The Reserve Bank last week released a consultation paper seeking comment on policy proposals for a second non-bank deposit takers (NBDTs) Bill. The Bill will complete the legislative framework for the Reserve Bank's regulation of the NBDT sector.

The policy proposals are intended to boost investor confidence and increase investor participation in NBDTs. If implemented, NBDTs will be subject to prudential requirements similar to those of registered banks and insurers. The Reserve Bank considers the cost of compliance with the new regime will be relatively minor.

This Brief Counsel discusses the five key elements of the consultation paper. Submissions close on 5 November 2010.

1 Licensing of NBDTs

NBDTs will be required to hold a licence to operate. Licences will only be granted to entities that comply with the other prudential requirements set down by the Reserve Bank. Submissions are sought on whether the Reserve Bank should have the power to impose conditions on the grant of any licence, similar to the position with registered banks.

2 Fit and proper requirements for directors and senior officer holders

In addition to the requirements of the Financial Service Providers (Registration and Dispute Resolution) Act, directors and senior officers of NBDTs will be required to meet prescribed experience, skills and qualification requirements. The Reserve Bank is proposing that it have the power to apply to the courts to have persons banned from participating in an NBDT for up to five years.

3 Controls on changes of ownership

The consultation paper asks for views on whether Reserve Bank consent should be required to a transaction which would result in a person having "Significant Influence over an NBDT". The suggested definition of "Significant Influence" is a person owning, or having the power to control, directly or indirectly, 20% or more of the NBDT's voting securities or 25% or more of the NBDT's governing body. The Reserve Bank is also considering whether it is appropriate that an NBDT should be able to operate as a branch of an overseas entity.

4 Distress and failure management powers for the Reserve Bank

Submissions are sought on whether the Reserve Bank should have broader powers to gather information from NBDTs and their associated persons for general regulatory purposes, as well as having powers to give directions to NBDTs. These directions could include to cease paying dividends, to remove directors, to cease raising funds or to cease undertaking related party transactions. The paper also considers which regime would form the most appropriate statutory management regime.

5 Refinements to part 5D of the Reserve Bank of New Zealand Act (the Act)

Changes are proposed to refine certain provisions of part 5D of the Act including in relation to exemptions, obtaining information from trustees, defences and the liability of directors.

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.