Questions and Answers - Proposed Deposit Takers Act
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|Purpose and Background|
|What is the rationale for the Review and what does it cover?||
In November 2017, the Minister of Finance Hon Grant Robertson announced a review of the Reserve Bank of New Zealand Act 1989 (the ‘Review’).
Much has changed in the 30 years since the Act was first passed, both in the international financial environment and with financial system regulation. The goal of the Review was to modernise New Zealand’s monetary and financial stability policy frameworks and the Reserve Bank’s governance and accountability settings.
The first actions as a result of the Review updated the monetary policy framework, when “Supporting maximum sustainable employment” was added to the economic objectives for the Reserve Bank and a Monetary Policy Committee (MPC) was created with responsibility for formulating monetary policy. This was enacted in 2018 by the Reserve Bank of New Zealand (Monetary Policy) Amendment Act.
The second tranche of work updated the Reserve Bank’s financial stability role and broader governance arrangements, when the Reserve Bank of New Zealand Act 2021 (the 2021 Act) passed into law in August 2021. Our previous legislation, the Reserve Bank of New Zealand Act 1989, was more than 30 years old. The new Act aims to modernise how we operate and are governed. It increases our accountability and transparency and bring us closer to what is required of Crown entities in terms of decision-making, reporting and external monitoring.
The final piece of legislation is the proposed Deposit Takers Act (DTA). It will protect depositors’ money through the creation of a Depositor Compensation Scheme, and increase the overall stability of our financial system by strengthening the Reserve Bank’s supervision and enforcement powers with the aim of enabling action before any entity is under inappropriate stress or at risk of failure. The Act also strengthens the framework for managing and resolving the failure of deposit takers to ensure any adverse consequences for the financial system are minimised.
|Who is conducting the Review?||
A joint Treasury and the Reserve Bank team undertook the review until May 2021, with governance from a steering committee co-chaired by the Treasury and the Reserve Bank. More recently the project has been led by the Reserve Bank, but with Treasury and independent experts continuing on the project’s steering committee.
An Independent Expert Advisory Panel (the Panel) advised on key issues to support the work of the Review team and the steering committee.
Find out more about the Independent Expert Advisory Panel on the Treasury website
|What decisions has Cabinet taken on the Deposit Takers Act?||
On 19 April 2021, Cabinet agreed to a set of recommendations that will design a new prudential framework for deposit taking institutions alongside a strengthened crisis management regime and introduce depositor compensation. Further details on these decisions can be found in the proactive release of materials found on the Treasury website. In October 2021, further decisions were taken by Cabinet regarding more details of the Act.
See the proactive release of materials on the Treasury website
The Reserve Bank published an exposure draft of the proposed final Bill in December 2021 and received feedback as well as undertaking additional technical engagement. This feedback and engagement has informed final advice to the Minister on outstanding matters. The Minister will seek Cabinet approval on some final matters.
|Why did the Reserve Bank decline requests for a further consultation round after the exposure draft submission process?||Three phases of consultation occurred in development of this work, as well as a formal consultation on the exposure draft of the Bill and additional technical engagement with industry in recent months after the consultation on the exposure draft has closed.
The Parliamentary process will also enable further input to the Bill at select committee stage.
Additionally, second secondary instruments such as standards will involve future rounds of consultation.
|What are the next steps for implementation of the Deposit Takers Act?||A draft Bill is being finalised, to be informed by stakeholder feedback on the earlier exposure draft and the Minister’s consideration of final technical matters. The Bill is expected to be introduced into the House in Q3 2022, and receive Royal assent in mid-to-late 2023.
After the DTA has passed through the House, there will be a substantial work programme to implement the new prudential framework for deposit takers. It will take some years for the Reserve Bank to develop and consult on the secondary legislation that will implement the regulatory requirements for the new regime, and complete a licensing process for deposit takers to operate under the regime. The parts of the current Reserve Bank Act relating to the regulation and supervision of registered banks and the Non-bank Deposit Takers Act 2013 will remain in force until the remaining parts of the DTA have been fully implemented.
The Depositor Compensation Scheme provisions of the Act are intended to be in place in early 2024, prior to the rest of the DTA. This is so that arrangements are in place to protect depositors, should a deposit taker come under stress before the full DTA is implemented.
|What are the financial implications for the Reserve Bank of these changes?||The changes will have direct financial implications for the Reserve Bank as New Zealand’s prudential regulator. This includes, for example, increasing the operating expenditure of the Reserve Bank to support a broader set of responsibilities associated with a new depositor compensation function. In addition, a significant step shift in the resourcing and funding of the Reserve Bank is required to support a more intensive supervisory and enforcement model. There will also be transition costs tied to implementing the new legislative framework (for example, developing a new rulebook for deposit takers and managing any temporary or interim licensing regime).
To some extent, these expected costs have been anticipated in the 2020-25 Funding Agreement between the Minister of Finance and the Governor of the Reserve Bank signed in June 2020. The new agreement provides for an annual average level of operating expenditure of $115 million over the five-year period. This compares to the $80 million budget for the 2019/20 year.
Decisions around depositor protection will also have indirect financial implications for the Crown (for example, a Government backstop for the depositor compensation scheme will create an explicit contingent liability).
|How do these changes relate to the Reserve Bank of New Zealand Act?||Both the Reserve Bank of New Zealand Act 2021 and the proposed Deposit Takers Bill are a result of the Review of the Reserve Bank of New Zealand Act 1989 work programme, initiated by Minister of Finance Hon Grant Robertson in November 2017. The Review was undertaken by a joint team from the Reserve Bank and the Treasury, with the aim of creating a modern monetary and financial policy framework.
The Reserve Bank of New Zealand Act 2021 (the 2021 Act) passed into law in August 2021. Our previous legislation, the Reserve Bank of New Zealand Act 1989, was more than 30 years old. The new Act aims to modernise how we operate and are governed. It increases our accountability and transparency and bring us closer to what is required of Crown entities in terms of decision-making, reporting and external monitoring.
See more information on the Reserve Bank of New Zealand Act 2021
See an overview of the Review of the Reserve Bank work programme on the Treasury website