Reserve Bank Governor responds to New Zealand bank regulation concerns

An article by Adrian Orr, Governor of the Reserve Bank of New Zealand (RBNZ), was recently published on the RBNZ’s website. The article is a response to public concern relating to the issues raised by the Australian Royal Commission into Misconduct in Banking, Superannuation and Financial Services Industry (Royal Commission).

Who needs to read it? Why?

The article is aimed at the general public and provides high level guidance to those unfamiliar with how registered banks are regulated in New Zealand. But it will also be of great interest to all registered banks and other financial service providers.

The article provides insight into the RBNZ’s current thinking with regards to New Zealand’s banking sector, which shines a light on whether a royal commission into banking and financial services providers will be necessary in New Zealand.

What does it cover?

In the article, the Governor acknowledges that although New Zealand’s financial system has been robust over recent decades, it is not immune to threats due to the dominance of banks in our financial system and their concentrated foreign, particularly Australian, ownership.

In light of this, he sets out how New Zealand registered banks are regulated in relation to the types of issues raised by the Royal Commission in Australia. He makes the following points:

  • banks to abide by New Zealand’s laws: when a bank registers to operate in New Zealand it must abide by New Zealand’s laws and regulations. Locally incorporated banks will have local directors who are bound by domestic law and are liable for the bank’s decision making. The article also emphasises that the risks for foreign-owned banks in New Zealand will be different from their home base and that all New Zealand registered banks are required to be well capitalised;
  • regulation informed by New Zealand’s circumstances: while international standards such as the international monetary fund’s Financial Sector Assessment Programme form the basis of the RBNZ’s requirements; these will always be tailored to suit New Zealand specific risks and circumstances. Similarly, foreign regulations and requirements are often taken into account and respected, but are supplemented by additional requirements including New Zealand’s directors' attestations and specific New Zealand legal, capital and prudential requirements; and
  • soundness and efficiency as priorities: when the RBNZ regulates any licensed entity it will balance soundness and efficiency to ensure the financial system is safe from failure but also dynamic and competitive. The article states that the challenge is to ensure fairness amongst all players based on their specific risk characteristics.

The Governor’s view is that overall the New Zealand public is generally well serviced by domestically-owned and foreign banks and that we are fortunate to have a sound and broadly efficient banking system.

Our view

The tone of the Governor’s article indicates that despite the issues identified in Australia with respect to the conduct of banks and other financial service providers, RBNZ does not consider the establishment of a royal commission in New Zealand is the solution.

Instead, we expect to see the RBNZ and the Financial Markets Authority (FMA) continue with the various steps they have already taken to ensure that the culture within New Zealand’s financial services sectors is appropriate and to ensure that the conduct highlighted in Australia is not happening here.  The RBNZ and FMA have so far indicated that they are happy to work with financial service providers to strengthen compliance, culture and behaviour. We encourage all financial service providers to engage with regulators early.

Whether this approach continues to be sustained will depend on several factors. Important will be the quality of the responses of registered banks and life insurers to the letters recently issued to them by the FMA and RBNZ.  But in addition, there is a political element, which will depend on what further developments there are in Australia, and whether the concerns there gain traction with the New Zealand public, media and politicians.

What’s next?

RBNZ is looking to release its latest six-monthly Financial Stability Report on 30 May 2018, which will discuss the condition of New Zealand’s financial system.

The RBNZ will also soon be launching its Bank Financial Strength Dashboard, which is intended to be a new innovative way of increasing transparency in the banking sector.

If you have any questions in relation to the article or the RBNZ’s approach to regulation please contact one of our experts.

Who can help

Lloyd Kavanagh

Chair and Partner - Financial Services

Chair of the MinterEllisonRuddWatts partnership and ranked Band 1 for Investment Funds by Chambers Asia Pacific, Lloyd is a highly regarded opinion-leader on financial services and an expert in corporate governance.

Lloyd is acclaimed by commentators and clients in international research publications.

