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Depositor Compensation Scheme Development of Regulations

We asked for feedback on the development of regulations for the Depositor Compensation Scheme under the Deposit Takers Act.

Closed

Depositor Compensation Scheme regulations published 

The DTA regulations and Commencement Order have been finalised and published.

DTA regulations 

The regulations prescribe matters relating to the DCS, including:

  • which products are covered by the DCS,
  • how entitlement is calculated for complex arrangements (including trusts),
  • how to calculate each deposit taker’s DCS levy.

Products covered by the DCS

The scheme will cover:

  • current accounts and savings accounts, 
  • term deposit and notice account products,
  • the positive balance of certain credit contracts (such as home loans and credit cards) offered by deposit takers.  

Entitlement of complex arrangements

In general, entitlement relating to deposits held on trust will be paid to the trustee and treated as trust property. If a trustee holds multiple deposits each relating to a different trust, the trustee will be entitled to compensation of up to $100,000 per trust. The regulations provide that this general rule applies to express trusts that are created under a trust deed, legislation, or other written document.  

Different rules apply for arrangements (including trusts) that are classed as “relevant arrangements”. Relevant arrangement are “looked-through”: compensation is paid to the person with the underlying entitlement to the deposit.

The regulations specify additional relevant arrangements for: 

  • deposits held by a lawyer, 
  • deposits held by an accountant,
  • deposits held by a real estate agent,
  • deposits held by a retirement village,
  • deposits held under a captive cash PIE,
  • deposits held under a regulated client money or property service (already in the Deposit Takers Act).

Levy methodology

Compensation will be paid out by the DCS fund. The DCS fund is built up with levies paid for by deposit takers.  

The Deposit Takers Act creates a “Crown backstop”. This commits the Government to lend money to the DCS if the DCS fund balance is insufficient to compensate depositors during a payout event. This can be repaid over time through higher industry levies.  

The method for calculating how much each deposit taker will pay in annual levies will be calculated as a proportion of the deposit taker’s protected deposits. Larger deposit takers will pay more than smaller deposit takers.  

The amount of levy per dollar of protected deposit will depend on the riskiness of each deposit taker. Riskiness will be calculated using common prudential indictors, many of which can be found on the Reserve Bank’s Financial Strength Dashboard

For first three years of the scheme (1 July 2025 to 1 July 2028), deposit takers that are credit unions, building societies or registered charities will be charged a flat rate levy. That is, their levy will not be risk based.

Incorporation by reference 

Some material has been incorporated by reference into the regulations. Terms used as part of the DCS levy methodology incorporate existing definitions in Reserve Bank prudential policy documents and survey response templates.

These documents and templates are available on the Reserve Bank’s website:

Commencement Order

The Commencement Order brings into force certain DCS-related provisions of the Deposit Takers Act 2023. Provisions relating to the Reserve Bank’s information-gathering power come into force on 1 April 2025. All other provisions come into force on 1 July 2025. 

Summary of submissions

This consultation closed on 25 September 2023.

We received 23 submissions, published in the document below, along with a summary of submissions.

Submissions on Levy Framework - updated 16 April 2024 (PDF 16.3 MB)

Summary of Submissions (PDF 449 KB)

Please note that some submissions also discuss the Statement of Funding Approach and Proportionality Framework. 

About the consultation

The Deposit Takers Act (DTA) modernises New Zealand’s regulatory framework to help ensure financial stability and the safety and soundness of deposit takers.

The legislation also introduces a new Depositor Compensation Scheme (DCS) so depositors can have confidence their deposits, in the event of a deposit taker failure, are eligible for compensation up to $100,000 per depositor, per institution. The DCS will be funded by an industry levy set by the Minister of Finance and will be prioritised ahead of the rest of the legislation coming into effect, with the DCS intended to commence from mid-2025. We undertook this consultation to support the introduction of the DCS.

Find out more about the DTA and how the DCS protects depositors

What we asked for feedback on

We asked for feedback on 2 key issues to support the introduction of the DCS:

  • Statement of Funding Approach
  • Levy Framework

Statement of Funding Approach

Treasury led the Statement of Funding Approach (SoFA) consultation.

Read the SoFA consultation document, submissions and a Summary of Submissions on the Treasury website

The DTA requires the Minister of Finance to publish a SoFA for the DCS at least every 5 years. The SoFA is the funding strategy for the DCS, and will set out its:

  • estimated costs
  • a target size for the DCS fund (if any)
  • the timeframe to reach this target
  • requirements for the investment of the fund, and
  • a proposed approach to managing the Crown’s financial position on the DCS.

Levy Framework

The Reserve Bank is leading the Levy Framework consultation. The Levy Framework consultation paper asked for feedback on approaches to setting the deposit taker levy to build up the DCS fund over time in line with the SoFA. Such approaches include risk-based levies or flat-rate levies applied to protected deposit amounts. We also asked for feedback on determining a proxy for protected deposit amounts in the early years of the DCS. 

Why we asked for feedback 

This consultation feedback will help to ensure a robust funding approach and Levy Framework is in place to ensure the DCS can meet the commitment to protect depositors. This will contribute to a well-functioning, resilient, and efficient financial system by increasing public confidence in the financial system and preventing depositors from facing hardship in the unlikely event their deposit taker fails.

Working with the Treasury

The Reserve Bank and Treasury have worked closely together on this consultation. As the DCS funding approach and Levy Framework are related matters, in some cases, the Treasury and Reserve Bank have shared submissions from each consultation.  

Consultation materials

Read the SoFA consultation paper on the Treasury website

Levy Framework consultation paper (PDF, 745KB)