Overview of NBDT regime

The Reserve Bank regulates non-bank deposit takers (NBDTs) in New Zealand for the purposes of promoting the maintenance of a sound and efficient financial system, and avoiding significant damage to the financial system that could result from the failure of an NBDT.

The Reserve Bank of New Zealand Act 1989 (the Act) refers to NBDTs as "deposit takers". They offer debt securities to the public (as defined in the Securities Act 1978) and carry on the business of borrowing and lending money, or providing financial services, or both. However, they do not include registered banks. Regulations made under the Act may also declare a person or class of persons to be, or not to be, deposit takers.

Trustee companies are responsible for supervising NBDTs’ compliance with the prudential regulations established by the Reserve Bank.

In December 2005, government agreed that the Reserve Bank should be the sole prudential regulator of the New Zealand financial system, including the NBDT sector. The regulatory framework anticipated for NBDTs would give the Reserve Bank the role of licensing NBDTs, and developing and enforcing minimum prudential and governance requirements.

In September 2008, the Reserve Bank of New Zealand Amendment Act was passed, laying the foundation for the prudential regulations that have been developed by the Reserve Bank. A list of the requirements is detailed in the table below. For more information on the regime, please refer to Prudential requirements for NBDTs, and Q&As on the regime.

Summary of NBDT prudential requirements currently in force

Requirements	Summary	Timing of requirements
Credit ratings	NBDTs are required to have a local currency (New Zealand dollar), long-term, issuer rating, given by: - Standard and Poor’s Rating Services; - Moody’s Investors Service; or - Fitch Ratings.	In force since 1 March 2010.
Governance	NBDTs that are companies or building societies must have a chairperson who is not an employee of either the NBDT or a related party, and must have at least two independent directors. NBDTs that are subsidiaries are prohibited from including provisions in their constitutions that would allow directors to act otherwise than in the best interests of the NBDT.	In force since 1 December 2010.
Risk management	NBDTs are required to have a risk management programme that outlines how the NBDT identifies and manages its key risks. This programme is to be submitted to, and approved by, the NBDT’s trustee.	In force since 1 September 2009.
Capital	A minimum capital ratio is required to be included in NBDTs’ trust deeds. This ratio must be at least 8 percent for NBDTs with a credit rating from an approved credit rating agency. For those without a credit rating from an approved rating agency, the minimum capital ratio specified in the trust deed must be at least 10 percent.	In force since 1 December 2010.
Related party exposure limits	Related party restrictions place a limit on the aggregate credit exposures of an NBDT, or the borrowing group, to all related parties to be specified in NBDTs' trust deeds. The related party exposures should not exceed a maximum limit of 15 percent of tier one capital. The definition of "related parties" is expanded under the regulations.	In force since 1 December 2010.
Liquidity	Liquidity regulations require every NBDT and its trustee to ensure that the NBDT’s trust deed include one or more quantitative liquidity requirements that are appropriate to the characteristics of the NBDT’s business, and that take into account the liquidity of the NBDT and the liquidity of any borrowing group. The Reserve Bank has published guidelines for NBDTs and trustees to assist with the development of the quantitative liquidity requirements.	In force since 1 December 2010.