On 24 August 2022, the Reserve Bank of New Zealand (RBNZ) released its second and final consultation paper on the review of its policy for the registration of branches of overseas banks in New Zealand.
This follows an initial consultation in October 2021 seeking feedback on the following key policy questions:
- What is the appropriate threshold for local incorporation?
- Should branches be permitted to take retail deposits?
- Should dual registration (i.e., belonging to a banking group that has both a subsidiary and a branch that are registered as banks in New Zealand) be allowed?
- Should the RBNZ pursue greater regulatory and supervisory integration with home country supervisors?
You can read our update on the initial consultation here. Submissions on this initial consultation were open until March 2022.
While the submissions broadly agreed that current overseas branch policy needs greater consistency and transparency, RBNZ received mixed feedback on the four key policy questions:
- Most submissions supported retaining the status quo of a net liability threshold for local incorporation – RBNZ consider monitoring net assets is a better metric for monitoring wholesale activity.
- A majority of submissions agreed overseas branches should not take retail deposits – RBNZ view that restricting overseas branches from taking retail deposits would reduce financial stability risks.
- There were concerns about the possibility of disallowing dual registration citing, among others, the potential implications to accessing funding and liquidity and promoting diversity and competition – RBNZ view additional protections need to be put in place for dual registration to continue.
- Some respondents recognised the additional costs of greater regulatory and supervisory integration (and their limitations) while others suggested this was essential for sound supervision of the financial systems – RBNZ recognise this last policy question is a medium to long term goal that does not affect their stance on the first three policy questions.
Feedback on the initial consultation also highlighted the benefits of overseas branches, including providing access to sophisticated products and advice for institutional and wholesale customers.
Key policy proposals
The second consultation paper sets out RBNZ’s key proposals and invites further industry and stakeholder feedback.
Key proposals from the second consultation paper include:
- Transitioning the overseas branch sector to a sector that is focused on wholesale business. This means that all overseas branches in New Zealand would be restricted from taking retail deposits or offering products and services to retail customers.
- Limiting the maximum size for an overseas branch to NZD15 billion in total assets, instead of net liabilities at present.
- Continuing to permit dual registration (as an overseas branch and locally incorporated subsidiary) subject to:
- the relevant branch and subsidiary being sufficiently separate and any identified risks are accounted for by specific conditions of registration; and
- dual registered branches being restricted to conducting business with large wholesale customers – those with consolidated turnover greater than NZD50 million.
Alongside these key proposals, there are also secondary proposals for changes to reporting, governance and disclosure and their proposed supervisory approach.
RBNZ consider their policy proposal package to achieve the balance of addressing the special risks of overseas branches identified in their initial review while continuing their important role in wholesale markets. To read RBNZ’s full second consultation paper, you can do so here.
The consultation raises significant issues for banks operating through a branch or a dual structure. If adopted, operating models will need to change.
Submissions on the second consultation paper are now open until 16 November 2022 and we encourage interested banks to make submissions.
If you need assistance with submissions or want to know more about these proposals and their implications, please contact one of our experts.
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