Exemptions power and considerations
Section 70 of the Non-bank Deposit Takers Act 2013 (the Act) empowers the Reserve Bank to exempt any licensed NBDT, class of licensed NBDTs or trustee from any provision of the Act, except the requirement to be licensed.
Exemptions allow flexibility in the application of the NBDT regulatory regime to specific NBDTs or classes of NBDTs, provided certain conditions are met. The Reserve Bank can only grant an exemption when it is satisfied that:
- the exemption will be consistent with the maintenance of a sound and efficient financial system;
- compliance with the relevant provision or provisions would, in the circumstances, require the licensed NBDTs, or class of licensed NBDTs, to comply with requirements that are unduly onerous or burdensome; and
- the extent of the exemption is not broader than what is reasonably necessary to address the matters that gave rise to the exemption.
The presumption is that all entities that clearly fall within the definition of an NBDT will be subject to prudential requirements, and that exemptions – especially class exemptions – should be the exception, not the rule.
The Act permits the Reserve Bank to place terms and conditions on an exemption as it sees fit which allows for alternative prudential requirements and mechanisms. This seeks to ensure that the substance of the original obligation is maintained. Therefore, in cases where an exemption from certain obligations is appropriate (for example, capital, related party, or liquidity requirements), the exemption is likely to be accompanied by the imposition of alternative terms and conditions. That is, all NBDTs can expect to meet some form of minimum capital, related party or liquidity standard, but the detailed requirements and exact form may differ depending on individual circumstances.
When considering an exemption, and any associated terms and conditions, the Reserve Bank must 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:
(i) that it is not the purpose of this Act to eliminate all risk in relation to the performance of NBDTs or to limit diversity among NBDTs; and
(ii) 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 NBDTs;
- the desirability of sound governance of NBDTs;
- the desirability of effective risk management by NBDTs;
- the need to avoid unnecessary compliance costs; and
- the need to maintain competition within the NBDT sector.