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 in the Act specifically 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. In this regard the Reserve Bank will endeavour to 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, and any application for an exemption will always be considered on a case-by-case basis.

Category	RBNZ policy positions (last updated February 2010)
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 Reserve Bank may also have regard to the following matters in connection with an exemption application: any listing, or proposed listing, of securities by a member of the group on a recognised exchange and/or the standing of the group across its business activities; the nature of any borrowing and lending, or the provision of financial services, elsewhere in the group.
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 in New Zealand other than that of a payment facility; its payment facility: is a call security, i.e. the balance is repayable on demand; is not interest bearing or does not generate any consideration in the nature of interest; and does not form part of another financial product e.g. the facility cannot be used by the holder to obtain credit. This exemption is effected through the Deposit Takers (Payment Facility Providers) Exemption Notice 2009 which commenced on 16 October 2009. Payment facility providers are required to be approved by the Reserve Bank before they can rely on the exemption.
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 effective in the latter part of 2010); section 157V which relates to a maximum limit on exposures to related parties (regulations are expected to be effective in the latter part of 2010); section 157Z which relates to liquidity requirements (regulations are expected to be effective in the latter part of 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.
Overseas Issuers	Overseas deposit takers operating in New Zealand are subject to New Zealand law and are required to comply with the prudential requirements of Part 5D. Australian deposit takers operating in New Zealand under the Mutual Recognition of Securities Offerings regime may be exempted from the Part 5D requirements relating to a New Zealand trustee and trust deed: if the nature of the supervision exercised by the Australian trustee is comparable to that of a New Zealand trustee under Part 5D; and appropriate arrangements are in place for the Australian trustee to undertake the responsibilities as are imposed on a New Zealand trustee under Part 5D e.g. those arising under sections 157ZE – 157ZG.

In addition, the Reserve Bank is currently working on the following class exemption:

Charities and religious organisations: a class exemption in relation to s.157I, the exemption will exempt deposit takers operating under the Securities Act (Charitable and Religious Purposes) Exemption Notice 2003, from the requirement to have a current credit rating until November 2012.

It is anticipated that this exemption will be in place by the end of March 2010. The exemption will contain terms and conditions that must be met before an entity can rely on the exemption.

The Reserve Bank is 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 otherwise negotiated payment moratoria in relation to their outstanding debt securities;
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.

Credit Rating Regulations

Following public consultation, the Deposit Takers (Credit Ratings) Regulations 2009 were gazetted on 23 December 2009. These regulations require a credit rating from 1 March 2010, for the purposes of section 157I, to be a local currency (New Zealand dollar), long-term, issuer rating. A full copy of the regulations can be found here. Ratings must be from a Reserve Bank approved rating agency, details of which can be found below.

Capital and Related Party Exposures

Following public consultation, draft regulations have been developed in relation to capital ratios and related party exposures for non-bank deposit takers. A consultation document (PDF 72KB) and an exposure draft (PDF 170KB) of the regulations were released in February 2010 ahead of their formal promulgation later in 2010 (expected to be in September).

Risk management programme guidelines

Following public consultation, the Reserve Bank released its risk management programme guidelines (PDF 129KB) for non-bank deposit takers, which include 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

2 February 2010

The Reserve Bank has released a consultation paper (PDF 129KB) on policy options for liquidity requirements for the non-bank deposit taking sector. The Bank invites submissions to be made by 15 March 2010.

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.