The DT Bill represents the culmination of a process that began in 2018, when a review of the Reserve Bank of New Zealand Act 1989 (the RBNZ Act) was announced. The RBNZ Act is the main legislation governing New Zealand registered banks. It will be replaced by the DT Bill, once enacted and in force, as will the Non-bank Deposit Takers Act 2013 (the main legislation regulating finance companies).
While the expression “once in a generation reform” tends to be rolled out more frequently than the label would suggest, it is accurate in this case. Much will change.
As with most legislation of this type, by the time an exposure draft is released, the major policy decisions have been made. In the case of the DT Bill, those policy decisions include:
- Establishing a single set of rules that will apply to all ‘deposit takers’ (currently, registered banks and non-bank deposit takers (NBDTs)).
- Establishing a depositor compensation scheme (DCS) that will protect up to NZ$100,000 per depositor per deposit taker, to be fully funded by levies and with a Crown backstop.
- Enhanced director accountability.
- Stronger crisis management powers.
- Using standards as the main tool for imposing prudential requirements.
There is plenty of material in the DT Bill to prompt submissions from interested parties. Given the wide impact the DT Bill will have, we expect those interested parties will offer quite diverse perspectives. For example:
- For existing registered banks and NBDTs, the new director accountability provisions, coupled with the Reserve Bank’s broader on-site inspection and enforcement powers, will be a focus.
- For firms that are on the periphery of capture by the DT Bill, the “deposit taker” definition and carve-outs will be key. Purely wholesale-funded lenders, among others, should look at this carefully.
- For depositors, what is covered by the DCS (“protected deposits”), who are protected (“eligible investors”), and when the protection is paid (after a “specified event”) will be of interest.
- For financial market participants dealing with deposit takers, the new crisis management powers (and, in particular, the automatic stays imposed if the deposit taker enters resolution) could significantly affect their contractual rights in the insolvency of their counterparty.
- For creditors and shareholders of registered banks and NBDTs, there will be interest in the scope of the new ‘no creditor worse off’ (or NCWO) principle, under which eligible persons are entitled to compensation if they receive less in a resolution than they would have received in a hypothetical liquidation.
- For overseas banks that have business in New Zealand but will not become a licensed deposit taker, the question arises as to the extent existing authorisations to use “bank”-type names will carry over from the RBNZ Act regime to the DT Bill regime.
- For taxpayers, there will be a wish to see tight and clearly-defined constraints around the ability of the Government to commit public funds in a financial crisis without an appropriation from Parliament.
Submissions on the DT Bill close on 21 February 2022. It is expected the DT Bill will be introduced into Parliament in May 2022, and that it will come into force in 2023. A transition period of two to three years will then follow to allow deposit takers to prepare for the new regime.
If you would like assistance in the preparation of a submission, or advice on how the DT Bill is likely to affect your organisation, please get in touch with the contacts listed, or your usual Bell Gully adviser.