Most Read Contributor in New Zealand, September 2016
Non-bank deposit takers (NBDTs) will
require a licence and be subject to similar prudential requirements
to registered banks under
legislation introduced to Parliament yesterday. The measures
are intended to boost investor confidence but are clearly too late
to prevent the finance company collapses, and it is arguable how
effective they would have been had they been in place at that
time. However, they do plug a gap in the regulatory
This Brief Counsel explains the new regime.
The NBDT Bill in brief
Key elements of the Bill are:
NBDTs are to be licensed to ensure that they meet certain
directors and senior officers must meet a basic 'proper
Reserve Bank of New Zealand (RBNZ)
clearance will be required for any transaction which would give the
purchaser the power to control 20% or more of an NBDT's voting
securities, or 25% or more of the NBDT's governing body,
new tools for the RBNZ to detect and respond to the distress
and/or failure of NBDTs, including information gathering and
investigative powers, as well as powers to issue directions.
The Bill also incorporates those provisions of Part 5D of the
Reserve Bank of New Zealand Act 1989 which relate to NBDTs, subject
to minor amendments.
The RBNZ will have the power to impose conditions on the grant
of a licence including requirements as to the appointment of
directors and senior officers, and limits on both credit exposures
to a single party and significant acquisitions by the NBDT.
There will be a 12 month transition period for NBDTs to obtain a
NBDTs will be at risk of being delicensed should they fail to
comply with their legal obligations, the conditions of their
licence, any direction issued by the RBNZ or if they are no longer
operating as an NBDT and all their debt securities in New Zealand
have been repaid.
Director and senior officer suitability
The primary responsibility for ensuring that directors and
senior management have suitable skills, experience and integrity
will lie with the NBDT's owners and governing
body. Directors will be required to certify that they meet the
suitability criteria and the governing body of the NBDT will need
to certify that there are no concerns in relation to its senior
managers. The suitability concerns will be prescribed by
regulation but are likely to include:
involvement in an entity that has gone into receivership,
liquidation or voluntary administration or has been the subject of
statutory or judicial management
disciplinary action or adverse findings by a professional or
adverse findings or action taken by any other regulatory
authority, market operator or government agency, and
conflicts of interest that could impact on the proper
performance of the business.
The Reserve Bank will have the power to remove a director or
senior manager if one or more of these suitability concerns apply
The thresholds for RBNZ clearance are intended to avoid changes
in ownership that increase the risk profile of the entity and the
risk of a major shareholder's problems adversely affecting the
NBDT. This is similar, but less restrictive, than the regime that
currently applies to registered banks.
Distress and failure
The RBNZ will have wide powers to gather information from, and
give directions to, an NBDT and its associated persons. There will
also be a range of new offences for non-compliance with any of the
requirements of the NBDT Bill. The primary additional power the
RBNZ will have in relation to NBDTs will be the power to remove
directors. We expect this will be used only in exceptional
circumstances and will not have an impact on the day to day
operation of most NBDTs.
The wide powers the Reserve Bank will have in relation to
persons associated with an NBDT may cause some concerns but are
similar to the powers the RBNZ has had in relation to registered
banks for some years.
Implications for the NBDT sector
These new provisions were foreshadowed when the original NBDT
legislation was discussed in 2007. They will bring the
prudential requirements for NBDTs more into line with those for
registered banks and, in some respects, insurers.
The measures should help restore confidence and stability to the
sector after the turmoil of the last few years. There are now
considerably fewer NBDTs operating in New Zealand than there were
in 2007, and most of them should have little difficulty in
complying with these requirements.
The information in this article is for informative purposes
only and should not be relied on as legal advice. Please contact
Chapman Tripp for advice tailored to your situation.
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