Sector review 2004-2007
The following information details the reviews that led to the decision for the Reserve Bank to be the sole regulator of the New Zealand financial system, including non-bank deposit takers (NBDTs).
On 12 September 2007, Finance Minister Michael Cullen announced Cabinet decisions on a new regulatory framework for NBDTs, including finance companies, building societies and credit unions. The Reserve Bank, in a news release, welcomed the Cabinet decision.
Under the new arrangements, the Bank's role will be to license NBDTs, develop and enforce minimum prudential and governance requirements and apply credit rating requirements. Trustee corporations will continue to be the front-line supervisors of deposit takers.
For more detailed information on the key features of the arrangements, please see the Cabinet Paper and the Regulatory Impact Statement (PDF 197KB).
Institutional arrangements for regulations of the financial sector
The Review of Financial Products and Providers being undertaken by the Ministry of Economic Development has signalled in December 2005, in principle, greater prudential regulation of NBDT institutions, of some insurers and of some superannuation schemes. The prospect of greater prudential regulation of these financial providers means that it is timely to consider the institutional arrangements for regulation of the financial sector.
In December 2005, Cabinet agreed to prudential supervision of the financial sector being consolidated into a single regulator and has agreed, in principle, that this regulator should be the Reserve Bank. The in-principle decision that the single prudential regulator should be the Reserve Bank is subject to further reporting to Cabinet, by end November 2006, on the details of the institutional arrangements for the prudential regulator, and on the Review of Financial Products and Providers.
The Reserve Bank is comfortable with this decision.
You can view the Cabinet paper and the Cabinet minute on the Treasury's website.
Review of financial products and providers, including NBDTs
An officials' report to the Minister of Commerce on the Review of Financial Products and Providers was released publicly on 6 September 2005. The report is part of the broad-based review of the financial sector regulatory framework being undertaken by the government. The key objective for the review is to develop an effective and consistent framework for the regulation of non-bank financial institutions, financial intermediaries and financial products. The aim of the framework is to promote confidence and participation in financial markets by investors and institutions, and a sound and efficient financial sector. The review was initiated by the government in recognition that some elements of financial sector regulation have not been reviewed for many years and that some aspects are out of step with international standards and codes and with accepted best practice. The report:
- outlines a framework for the review;
- assesses the current regulatory regime for the non-bank financial sector against the framework for the review, including identifying any issues; and
- provides the preliminary views of officials on the general directions for reform of the non-bank financial sector. These preliminary views will be used to inform the later stages of the review and the work being led by the Treasury on reviewing the domestic institutional arrangements for financial sector regulation that is due to report back to Ministers in October 2005 with preliminary conclusions.
The report, and an explanation of the review, are available from the Ministry of Economic Development's website. Commerce Minister Hon Lianne Dalziel released on 31 August 2006 a series of nine discussion papers as part of the government's review of financial products and providers. The papers propose a framework of regulation for the non-bank financial sector.
The discussion papers are available from the Ministry of Economic Development's website.
On 19 June 2007, the Reserve Bank, in a news release, welcomed the Cabinet decision for the Reserve Bank to be the single prudential regulator for New Zealand, as part of the Review of Financial Products and Providers. For more detailed information on key features of the arrangements, please see "Questions and Answers on Proposals for the Regulations of Non-Bank Deposit Takers". For the Cabinet decisions included in the Review of Financial Products and Providers, please visit the Ministry of Economic Development's website. For the Cabinet decision regarding the Reserve Bank becoming the single prudential regulator, please visit the Treasury website.
Legislation and regulation
The Reserve Bank of New Zealand Amendment Bill (No. 3) was introduced to Parliament in November 2007 and was reported back from the Finance and Expenditure Committee in July 2008. As a result of the select committee process, some changes to the Bill as introduced have been made. For example, some components of the prudential regime, such as risk management and governance requirements, will now be included in the Bill as direct obligations on NBDTs, rather than being imposed through regulation.
On 3 September 2008, the Minister of Finance announced the passing of the Reserve Bank Amendment Act, making the Reserve Bank the prudential regulator of NBDTs.
For the updated version of the Bill, please see:
For more details on the features of the Bill as reported back from the Select