Declaration power and considerations for non-bank deposit takers

Our power relating to declarations

Section 73 of the Non-bank Deposit Takers Act 2013 (the NBDT Act) empowers us to recommend to the Minister of Finance that regulations be made for the following purposes:

1. declaring any person or class of persons to be a related party;
2. declaring a class of persons to be, or not to be, senior officers;
3. declaring any person or class of persons to be an NBDT;
4. declaring any person or class of persons not to be an NBDT;
5. declaring certain securities to be debt securities;
6. prescribing the matters, circumstances, or conditions that are suitability concerns;
7. prescribing the application fee for a licence, or a method of calculating that fee;
8. prescribing additional matters to which we must have regard in determining an application for licence;
9. prescribing additional matters to which the conditions on licences may relate;
10. prescribing grounds, additional to those in section 21 of the NBDT Act, on which we may cancel a licence;
11. prescribing information to be included in the register of licensed NBDTs under section 85(3)(c) of the NBDT Act;
12. providing for any other matter contemplated by the NBDT Act, necessary for its administration or necessary for giving it full effect. 

What we must consider

When recommending a declaration under Section 73, we 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 an NBDT; or
  • involve activities as an NBDT;
• the public interest; and
• any other matters we or the Minister consider relevant.

When recommending a person not be declared an NBDT

What other matters may be considered relevant will depend on the particular circumstances. However, when recommending a person not be declared an NBDT, we may consider:

• the reputation of the NBDT regulatory regime
• whether it is desirable the person be outside the NBDT regime permanently
• the possibility of forming 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
• whether or not an exemption for the NBDT from certain requirements of the regime may be more appropriate in the circumstances.

When recommending a person be declared an NBDT

When recommending a person be declared an NBDT, we would consider:

• 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 NBDT Act is appropriate and which other persons may be caught.

Principles we must consider

When considering whether or not to make a recommendation, we must also take into account the principles set out in Section 8 of the NBDT Act. They are:

• 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 the NBDT Act to eliminate all risk in relation to the performance of NBDTs or to limit diversity among NBDTs
  • depositors are responsible for assessing risk in relation to potential investments and for their own investment choices
• the desirability of providing depositors with enough 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
• the need to maintain competition within the NBDT sector.