Yesterday, the Deposit Takers Bill (The Bill) passed its third reading. It is the last piece of legislation to be passed in the comprehensive review of the Reserve Bank of New Zealand Act. The Bill comes in the wake of the Reserve Bank of New Zealand (Monetary Policy) Amendment Act 2018, which reimagined the objectives and decision-making process for monetary policy, and the Reserve Bank of New Zealand Act 2021, which revised institutional arrangements for the Reserve Bank.
Links to the Government and the Reserve Bank’s media releases are available here and here, and the bill itself can be found here.
Who needs to read it and why?
The Bill should be read by all registered banks, non-bank deposit-takers, overseas banks operating in New Zealand, and other entities operating close to the regulatory perimeter of the current regime. The Bill makes significant changes to banking regulation, and creates a new regime for the prudential regulation of all deposit takers, these being institutions that are in the business of taking deposits and lending to households and businesses.
The Bill will repeal the Banking (Prudential Supervision) Act 1989 (the new name for the prudential supervision related parts of the Reserve Bank of New Zealand Act 1989) and the Non-bank Deposit Takers Act 2013, and therefore affect, and be of interest to, all current registered banks and licensed non-bank deposit takers.
What does it cover?
In the Reserve Bank’s media release, the Reserve Bank Deputy Governor Christian Hawkesby has states that the Bill intends to modernise the current regulatory framework, and promote the “safety and soundness of deposit takers.” The Bill will bring all entities taking deposits from individuals and businesses under a single regulatory regime, which will enable a more robust approach to the regulation of deposit takers. It gives the Reserve Bank new inspection powers and a framework to manage and resolve a deposit taker that is in financial distress.
As well as improving the coherency of the regime and the powers available to enforce it, the Bill introduces a new Deposit Compensation Scheme to give depositors confidence that their deposits, in the event of a failure, are eligible for compensation up to $100,000 per depositor, per institution. This Scheme is intended to commence by late 2024. This introduction of depositor protection will “close a long-standing gap in New Zealand’s financial safety net, bringing New Zealand in line with international best practices”, says Finance Minister Grant Robertson.
For a more comprehensive review of changes introduced by the Bill, see our previous news alert here.
Our view
In our view, the Bill is a positive step forward in modernising the prudential regulatory regime in New Zealand, and brings us closer in line with international best practice. However, it does introduce additional cost and compliance burdens for deposit takers. The Deposit Compensation Scheme in particular will introduce new challenges and require information gathering and systems testing.
What next?
The Reserve Bank and Treasury will soon be consulting with banks and other deposit takers on the funding strategy and levy framework for the Depositor Compensation Scheme, which as noted above will be coming into force in 2024.
The Banking (Prudential Supervision) Act 1989 and the Non-Bank Deposit Takers Act 2013 are expected to remain in force until the Deposit Takers Act is fully in force. This is not expected until around 2028, which is when it is anticipated that standards will have been developed and the licensing process undertaken.
If you have any questions in relation to how the new deposit takers regime will affect your business, please contact one of our experts.
This article was authored by Elise Plunket, a Solicitor in our Banking and Finance team.
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