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Advertising by non-bank financial institutions

Legislative changes will impact on any advertising undertaken by non-bank financial institutions. The Reserve Bank of New Zealand Amendment Act 2003 became law on 21 August 2003. This Act amends several Parts of the Reserve Bank of New Zealand Act 1989, including Part IV which deals with use of the words "bank", "banker" and "banking" (referred to as the "restricted words"). A new section, "Section 66B - Limit on use of restricted words in advertisement" has been added. This section states that:

  1. No specified person may use a restricted word in any advertisement unless the advertisement contains a statement that complies with subsection (2).
  2. The statement must-

(a) state that the specified person is not a registered bank; and
(b) be communicated in a manner that ensures, as far as is reasonably practicable, that the statement attracts the attention of the person to whom the advertisement is directed.

  1. A specified person commits an offence if the specified person contravenes this section.
  2. The penalty for an offence against this section is set out in section 66M.
  3. In this section and sections 66D and 66M,-

advertisement-
(a) means any thing used to promote-
i. the interests of a specified person; or
ii. the services or products of that person; and
(b) includes a trade mark of a specified person; but
(c) does not include the name or title of a specified person
specified person means a person that-
(a) is a financial institution; and
(b) is not a registered bank.

The penalties set out in section 66M include, in the case of a body corporate, a fine not exceeding $1,000,000.

The provisions of section 66B apply to advertisements in any media type. Non-bank financial institutions should check whether their advertising complies with section 66B, and if not take steps to ensure compliance.

In the case of a printed advertisement, the advertisement is more likely to comply if the disclaimer statement is:

· Placed in isolation from other text rather than surrounded by or placed in close proximity to other text.
· Placed in a prominent place in the advertisement - e.g. on the first page.
· Of a font size that is appropriate in relation to other font sizes used in the advertisement - e.g. the font size is no smaller than that used for the restricted words, or is no smaller than that used for the main body of the advertisement.
· The colour used helps distinguish the statement from other content.

The meaning of "advertisement" under section 66B is wider than the ordinary meaning of that word. The definition includes things that may not ordinarily be thought of as advertisements. Legal advice obtained by the Reserve Bank indicates that any thing intended by a non-bank financial institution to motivate customers to use the services or products of the institution, or to increase the goodwill of the institution is an "advertisement" subject to section 66B.

A non-exhaustive list of things that the Reserve Bank considers could carry "advertisements" includes the following:

· Television;
· radio;
· internet;
· video;
· cinema;
· DVD;
· Newspaper;
· magazine;
· brochure;
· any object;
· any building or structure; and
· any material sponsoring an event or entity.

This means that things such as signage, promotional items, and sponsorship material are all covered by the term "advertisement". The breadth of the definition means that almost anything that uses or carries the restricted words could be an "advertisement" if the restricted words are used with the intention to promote the interests, services or products of a non-bank financial institution.

Non-bank financial institutions should also be aware of section 72 of the Reserve Bank of New Zealand Act 1989, "Offence for a person who is not a registered bank to hold itself out to be a registered bank". This section was amended by the Reserve Bank of New Zealand Amendment Act 2003 - it now states:

(1) A person commits an offence if the person-
a. is not a registered bank; and
b. uses any name, title, trade mark, style, designation, or description that represents or implies that the person is a registered bank.

(2) The penalty for an offence against this section is set out in section 156AC.

The penalties set out in section 156AC include, in the case of a body corporate, a fine not exceeding $2,000,000.

If non-bank financial institutions wish to discuss any of these issues they should contact the Reserve Bank. The initial point of contact is Ken Matthews in the Financial Stability Department (tel: 04 471 3988, fax: 04 472 3262, email: matthewsk@rbnz.govt.nz).