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Exemptions from the Non Bank Deposit Takers Regime

About Exemptions

Under the Reserve Bank of New Zealand Act 1989 (‘the Act’) the Reserve Bank of New Zealand (‘the Bank’) is the prudential regulator of non-bank “deposit takers” (‘NBDT’) and deposit takers are required to comply with a new set of prudential requirements. Some of these are in the process of being developed and the relevant regulations will be introduced later in 2009 and 2010.

The prudential requirements can be broadly categorised into the following six areas:

  • Capital (to apply once regulations have been promulgated under section 157P and/or section 157S of the Act);
  • Liquidity (to apply once regulations have been promulgated under section 157Z of the Act);
  • Governance (to apply at a date to be set by Order in Council);
  • Risk management (to apply from 1 September 2009);
  • Credit ratings (to apply from 1 March 2010);  and
  • Restrictions on related party exposures (to apply once regulations have been promulgated under section 157V of the Act).

Section 157G of the Act empowers the Bank to exempt entirely, or from specific requirements (listed above) of the regime, any deposit taker, class of deposit taker or trustee.

The purpose of exemptions is to allow more flexibility when applying the NBDT regulatory regime to specific entities or classes of entities provided certain conditions are met. The Bank can only grant an exemption when it is satisfied that:

  • the exemption will be consistent with the maintenance of a sound and efficient financial system;
  • compliance with the relevant provision or provisions would, in the circumstances, require the deposit takers, or class of deposit takers to comply with requirements that are unduly onerous or burdensome; and
  • the extent of the exemption is not broader than what is reasonably necessary to address the matters that gave rise to the exemption.

The presumption is that all entities that clearly fall within the definition of a deposit taker will be subject to prudential requirements, and that exemptions – especially class exemptions – should be the exception not the rule. 

The Act permits the Bank to place terms and conditions on an exemption as it sees fit, to allow for alternative prudential requirements and mechanisms so as to ensure that the substance of the original obligation is maintained. Therefore in cases where an exemption from certain obligations is appropriate (for example capital, related party, or liquidity requirements) the exemption is likely to be accompanied by the imposition of alternative terms and conditions.  That is, all deposit takers can expect to be required to meet some form of minimum capital, related party or liquidity standard, but the detailed requirements and exact form may differ depending on individual circumstances. 

When considering an exemption, and any associated terms and conditions, the Bank must take into account the following principles as set out in s 157F of the Act-

  • the desirability of consistency in the treatment of similar institutions, regardless of matters such as their corporate form;
  • the importance of recognising
    • (i) that it is not the purpose of this Part to eliminate all risk in relation to the performance of deposit takers or to limit diversity among deposit takers; and
    • (ii) that depositors are responsible for assessing risk in relation to potential investments and for their own investment choices;
  • the desirability of providing to depositors adequate information to enable them to assess risk in relation to potential investments and to distinguish between high-risk and low-risk deposit takers;
  • the desirability of sound governance of deposit takers;
  • the desirability of effective risk management by deposit takers;
  • the need to avoid unnecessary compliance costs;
  • the need to maintain competition within the deposit taking sector.

Until all the intended requirements of the NBDT regime are in place, the Bank is only considering applications for exemptions from the risk management requirements under sections 157M – O, and the credit rating requirements under section 157I of the Act.

Exemptions Granted

The Bank has exercised its power under section 157G of the Reserve Bank Act of New Zealand 1989 and has granted the following exemptions from some of the requirements of Part 5D-

Class Exemptions

  • Deposit Takers (Credit Ratings Minimum Threshold) Exemption Notice 2009 (commencement date 7 August 2009).  This is a class exemption for certain deposit takers from the requirement to have a mandatory credit rating, under Part 5D.  This exemption is available if the consolidated liabilities of the borrowing group of the deposit taker are less than $20 million (measured as an average over a 12-month period).  The exemption notice outlines certain conditions that a deposit taker must comply with in order to benefit from this class exemption.    For a copy of this exemption notice go to the New Zealand Legislation website.

  • Deposit Takers (Non-trustee Entities Risk Management) Exemption Notice 2009 (commencement date 1 September 2009).  This is a class exemption that exempts every deposit taker that is not required to have a trust deed or trustee (under the Securities Act 1978) from the requirement to have its risk management programme signed off by a trustee and requires the sign-off to be from the deposit taker’s governing body. This is not an exemption from having a risk management programme as required under section 157M of the Act. For a copy of this exemption notice go to the New Zealand Legislation website.  

  • Deposit Takers (In Receivership or Liquidation) Exemption Notice 2009 (commencement date 9 October 2009).    This is a class exemption for deposit takers that are in receivership or liquidation and do not offer debt securities for subscription (except specified securities as outlined in the notice), from the requirements to have a risk management programme and a mandatory credit rating, under Part 5D.  For a copy of this exemption notice go to the New Zealand Legislation website.

  • Deposit Takers (Payment Facility Providers) Exemption Notice 2009 (commencement date 16 October 2009).    This is an exemption for certain deposit takers that are payment facility providers (listed in the schedule of the notice), from the requirements to have a risk management programme and a mandatory credit rating, under Part 5D of the Reserve Bank of New Zealand Act. Currently the exemption only applies to Interpayment Services Limited, which is a deposit taker to which Part 5D of the Act applies. For a copy of this exemption notice go to the New Zealand Legislation website.

  • Deposit Takers (Moratorium) Exemption Notice 2009 (commencement date 18 December 2009).    This is an exemption for certain deposit takers that are in moratorium and listed in the schedule of the notice, from the requirements to have a mandatory credit rating, under Part 5D of the Reserve Bank of New Zealand Act.  For a copy of this exemption notice go to the New Zealand Legislation website.

