Proposed Changes to Bank Registration Rules

Introduction
Current Bank Registration and Supervision
Proposed Changes to Banking Registration Rules

Introduction

The Reserve Bank of New Zealand, which is responsible for the registration and supervision of banks in New Zealand, has announced that it may soon seek to change the rules under which certain overseas owned banks operate in New Zealand. The change would mean that in certain circumstances foreign banks which operate branches in New Zealand would be required to incorporate those branches as New Zealand subsidiaries. Currently, banks registered in New Zealand may either be incorporated locally or operate as a branch of a foreign parent.

Current Bank Registration and Supervision

At present, bank registration and supervision rules are governed by the Reserve Bank of New Zealand Act 1989 (the 'Act'). The Act provides for the Reserve Bank to register banks and to undertake prudential supervision of registered banks.

The Act prohibits any person from carrying on business in New Zealand under a name or title that includes the words 'bank', 'banker' or 'banking' unless that person is registered under the Act.

Registration
Any person can apply to be registered as a registered bank.

When determining an application for registration as a registered bank, the Reserve Bank is required:

• to satisfy itself that the applicant's business will substantially consist of the borrowing and lending of money, or the provision of other financial services, or both; and
  
  
• to have regard to the following matters:
  
  
• the incorporation and ownership structure of the applicant;
  
• the size of the applicant's business or proposed business;
• the ability of the applicant to carry on its business or the proposed business in a prudent manner;
• the standing of the applicant in the financial market;
• the law and regulatory requirements in an overseas bank's country of domicile;
• any other matters which may be prescribed in regulations.

The Act provides that a person may be registered as a registered bank unconditionally or subject to such conditions as the Reserve Bank may specify. The Act also requires the Reserve Bank to publish the principles on which it acts in:

• determining applications for registration; and
  
  
• imposing conditions of registration.

The Reserve Bank has published these principles in a document titled Statement of Principles: Bank Registration and Supervision. This document can be accessed on the Reserve Bank's website at www.rbnz.govt.nz.

Different principles are applied by the Reserve Bank in determining applications for registration, and in imposing conditions of registration, depending on whether an applicant wishes to register as a branch of an overseas-incorporated entity or applies for registration as a locally incorporated entity.

The Reserve Bank has stated that registration policy is aimed at ensuring only financial institutions of 'appropriate standing and repute' are able to become registered banks.

As of the date of the writing of this article there are 17 banks registered under the Act. They are:

• ABN AMRO Bank
  
  
• AMP Bank
  
  
• ANZ Banking Group (New Zealand) Limited
  
  
• ASB Bank Limited (75% owned by Commonwealth Bank of Australia)
  
  
• Bank of New Zealand (owned by National Australia Bank)
  
  
• Bank of Tokyo-Mitsubishi (Australia) Limited
  
  
• Banque Nationale de Paris
  
  
• BNZ Finance Limited (owned by National Australia Bank)
  
  
• Cititbank, N.A.
  
  
• Deutsche Bank, AG.
  
  
• Kookmin Bank (of South Korea)
  
  
• Rabobank New Zealand Limited
  
  
• Rabobank Nederland
  
  
• The Hongkong and Shanghai Banking Corporation
  
  
• The National Bank of New Zealand Limited (owned by Lloyds TSB PLC)
  
  
• TSB Bank Limited
  
  
• Westpac Banking Corporation

Of the above, only ASB Bank Limited, Bank of New Zealand, ANZ Banking Group (New Zealand) Limited, BNZ Finance Limited, Rabobank New Zealand Limited, The National Bank of New Zealand Limited and TSB Bank Limited are incorporated in New Zealand. TSB Bank Limited is the only wholly New Zealand-owned bank.

Supervision
The system of supervision under the Act places considerable emphasis on a requirement that banks disclose on a quarterly basis information on financial performance and risk positions, and on a requirement that directors regularly attest to certain key matters. The Reserve Bank has stated that these measures are designed to strengthen market disciplines and to ensure that responsibility for the prudent management of banks lies with the directors and management. The measures are backed up by various powers, which the Reserve Bank can use in the event that a bank distress or failure situation threatens. These 'crisis management' powers include the ability to give directions to a registered bank which is in difficulties and the ability to place a registered bank under statutory management.

Proposed Changes to Banking Registration Rules

The Reserve Bank has proposed that foreign banks which operate branches in New Zealand be required to incorporate those branches as New Zealand subsidiaries if either of the following criteria applies:

• the branch conducts activities in New Zealand which are sufficiently large enough that the soundness of the branch is important for the New Zealand financial system as a whole; or
  
  
• the branch has a significant level of retail deposits in New Zealand, and its offshore parent is incorporated in a country which either allows banks to operate with low levels of public financial disclosure or gives priority to depositors in that country in the event of financial crisis.

The proposed changes are intended to formalize the assets ownership of the New Zealand branches of offshore banks and protect those assets from possible foreign claims which may currently take priority (in the event of insolvency of the branch) under the law of the jurisdiction in which the branch is incorporated. The rules will, if introduced, assist creditors in determining the jurisdiction in which bank assets are held.

The Reserve Bank is currently undertaking a consultation process with banks which are likely to be affected and has not made a final determination on whether the changes will be made.


For further information on this topic please contact Dermot Ross or Mike Alexander at Buddle Findlay by telephone (+649 358 2555) or by fax (+649 358 2055) or by e-mail ([email protected] or [email protected]).