In recognition for his work on financial markets law reform, Lloyd was made a Fellow of the Institute of Finance Professionals New Zealand Inc. (INFINZ), the first lawyer to receive the accolade. His expertise is proven by being the co-author of Morison’s Company and Securities Law and MinterEllisonRuddWatts’ Corporate Governance White Paper. Lloyd is also a former member of the New Zealand Securities Commission.

Lloyd advises institutions and boutiques on investment funds, equity and debt offerings, and managed investment schemes of all types, specialising in public offers, M&A, and restructuring projects. He advises on securities regulation including Financial Markets Conduct Act, Financial Advisers Act, AML/CFT, and directors’ duties.

Lloyd Kavanagh

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Chris O'Brien

Partner - Banking and Finance

Chris is a banking and financial services legal expert with particular talent in advising banks, major corporates, and trustee companies on corporate finance, cross-border leveraged lease transactions, and retail debt offers.

Chris has wide experience advising banks, financial institutions and major corporates on the full range of financing transactions, including syndicated facilities, project finance facilities, acquisition finance facilities and working capital facilities as well as advising and assisting major corporates with the introduction of new corporate lenders.

Chris O'Brien

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Jeremy Muir

Partner - Financial Services

Jeremy is a specialist financial services and investment lawyer. He works with retail and wholesale fund managers (including KiwiSaver and superannuation), trustee companies, derivatives issuers, FinTech (including crowdfunding and peer-to-peer lending platforms), insurers and start-ups.  He is also one of New Zealand’s leading lawyers advising on cryptocurrencies, initial coin offerings (ICOs) and digital tokens – working closely with the Financial Markets Authority and other regulators in relation to the treatment of coins, tokens, schemes and exchanges under New Zealand law.

Jeremy advises on all aspects of the Financial Markets Conduct Act 2013 (FMCA), in particular managed investment schemes and all required licences. He also advises on all other financial services legislation (including financial service provider registration, non-bank deposit takers (NBDTs), insurance prudential supervision, financial advice and broking).

Jeremy enjoys working with alternative assets and structures across private equity, venture capital, hedge funds, property investment vehicles, marinas and innovative platforms and products. He is a limited partnerships expert, having established numerous private equity and venture capital funds, including negotiating with significant cornerstone investors such as the New Zealand Venture Investment Fund (NZVIF), New Zealand Super Fund, ACC and Maori investors.

Jeremy also spent several years working in offshore funds for a major offshore law firm, and is admitted to the bar in both Guernsey and the Cayman Islands.

Jeremy Muir

Partner


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Kate Lane

Partner - Banking and Finance

Kate is a banking and finance lawyer with specialist legal knowledge advising financiers, borrowers and other market participants across a broad range of areas, from institutional finance to consumer finance.

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Michael Langdon

Partner - Banking and Finance

Michael is the national head of the banking and financial services team.

Michael’s expertise lies in banking, financial law, property development, construction finance, restructuring and insolvency. His experience spans domestic and cross-border financings (at both the senior and mezzanine levels) and he acts for local and international banks, mezzanine and other financial institutions, corporates and insolvency practitioners.  He also has experience in the construction, commercial property and agricultural industries.

Michael advises all of the major trading banks (on syndicated and bi-lateral transactions) and many of the mezzanine funders and developers on construction projects and property investments.

An acknowledged strategist and named as a leading insolvency and restructuring lawyer by international directories for his banking and finance work, Michael also advises his clients on restructuring and workouts, selling distressed debt and security, security enforcement and recovery strategies.

Michael advises directors (on issues relating to directors’ duties in a distressed context) unsecured creditors, corporate borrowers on all aspects of financings, insolvency and restructurings.

Michael Langdon

Partner


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Steve Gallaugher

Partner - Banking and Finance

A specialist banking and finance lawyer, Steve acts for major banks and corporates providing strategic advice on secured, unsecured, and subordinated debt facilities, acquisitions, corporate reorganisations/restructures, management buy-outs, and securitisations.  He is also well-known in New Zealand’s project and property finance sectors, and is recognised for acting on all the major government PPPs in New Zealand to date.

