New regulatory framework for deposit-takers

Friday 30 November 2007

All deposit-takers will have to be registered by the Reserve Bank and comply with minimum prudential requirements under a new regulatory framework.

Bell Gully has tracked and reported on the progress of the Government's Review of Financial Products and Providers in its publication Financial Services Quarterly. The latest development is the introduction of the Reserve Bank of New Zealand Amendment Bill (No. 3), which will require all deposit-takers to be licensed by the Reserve Bank of New Zealand.

Summary of the main aspects of the Bill

• "Deposit-takers" are defined as persons that:

  • offer debt securities to the public;

  • are in the business of borrowing and lending money or providing other financial services; and

  • include finance companies, credit unions and building societies.

• Deposit-takers will be required to obtain a credit rating from an approved rating agency.

• Regulations may be made under the legislation that could:

  • require deposit-takers to maintain a minimum amount of capital;

  • require deposit-takers to maintain a capital ratio set by trustees and measured by a standardised capital adequacy framework;

  • set a limit on deposit-takers' exposure to related parties;

  • impose liquidity and risk management requirements; and

  • impose corporate governance standards for deposit-takers.

• Reporting and attestation requirements are imposed on trustees to allow the Reserve Bank to meet its role as prudential regulator.

The Reserve Bank, the Securities Commission and trustees will each have responsibility for different aspects of the regulation of deposit-takers.

• The Reserve Bank will formulate, administer and enforce prudential requirements, and generally monitor the deposit taking sector.

• The Securities Commission will formulate, administer and enforce deposit-takers' disclosure requirements.

• Trustees will continue to supervise deposit-takers in connection with a trust deed.

Securities Act

Deposit-takers will continue to be supervised by trustees and to be subject to trust deed, prospectus and investment statement requirements under the Securities Act 1978.

Directors and senior managers

Fit and proper requirements will be imposed on directors and senior managers of deposit-takers, but these requirements will be implemented in separate legislation to be introduced in 2008.

For further information please contact:

David Craig
Partner

Murray King
Partner

Hugh Kettle
Partner

Rachel Gowing
Senior Associate