Cullen Michael: Reserve Bank of New Zealand Amendment Bill (No 3) — Second Reading 
Cullen Michael: Reserve Bank of New Zealand Amendment Bill (No 3) — Second Reading 
[Volume:649;Page:17963] 
Hon Dr MICHAEL CULLEN (Minister of Finance) 
: 
 I move  
That the Reserve Bank of New Zealand Amendment Bill (No 3) be now read a second time 
. I want to begin by thanking the members of the Finance and Expenditure Committee for their prompt handling of this bill. Some 17 submissions were received and most were supportive of the objectives of the bill. This bill establishes a framework for the regulation of non-bank deposit takers with the aim of promoting a sound and efficient financial system. The bill would do this by establishing prudential standards and providing depositors with a clearer basis for distinguishing between lower-risk and higher-risk entities. This is a significant step forward and should provide more confidence in a sector that has clearly faced a number of challenges over the last year or so. 
One requirement that the bill imposes is the requirement to obtain a credit rating. As it will take time for deposit takers to comply with this requirement and for the Reserve Bank to recommend regulations that approve rating agencies the select committee recommended a transition period of 18 months after the commencement of the Act. The definition of deposit takers as introduced by the bill targets the substance of deposit taking to ensure the activity is captured instead of particular types of organisations. The Reserve Bank will be empowered to assess which institutions are captured on a case by case basis with a view to exempting those that might be inappropriately caught. The wide definition does place emphasis on how the exemption powers will be used. It will provide more certainty about how an exemption decision could be made. 
The select committee agreed to amend the bill to provide statutory tests that must be met before an exemption can be granted and guiding principles that the bank must follow in exercising its discretion. For example an exemption must only be granted if compliance with the bill would be unduly onerous or burdensome. In addition to granting exemptions the bill gives the Reserve Bank other discretions such as imposing terms of conditions on exemptions and recommending to the Minister of Finance that prudential regulations be made. The select committee has suggested that the principles that must be taken into account by the Reserve Bank be clearly laid out in the bill. 
One important principle is that of consistent treatment between deposit takers. These measures will provide more guidance to the Reserve Bank in its new role and a greater degree of certainty for entities affected by its decisions. The prudential regime for the non-bank sector has a range of technical components for which the Reserve Bank has the power to recommend regulations. They include credit rating details capital requirements liquidity requirements and related party lending. Because these areas are technical and detailed in nature and could evolve over time they are best imposed through regulation. Other components of the regime such as risk management and governance requirements are less technical and should be set out up front in the legislation. The select committee has therefore recommended that within these two areas specific measures be included in the bill as direct obligations on deposit takers. 
The bill creates new offences by non-bank deposit takers trustees and directors of deposit takers. The legislation gives the Reserve Bank powers to investigate and enforce the regulatory requirements under the new Part 5D. The select committee recommended providing statutory defences for deposit takers if the contravention was due to the actions or default of another person and when a deposit taker took reasonable precautions and exercised due diligence to avoid a contravention. These defences are conventional in commercial law statutes and provide a better balance to the bill. 
Given that much of the effect of the bill can only be determined once regulations are in place the select committee suggested that the regime be required to be reviewed within 5 years of commencement but with the results of the review to be reported to Parliament. This will provide members of Parliament with the opportunity to assess the regime and potentially revisit some of its features. Finally the select committee recommended a number of amendments that clarify the intent of the governance and accountability provisions in the bill including clarification as to the ability of the Minister to request policy advice from the Reserve Bank and to the requirement for the Reserve Bank to produce regulatory impact assessments of its policies. 
I would like to take this opportunity to signal my intention to introduce a Supplementary Order Paper to deal with two technical issues. One is the commencement provision for the minimum capital requirement and the other is ensuring that the Reserve Bank can request information about deposit takers from the trustees who are supervising them. This will assist the Reserve Bank in assessing both the financial system and the performance of trustees. Members I think will understand in the light of recent events that these are quite important issues at the present time. Once again I would like to thank the select committee members for the work they have undertaken on this bill. The bill has been significantly enhanced through the select committee process. It will give more confidence to the New Zealand financial sector at a crucial time throughout the developed world where the financial sector is under stress.