Steve Gallaugher

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Tom Fail

Partner - Banking and Finance

With an extensive career in general banking, corporate finance and project finance matters, Tom provides advice to a number of industries including financial services, infrastructure, government as well as energy and resources.

Tom has led secured and unsecured syndicated lending, restructuring and acquisition, leveraged finance and project finance transactions. He is widely recognised for acting on all the major government PPPs and private sector project finance transactions.

Amongst his many accolades, Tom is named as a leading New Zealand lawyer for banking and finance in Chambers Global and the International Financial Law Review, and recognised by Who’s Who Legal for project finance and banking.

Tom Fail

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Kara Daly

Special Counsel - Financial Services

Kara has more than 25 years’ experience as a commercial, banking, financial services, securities and insurance lawyer. She regularly advises on legal issues surrounding financial services regulation, insurance law, information technology, business ventures, capital markets, insolvency and general commercial law.

Kara advises on a range of business ventures, business structures, transactional advice, and governance issues, and on all aspects of banking and financial services transactions and regulation.

Kara’s hands-on pragmatic approach means she is often sought by organisations to provide special counsel.

Kara Daly

Special Counsel


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Shane Johnstone

Special Counsel - Financial Services

Shane has more than 25 years’ experience in the financial services area, with particular expertise in advising corporate trustees. He regularly advises licensed trustee companies on all facets of the corporate trustee role, including retail, wholesale, listed and un-listed debt issues, establishing and administering managed investment schemes and securitisation structures covering residential mortgage receivables, asset-backed receivables and motor vehicle receivables. Shane also advises on compliance issues arising under the Financial Markets Conduct Act 2013 and recently has assisted trustee companies with analysing (and submitting on) the new Trusts Bill.

Shane is a Special Counsel in our managed funds team, having joined us in mid-2016 from Guardian Trust where he was Head of Legal – Corporate Trusts. Shane joined Guardian Trust after 23 years at another national law firm, where he was Special Counsel from 2008 to 2015.

Shane is recognised by the New Zealand market as one of the market-leading corporate trustee lawyers, with excellent and long-standing relationships with each of the licensed supervisor/trustee companies: Guardian Trust, Covenant, Public Trust and Trustees Executors.

Shane Johnstone

Special Counsel


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Tila Hoffman

Special Counsel and Business Transformation Manager - Banking and Finance

Tila is a lawyer with a wealth of experience across several practice areas, including banking and financial services, complex commercial and corporate transactions, property finance and project finance, as well as general commercial litigation.  She is in our Banking and Financial Services team and has a passion for transforming how legal services are delivered to our clients.

Before joining MinterEllisonRuddWatts, Tila was a senior legal counsel with Westpac New Zealand Limited and a corporate lawyer with Bank of New Zealand. Tila was also in private practice overseas.

Tila obtained a Doctor of Jurisprudence degree from the University of Houston and a Bachelor of Arts (Sociology) degree from Illinois Wesleyan University.

Tila Hoffman

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Adrianne Reid

Senior Associate - Banking and Finance

Adrianne advises in a range of areas, including general corporate financing, property and construction financing, project finance, personal property securities issues, and recoveries, enforcement and insolvency issues. Adrianne has significant public sector experience, particularly in relation to advising the Crown on commercial undertakings. Adrianne also has experience advising on various aspects of taxation law, and a good general knowledge of the tax system.

Adrianne Reid

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Andrew Suggate

Senior Associate - Financial Services

Andrew is a Senior Associate in the Banking and Financial Services Team. Andrew is a financial services specialist and has broad experience in all areas of New Zealand’s capital markets, with a particular expertise in financial services regulation, funds management, private capital raisings, stock exchange rules and listed financial products. Andrew has worked with many of New Zealand’s major financial institutions assisting with reviewing and drafting offer documents, trust deeds, investment management agreements and other capital markets documentation as well as advising on a range of issues related to offering securities and operating financial services or financial advisory businesses in New Zealand. Andrew has previously worked in‑house at NZX in New Zealand and the London Stock Exchange.

Andrew Suggate

Senior Associate


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Auckland

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