Regulation of Non-bank Deposit Takers

This section provides information for industry participants and the general public on current developments in the prudential regulation regime for non-bank deposit takers.

Background

The Reserve Bank regulates non-bank deposit takers 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 a non-bank deposit taker.

Non-bank deposit takers are defined in the Reserve Bank of New Zealand Act 1989 (“the Act”) as entities that are not registered banks, but which issue debt securities (as defined in the Securities Act 1978) to the public and carry on the business of borrowing and lending money, or providing financial services (or both). The definition includes building societies and credit unions.

RBNZ Policy Positions

It will often be straightforward to determine whether an entity meets the definition of a non-bank deposit taker for the purposes of Part 5D of the Act. However there may be situations where the law is not so clear-cut, or where the law does appear to apply. In this regard the Reserve Bank will provide general guidance on such matters where it is considered appropriate (especially in the transitional stages of the regime). This guidance is detailed in the table below. The table will be updated from time to time to reflect any development or change in the Reserve Bank’s policy stance.

The Reserve Bank wishes to emphasise that it is a matter for an entity to seek its own legal advice on the application and operation of the law, and it is the Court ultimately that is the final arbiter when it comes to this. Moreover, this table illustrates the Reserve Bank’s general policy position, although any application for an exemption will be considered on a case-by-case basis.

Category	RBNZ policy positions (updated June 2009)
Corporate issuers	Corporate issuers such as manufacturing companies or utility providers that issue bonds, debentures or other debt securities and that carry on non-financial business are generally not considered by the Reserve Bank to be deposit takers.
Funding conduits	A genuine funding conduit may be exempted subject to conditions (upon application to the Reserve Bank) from related party, governance, risk management, liquidity and minimum capital ratio requirements, but not the credit rating requirement. To be eligible for these exemptions a funding conduit is expected to have all of the following attributes: it is a wholly owned subsidiary; its primary purpose is to on-lend all (or at least 95%) of the funds raised to its parent or group; its debt securities are unconditionally guaranteed by its parent; the parent is party to a listing agreement with a registered exchange and has an established presence or track record in the market it operates in; and neither the parent nor any member of the group is a financial institution (as defined in the Act).
Payment facility providers	A genuine payment facility provider may be exempted subject to conditions (upon application to the Reserve Bank) from all the non-bank deposit taker requirements. In order to be eligible for an exemption, a payment facility provider is expected to have all of the following attributes: It does not provide any other financial service apart from that of a payment facility; Its payment facility: is a call security, i.e. the balance is repayable on demand; can be used in a similar way to cash, i.e. to make payments for goods and services; does not pay interest to the holder of the payment facility; and, does not form part of another financial product e.g. the facility cannot be used by the holder to obtain credit.
Entities exempted under the Securities Act 1978	The following provisions of the Act require non-bank deposit takers to meet regulatory requirements that are imposed through trust deeds (once relevant regulations are in force): Section 157P which relates to minimum capital; Section 157S which relates to a capital ratio (regulations are expected to be promulgated in 2009); Section 157V which relates to a maximum limit on exposures to related parties (regulations are expected to be promulgated in 2009); Section 157Z which relates to liquidity requirements (regulations are expected to be promulgated in 2010). These sections apply to all non-bank deposit takers notwithstanding that they are exempt from having a trust deed for the purposes of the Securities Act. Non-bank deposit takers that fall within this category must either: adopt a trust deed in a manner that complies with both the Securities Act and the Act; or apply to the Reserve Bank for an exemption from those sections listed above.

In addition, the Reserve Bank is currently working on the following class exemption to give effect to policy decision relating to specific classes. In general terms this exemption is:

a class exemption in relation to s.157I: The exemption will exempt deposit takers listed in the schedule of the exemption notice (deposit takers that have entered into moratorium agreements with their creditors and are unable to issue new debt securities to the public), from the requirement to have a current credit rating. In order to benefit from this exemption, entities will need to apply to be named in the exemption notice. An exposure draft can be found here. The Bank invites all deposit takers that wish to be added to the schedule before this notice is gazetted in November to apply to the Bank as soon as possible. The application should outline how the deposit taker meets the conditions in the exemption notice and should provide details of the moratorium agreement including the expiry date of the agreement.

