Financial Services Policy

Contact: Russel Norman MP

russel [dot] norman [at] parliament [dot] govt [dot] nz (Email)

Download the Financial Services Policy as PDF

Background

This position paper outlines the Green Party's response to the challenge of restoring health, integrity and sustainability to New Zealand's financial services sector.

Definitions

Borrowing short & lending long: Banks borrowing money over the short term, e.g. 30 days, and lending it for longer periods, e.g. 1 year.

Capital adequacy ratios: A requirement for banks to have a percentage of their lending held as assets of the bank.

Capital requirements: Requiring finance companies to have adequate capital to cover repayments to investors while still having loans outstanding, similar to capital adequacy ratios for banks.

Derivatives: Financial products that are devised from another transaction, e.g. futures trades are putting a price on a sale that will take place at a future time. These started with agricultural products and minerals.

Instruments: generic description of financial products

Investment product innovation: New investment products, such as derivatives and complex securitisation, developed by financial institutions for the public to purchase.

Investment Prospectus : a legal document that provides information to potential investors about the investment being promoted including any risks and terms of purchase as well as key information about the company offering the investment.

Negative externalities: Outcomes that have costs borne by others rather than the originators of these costs. An example is Ireland, where crippling government debt was taken on to repay private debt held by the banks, leading to extreme austerity measures and resultant poverty in the population.

Proprietary Trading: When a firm trades for direct gain instead of commission dollars. Essentially, the firm has decided to profit from the market rather than from commissions from processing trades.

Related party transactions: A business deal or arrangement between two parties who are joined by a special relationship prior to the deal. For example, a business transaction between a major shareholder and the corporation, such as a contract for the shareholder's company to perform renovations to the corporation's offices, would be deemed a related-party transaction.

Ring Fencing: Ensuring that funds cannot be used for purposes other than stated.

Securitisation: Taking a liability, eg mortgages, and bundling them up together and selling them on as 'security for the mortgages'. This is a method of spreading the risk of lending or insuring

Vision

The Green Party envisions a transparent, well regulated and accountable financial services sector that is fiscally prudent (to the extent that it does not impose costs on the taxpayer), and able to provide the capital needed to fund a stable,sustainable economy.

Key Principles

New Zealand's financial services sector should:

1. Provide the finance and services that citizens, business and government need;

2. Contribute to a stable economy and lend only what is sustainable for citizens, business and government to service;

3. Be profitable to its shareholders and contribute to society via dividends and taxation.

4. Be answerable for the consequences of negative externalities that it imposes on the New Zealand community.

Policy Points

1. Regulation

New Zealand's small and weakly regulated financial companies have periodically enticed savers and investors into high-risk investments. Over time, this has led to investor mistrust, under-investment in genuine productive investment, and over-investment in the property market. To protect investors it is important that the government ensures appropriate regulation of providers of financial services. Good regulation will help ensure that people and businesses can access the finances they need without excessive risk of default

The Green Party will work to ensure:

1. The financial sector is sensibly regulated to ensure depositors are adequately informed of the risks they are taking and vulnerable depositors are not exploited

2. Appropriate controls on lending (e.g. to ensure that people and businesses can get the financing they need without excessive risk of default)

3. Closer monitoring of related party borrowings and set restrictions in size compared to funds available for lending.

4. Support for a move from rewards based on the amount invested to rewards based on the amount earned on that investment.

5. Economic, and therefore social, stability is a more important factor in setting regulation than market growth.

6. That as far as practical and consistent with our other principles, regulation should be consistent with the international regulatory environment, particularly Australia's, but not necessarily the same.

2. Regulators and Watchdogs

The Green Party supports the creation of an adequately funded Financial Markets Authority to:

1 Ensure that derivatives and securitisation are fully regulated.

2. Require auditors to draw attention to instruments that they do not fully understand and to list them as unquantifiable risks.

3. Ensure that trustees monitor and, if necessary, intervene in the amount of related party transactions - borrowing in particular.

4. Require that trustees and auditors ensure investments fit with the investment strategy and prospectus.

3. Banking

The Green Party supports:

1. The setting of capital adequacy ratios for all lending institutions.

2. Retaining the existing capitalisation requirements in the Reserve Bank Act, i.e. that they are NZ-registered companies and that they have secured local capitalisation.

3. Ensuring that bank debts created by any trading behaviour cannot be drawn against ordinary depositor's funds.

4. Ring fencing retail operations from proprietary trading.

5. Depositors' Guarantee Schemes to be funded by the licensed institutions, rather than the taxpayer

4. Keeping it Kiwi (Kiwibank and other NZ owned Banks)

The Green Party will:

Retain New Zealand government ownership of Kiwibank.
Support measures to strengthen Kiwibank to balance the foreign ownership of New Zealand's other major banks. We will encourage Kiwibank to strengthen its banking division, and allow it to retain its profits in order to do so.
Reduce Kiwibank reliance on wholesale financial markets, particularly offshore ones.
Ensure Kiwibank adheres to the Equator Principles and other relevant social and environmental standards when making loans or investment decisions.
Retain Kiwibank's goal of provision of reliable savings and other financial services to the people of New Zealand. It will not be allowed to engage in proprietary trading.
Make retail investing in government bonds easy and inexpensive by retailing them in small lots through Kiwibank.
Support measures to encourage other NZ owned banks and Credit Unions.
Provide support to regional and national initiatives and organisations which foster community economic development initiatives.
Provide the starting capital for a community owned banking network that:

Keeps money circulating locally;
Helps overcome problems with access to capital, reinvests profits locally supporting community activities and voluntary organizations;
Administers a community development fund, providing investment funds for local enterprises engaged in ecologically sustainable businesses;
Makes loans available to small business and community enterprises using innovative as well as traditional forms of security;
Has community ownership, including democratically elected, accountable shareholder directors;
Provides full retail and small-to-medium business banking services.

(See our Community and Voluntary Sector policy)

10. Develop an official rating system for the greenness or ethics of individual listed stocks or investment funds in order to support individual investors in choosing green or ethical investments

5. Financial Transaction Tax