Declaration power and considerations

Section 73 of the Non-bank Deposit Takers Act 2013 (the Act) empowers the Reserve Bank to recommend to the Minister of Finance that regulations be made:

  1. declaring any person, or any class of persons, to be, or not to be, an NBDT for the purposes of the Act.
  2. declaring that in certain specified circumstances such a person or class of person is, or is not, an NBDT for the purposes of Act.

The purpose of declarations is to clarify the application of the non-bank deposit takers (NBDT) regulatory regime to specific persons or classes of persons. When recommending a declaration, the Bank must have regard to:

  • the nature of the business activities carried on by the person or class of persons and the extent to which those activities—
    • are similar in substance to the activities of a deposit taker; or
    • involve activities as a deposit taker;
  • the public interest; and
  • any other matters the Minister or the Bank considers relevant.

What other matters may be considered relevant will depend on the particular circumstances. However, when recommending that a person not be an NBDT, the Reserve Bank may consider factors such as:

  • the reputation of the NBDT regulatory regime;
  • whether it is desirable the person be outside the NBDT regime permanently;
  • the possibility of formulating appropriate “specified circumstances” for when a person not be an NBDT;
  • whether a declaration may be misused by allowing persons who should be NBDTs to avoid the regime by structuring themselves to come within a declaration and,
  • whether or not an exemption for the NBDT from certain requirements of the regime may be more appropriate in the circumstances.

Similarly, when recommending that a person be declared an NBDT, relevant considerations for the Reserve Bank may include:

  • the reputation of the NBDT regulatory regime;
  • the economic substance of a person’s activities, rather than the person’s legal form. Part of this will be considering whether the entity may have structured itself in a particular way that avoids the regime while its substantive business activities constitute raising funds from the public and providing lending or financial services;
  • the effective widening of the definition of NBDT as provided in the Act is appropriate and which other persons may be caught.

When considering whether or not to make a recommendation, the Reserve Bank must also take into account the following principles as set out in section 8 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:
    • 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
    • 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; and
  • the need to maintain competition within the deposit-taking sector.