The class exemption will contain terms and conditions that must be met before an entity can rely on the specific class exemption.

The Reserve Bank is also currently considering the appropriate treatment of the following types of entities, and will update the above table once policy has been finalised:

non-bank deposit takers who have negotiated payment moratoria in relation to their outstanding debt securities;
Australian issuers;
non-bank deposit takers belonging to a banking group; and
trustees (as defined in the Act) that are also taking deposits.

Trustee companies are responsible for supervising non-bank deposit takers’ compliance with the prudential regulations established by the Reserve Bank.

NBDT capital policy paper

3 November 2009

On 19 December 2008, the Reserve Bank published a consultation paper seeking views on a proposed policy for minimum capital requirements for NBDTs. After consulting with the sector the Reserve Bank has come to a view on appropriate risk weights for different asset categories. It has released a technical policy paper (PDF 140KB) to explain the logic underlying the proposed risk weighting structure of the regime. The final regulations are expected to be promulgated by the end of the year.

Risk management programme guidelines

13 July 2009

Following public consultation, the Reserve Bank released its risk management programme guidelines (PDF 129KB) for non-bank deposit takers, which includes some changes in response to submissions. Other related issues raised in submissions are addressed in the Regulation of Non-Bank Deposit Takers FAQs.

Approved rating agencies

On 19 March 2009 the Reserve Bank approved the following rating agencies for the purposes of Part 5D of the Act:

Fitch Ratings;
Moody’s Investors Service; and
Standard & Poor’s Ratings Services.

Guidelines for credit rating agencies

On 15 December 2008 the Reserve Bank released its guidelines for credit rating agencies (PDF 48KB) applying to be approved under Part 5D of the Reserve Bank of New Zealand Act 1989 and the process for rating agency applications.

The consultation paper that first discussed the policy for approving credit rating agencies for the non-bank deposit taker regime was issued in September 2008.

Exemptions from the NBDT regime

Institutions can be exempted from the non-bank deposit taker regime. Under section 157G (in Part 5D) of the Act, the Reserve Bank may exempt a deposit taker, class of deposit takers, or trustee from compliance with any provision or provisions of Part 5D, or any regulations made under Part 5D.

For more information on the exemption process please refer to non-bank deposit taker exemptions. Some general guidance on particular matters is also given in the table above.

NBDT prudential regulation regime developments

12 June 2009

The Reserve Bank released for consultation draft risk management programme guidelines (PDF 127KB) for non-bank deposit takers. The Bank invites submissions to be made by 29 June 2009.

17 February 2009

The Reserve Bank released a consultation paper (PDF 59KB) proposing the type of credit rating non-bank deposit takers are required to hold from 1 March 2010. The paper proposes the use of local currency, long term, issuer ratings. The Bank invites submissions to be made by 9 March 2009.

19 December 2008

The Reserve Bank has released a consultation paper (PDF 221KB) seeking comment on two proposed policies for non-bank deposit takers:

related party requirements; and
minimum capital ratio framework.

Comments and responses to the questions raised in the Consultation Paper should be submitted by 9 February 2009, as regulations are targeted to be in place in the second quarter of 2009.

The Bank intends to undertake consultation with stakeholders in early 2009, and will release details of consultation meetings it will hold around the country shortly.

3 September 2008

On 3 September 2008 the Minister of Finance announced the passing of the Reserve Bank Amendment Act.

The Reserve Bank in a news release welcomed the passing of the Reserve Bank Amendment Act, making the Reserve Bank the prudential regulator of non-bank deposit takers.

The following fact sheets provide summaries of the Reserve Bank’s approach to the regulation of non-bank deposit takers:

Fact sheet for the public Also available in PDF format (66KB)

Fact sheet for the industry Also available in PDF format (68KB)

For more information on the regime please see FAQs.