is that the people listening at home—because, of course, there are lots of people listening at home to highly technical bills like this—may not know what those financial market infrastructures are. It is a technical term. Let me give an example of one of the types of infrastructures—one of the types of entities—that will be regulated by this bill.

One type of financial market infrastructure is a payment system. It's a payment system that needs to operate smoothly and effectively, and it's a payment system that everyone needs to have a degree of trust in, to ensure that all transactions happen smoothly on an ongoing basis. For people watching at home, the payment system that you're most likely to be familiar with is EFTPOS—the EFTPOS system, a system that most of us use every day. It is probable that under this bill the EFTPOS system will be regulated as a financial market infrastructure. So payment systems are financial market infrastructures.

Settlement systems are financial market infrastructures. That's systems or arrangements for making settlement or for processing settlement instructions. So that's quite important. There's a large one, NZClear, which needs to be regulated. It turns out that the average daily value of transactions that go through NZClear is about $7 billion. That's a lot of money, and we need to make sure that, again, it's being processed effectively and efficiently and that the people using it, and the entities using it, are sure that their transactions are going to be processed properly and that they can engage with that system with a fair degree of trust.

There are central counterparties (CCPs), which are entities which help to settle as a counterparty. So they become the buyer to every seller and the seller to every buyer. They, in effect, sit in between buyers and sellers, and it eliminates the credit risk to both parties. Again, that sounds like quite a complicated system. Everyone who's using it needs to be sure that it's going to be operating effectively and efficiently and that they can trust the system. We have just the one CCP in New Zealand, the New Zealand Clearing and Depository Corporation, NZCDC, and that operates as the central counterparty in markets operated by NZX—by the New Zealand stock exchange. Again, there's several hundred million dollars of transactions going through that every day, so it's very important to us.

There are also trade repositories and central securities depositories—again, financial market infrastructures.

So these are all quite technical entities, and, for most of us, the way that we come into contact with them is through the very basic one of a payment system, the EFTPOS system. But they are important to the functioning of our trading systems, to the functioning of our markets, and to the functioning of our economy.

It was very clear that the IMF thought we really did need to review our rules around them and to improve them. The process of consultation on this started back in 2013. It carried on through into 2015. So this bill has been a long time in gestation in terms of the consultation that has gone on around it to make sure that it was doing what it is supposed to do.

So it started under the previous Government. It is being progressed under this Government. I think it likely that we will reach agreement on it, particularly if we do attend to the issues that are raised in select committee.

There is one issue I wish to raise, and it's something that is puzzling me, and I think it's going to irritate me right the way through this bill: "financial market infrastructures". That plural word is somehow just tweaking something on my grammar wonk soul. I guess I'll just have to deal with it, because it looks like a technical term that's sitting in the bill.

Hon Judith Collins: No, I'm with you.

Dr DEBORAH RUSSELL: I'm pleased to hear that my colleague the Hon Judith Collins agrees with me. Ms Collins, I'm sure that we will enjoy discussing it at length in the select committee process. I recommend this bill to the House.

Hon JUDITH COLLINS (National—Papakura): It only seemed right that I should take the call on this matter, since peace has broken out across the House on it. Like the member who's just resumed her seat, the thought of "infrastructures"—it's a bit like everything now is apparently a "learning". It just drives me nuts. Whatever happened to a lesson? But there we go.

These are the big issues that Dr Deborah Russell and I will no doubt consider at length during the—[Interruption] Oh, and the Hon Ron Mark wants to say so too. He agrees with me and Dr Russell.

Hon Ron Mark: I was just saying "Hi." and "Welcome back."

Hon JUDITH COLLINS: Oh—hi, and great to see you too, the Hon Ron Mark.