  • Deposit Takers (Funding Conduits) Exemption Notice 2010 (commencement date 12 March 2010).    This is an exemption for certain deposit takers that are funding conduits (listed in the schedule of the notice), from the requirements to have a risk management programme and a mandatory credit rating (subject to the conditions as outlined in the notice), under Part 5D of the Reserve Bank of New Zealand Act. For a copy of this exemption notice go to the New Zealand Legislation website.

  • Deposit Takers (Charitable and Religious Organisations) Exemption Notice 2010 (commencement date 7 May 2010).    This is a class exemption that exempts every deposit taker that is operating under the Securities Act (Charitable and Religious Purposes) Exemption Notice 2003, from the requirement to have a current credit rating under Part 5D of the Reserve Bank of New Zealand Act.  This exemption expires on 30 November 2012.  For a copy of this exemption notice go to the New Zealand Legislation website.

Individual Exemptions

  • Deposit Takers (Public Trust) Exemption Notice 2010 (commencement date 1 March 2010). This is a short term exemption for the Public Trust from the requirements to have a credit rating, under Part 5D of the Reserve Bank of New Zealand Act. This exemption expires on 1 September 2010. For a copy of this exemption notice go to the New Zealand Legislation website.

  • Deposit Takers (Goldman Sachs JBWere Capital Markets Limited) Exemption Notice 2010 (commencement date 1 March 2010). This is a short term exemption for the Goldman Sachs JBWere Capital Markets Limited from the requirements to have a credit rating, under Part 5D of the Reserve Bank of New Zealand Act. This exemption expires on 1 September 2010. For a copy of this exemption notice go to the New Zealand Legislation website.

  • Deposit Takers (Wine Country Credit Union) Exemption Notice 2010 (commencement date 30 April 2010).    This is an exemption for Wine Country Credit Union from the requirements to have a current credit rating, under Part 5D of the Reserve Bank of New Zealand Act.  This exemption expires on 1 March 2012.  For a copy of this exemption notice go to the New Zealand Legislation website.

How to Apply for an Exemption

All applications must be made in writing and should follow the format outlined below.

Who is applying?

Provide the full name, address and corporate status of the applicant seeking the exemption.

For deposit takers that have a trustee, provide the full name and address of the appointed trustee company.

What is the nature of the business?

Describe the business being carried out by the applicant. It would be helpful to provide as much background of the deposit taking activities, including details of the debt securities offered to the public, any financial services offered and the borrowing and lending arrangements.

What do you want an exemption from?

Specify the provisions of the Act and/or Regulations from which an exemption is sought, and submit any terms and conditions on the exemption that the applicant considers are appropriate.

Why are you seeking an exemption?

Explain, for each provision of the Act and/or Regulations from which an exemption is sought, why the exemption is needed and give full reasons which may justify an exemption. As the Bank must take into account the principles set out in the Act, applicants should outline how they believe that receiving an exemption would satisfy these principles.

This includes the need for applicants to demonstrate that it would be unduly onerous or burdensome to comply with the primary obligations under the Act or Regulations.

What effects will there be on the applicant’s business?

Describe the effects on the applicant’s business, and the relative costs and benefits, of (a) having an exemption and (b) not having an exemption.

What effects will there be on existing and prospective depositors?

Describe how the applicant’s proposed exemption may affect existing and prospective depositors and any costs and benefits to them.

Supporting Documentation

Applicants should supply the following documentation in support of the application:

  • the prospectus and investment statement;
  • a copy of the trust deed or deed of participation;
  • the most recent financial statements;
  • details of incorporation.

In addition, applicants may include other relevant documents, these could include:

  • any other document relating to the offer of securities, financial services or lending and borrowing services that are relevant to the application;
  • a draft exemption notice;
  • any relevant legal advice.

The Bank may also request further information that it deems necessary in order to assess the application.

What Steps are Involved?

1. Application considered by the Bank

Applications are considered by Bank staff. Applicants may be asked to provide further information at any stage of the consideration process.

Once a decision is reached, the Bank will inform the applicant of the Bank’s decision.

2. Notice drafted by Parliamentary Counsel Office

If the application is successful, the Bank will instruct the Parliamentary Counsel Office (‘PCO’) to prepare an exemption notice giving effect to the exemption. PCO is a separate office of Parliament and is New Zealand’s law drafting office. PCO is responsible for drafting all legislation and delegated legislation including exemption notices.

3. Notification in the New Zealand Gazette

The Bank must give notice of the exemption in the Gazette, which is published each Thursday. In most cases the exemption does not come into force until the day after it has been notified in the Gazette.

How Long Does it Take?

It is expected that it would generally takes three months from the time the Bank receives all relevant information relating to an application until a successful exemption is gazetted. However, this may be much longer if policy questions arise. Applicants should provide the Bank with all relevant information promptly as the length of the assessment process will ultimately depend on the nature and quality of the application.

Please note that the three month estimate includes time for referral to Parliamentary Counsel Office for drafting the exemption notice and for notification in the New Zealand Gazette.

If the application is urgent the applicant must provide a time frame within which a decision is required and any exemption granted taking effect. Reasons must be given for any request for urgent consideration.

How to Contact Us

Domestic Deposit Taking Oversight Team
Prudential Supervision Department 
Reserve Bank of New Zealand
2 The Terrace
PO Box 2498 
Wellington
New Zealand

Telephone +64 4 472 2029  
Fax +64 4 471 3995   
Email: NBDT.exemptions@rbnz.govt.nz