Ryall Tony: Non-bank Deposit Takers Bill — First Reading 
Ryall Tony: Non-bank Deposit Takers Bill — First Reading 
[Volume:674;Page:20529] 
Hon TONY RYALL (Minister of Health) 
 on behalf of the Minister of Finance: I move  
That the Non-bank Deposit Takers Bill be now read a first time. 
 At the appropriate time I intend to move that this bill be referred to the Finance and Expenditure Committee for its consideration. This bill completes the implementation of the regulatory regime for non-bank deposit takers which mostly comprise finance companies building societies and credit unions. 
By way of background the need for the prudential regulation of this sector was identified in the review of financial products and providers that was conducted back in 2005-06 as members will recall. Suffice to say the collapse of a number of finance companies gave added impetus and importance to these reforms. The decision was made at the time of the review of financial products and providers to implement the prudential regime in two stages. The first stage was in effect by 1 December 2010 following the passage of Part 5D of the Reserve Bank of New Zealand Act which covers credit ratings governance risk management capital related party exposures liquidity and the making of regulations under that part of the Act. This bill is the second stage and is intended to be effected by 1 June 2013. In addition to the substantive changes it makes which I will outline in a minute it transfers the provisions of Part 5D of the Reserve Bank of New Zealand Act—which is the first part I talked about—into this bill so that there will be a stand-alone framework for the prudential regulation of non-bank deposit takers. 
The core legal definition of a non-bank deposit taker currently is a person who offers debt securities to the public in New Zealand and carries on the business of borrowing and lending or providing financial services. This definition is unchanged from what it was before. However the situation of building societies and credit unions has in fact been altered. Previously they were automatically non-bank deposit takers by virtue of being registered in New Zealand as a building society or a credit union. This was irrespective of whether they actually carried out any business here in New Zealand. In practice we have seen a number of building societies register here only to carry on business offshore. There is a risk that these businesses become registered in New Zealand only to promote themselves as operating under the guise of a well-regulated and reputable jurisdiction when in fact such entities would not be operating as such. So these entities will no longer be classified as non-bank deposit takers under the new law which removes the automatic status that operates under existing legislation. 
Licensing is at the heart of the bill with the establishment of a licensing regime for non-bank deposit takers and a requirement for all of these to be licensed by the Reserve Bank. An important part of this is the suitability requirements for directors and senior officers of non-bank deposit takers. The regime will provide an opportunity for the Reserve Bank to evaluate the probity and integrity of the people operating in the industry and to weed out those who are clearly not suitable. In particular persons who trigger certain specified concerns will need to have their suitability reviewed by the Reserve Bank. In that event the Reserve Bank would indicate that it has no objection to the person’s appointment as a director or senior officer or would respond by not issuing a non-bank deposit taker licence or by objecting to the appointment. The matters giving rise to a review by the Reserve Bank will include such things as prior criminal offending—which seems pretty sensible—having been the subject of professional or regulatory action and the existence of conflicts of interest. 
Otherwise the Reserve Bank must satisfy itself that an applicant for a licence has the ability to meet all of the other prudential requirements under the legislation. It must also have regard to certain matters including the ownership structure the method of incorporation of the applicant and the applicant’s compliance with anti - money-laundering obligations. The remaining aspects of the licensing regime include the Reserve Bank being able to impose conditions at the time of an application for licence which I think is quite significant and being able to vary those conditions subsequently. There is also a power to cancel a licence when for example the licensee has been licensed on the basis of false or misleading information. 
The bill does a number of other things. It introduces controls on changes to ownership of licensed non-bank deposit takers. Ownership will of course be a matter of interest to the Reserve Bank at the time of licensing—in particular for establishing who has actual control. This is something that investors will regard as important in light of what has happened to the sector and the failures that have occurred in the hands of certain individuals whereby shareholders and depositors have been unaware of the full consequence of shareholding changes. Equally it is important that the risk profile of a non-bank deposit taker is not dramatically altered during the term of a deposit. This again was a failure under the previous regime whereby people invested in these non-bank deposit takers only to discover that the very nature of the business changed during the term of their investment. Hence the Reserve Bank’s prior consent to significant changes of control will be required and this is the ability to control 20 percent or more of the voting securities or to appoint 25 percent of the governing body. 
The opportunity is being taken to bolster the Reserve Bank’s powers of intervention to bring them more into line with banking and insurance regimes. These powers will have relevance in terms of detecting and responding to problems of distress and failure. They will contribute to the integrity of the proposed licensing regime and the whole prudential regime by strengthening the array of tools at the Reserve Bank’s disposal and the incentive to behave on the part of regulated entities. These were weaknesses that we have seen in the finance company crisis that we have had in this nation in the past few years. 
The various new powers include the following: firstly to require the supply of information from an associated person of a non-bank deposit taker which is on the basis that we have seen many such takers have a number of associate persons whose conduct and activities have had a material impact on the non-bank deposit taker and its creditors; secondly to require any information provided by a non-bank deposit taker or an associated person to be reviewed and audited; thirdly to enable the Reserve Bank to give directions to a non-bank deposit taker an associated person or a trustee—directions are a standard prudential tool that the Reserve Bank already has in relation to banks and insurers and it is logical to extend this provision to this part of the scope of its prudential supervision—and fourthly to remove or appoint directors of non-bank deposit takers. The powers are confirmed on the Reserve Bank to also obtain information for wider prudential purposes—in particular to monitor the soundness of the sector and the appropriateness of the regulatory settings. 
Hon Trevor Mallard 
: Is this a filibuster? 
Hon TONY RYALL 
: Well actually this is very important because it will address a number of the problems that we have all had to deal with in our electorates as a result of the previous poor regime. 
Decisions by the Reserve Bank to remove a director and a senior officer as a result of a direction may be appealed to the High Court and there is a further right of appeal to the Court of Appeal on questions of law. The bill makes a number of minor or technical amendments to the existing provisions of Part 5D and the regulations already made under Part 5D will continue in force even though they are being incorporated in this legislation. 
In conclusion the Non-bank Deposit Takers Bill will enhance the Reserve Bank’s ability to promote the maintenance of a sound and efficient financial system and it represents a milestone in putting in place the final components of the prudential measures applicable to the non-bank deposit taking sector. It certainly provides an added level of prudential supervision and assurance to the many depositors who have found the previous scheme sadly wanting to their great cost.