Operating a financial institution providing financial services in New Zealand necessitates securing a banking licence, which is compulsory under the regulatory framework. In this article, we explore the salient aspects of the financial regulatory landscape in New Zealand and the prerequisites licensees must fulfil.
Regulating banking sector in New Zealand
The Reserve Bank constitutes the principal supervisory body responsible for regulating banks in of New Zealand. The RBNZ purview encompasses pivotal facets of banking operations including registration, prudential supervision and stipulating disclosure requirements for registered banks.
The RBNZ publishes the Banking Supervision Handbook delineating the various policies and guidance documents outlining its regulatory approach. In its capacity as the country’s central bank, the RBNZ’s primary statutory function is to formulate and implement monetary policy aimed at two key macroeconomic goals:
- Maintaining medium-term stability of the general price level
- Supporting maximum sustainable employment.
As is common among central banks, the RBNZ also serves as the lender of last resort to financial system participants and retains other functions including foreign exchange operations, currency issuance and advising the Treasury on policy matters.
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New Zealand’s regulatory environment offers favourable conditions for international applicants seeking a local banking licence, namely:
- No restrictions on founders’, shareholders’ or directors’ residency
- Ability to serve domestic and overseas individual and corporate clientele
- Existence of agreements deterring cross-border double taxation with several nations
- No caps on reserve capital
- Minimal reporting requirements
Who can obtain a bank licence in New Zealand?
Currently, two types of approvals exist for entities seeking to offer retail deposits within their suite of banking services — registration as a:
- Registered bank
- Licensed non-bank deposit taker (NBDT)
Only applicants primarily engaged in borrowing, lending, or provision of ancillary financial services qualify for New Zealand banking registration. During the registration and licensing process, the RBNZ evaluates applicants on both qualitative and quantitative parameters.
Qualitative criteria chiefly pertain to the financial standing of applicants and their ability to prudently manage business risks. For instance, ownership structure, efficacy of systems controlling enterprise risks and extent of loan portfolio diversification.
Quantitative criteria entail maintaining operational prudence and stability post-registration on an ongoing basis.
Hence, quantitative benchmarks constitute registration prerequisites for New Zealand banks aimed at fostering systemic stability by curtailing, although not eliminating, key banking risks.
The key prudential requisites for a New Zealand banking licence elaborate upon some important areas typically subject to registration conditions.
Applicants registered overseas must obtain requisite clearances from their home regulator for conducting banking activities domestically. Furthermore, applicants should meet all prudential norms mandated by their home jurisdiction regulator. Accordingly, registration criteria for New Zealand subsidiary banks chiefly emphasize compliance with their foreign supervisor's regulatory mandates.
Obtaining a banking licence in New Zealand: Key consideration
When applying for a New Zealand banking licence, the following details must be furnished:
- Proposed bank’s full and abbreviated name
- Registered address
- Authorized capital amount
- Planned scope of banking activities
- Personal information of founders, shareholders, directors, managers, and auditors encompassing identification proof, addresses, resumes and credentials evidencing competence and qualifications
- Documentation validating legitimate origins of capital contributed by each shareholder
- Particulars of other businesses owned by the bank's promoters in New Zealand and internationally
- Business plan
- Receipt evidencing payment of requisite state fee
Upon receiving a banking licence application, New Zealand regulators undertake comprehensive review of submitted information, which may require 3 months to 3 years. The presence of any unfavourable criminal history or company track record can warrant rejection.
Assessing suitability of directors and key executives
While evaluating a New Zealand bank registration application, the Reserve Bank examines the suitability of proposed directors, Chief Executive Officer and other key management personnel. For locally incorporated applicants, this policy applies to existing and prospective senior management. For overseas registered applicants as well, assessment encompasses present directors and incumbent/future Chief Executive helming New Zealand operations.
If any proposed appointee already underwent vetting by an overseas regulator, the Reserve Bank generally accepts their assessment as adequate proof of credentials, obviating the need for re-evaluation.
Recommended corporate governance structures
When obtaining a New Zealand banking licence, prescribed corporate governance requirements warrant:
- Minimum 5 board members, with most being independent non-executive directors
- At least half of independent directors should be New Zealand residents
- Appointing an independent chairman
- Maintaining a dedicated audit committee for monitoring systems, controls, and reporting
Furthermore, investments in New Zealand’s banking sector fall under the jurisdiction of foreign investment regulations. These necessitate non-resident investors to secure clearance from the Overseas Investment Office before acquiring certain New Zealand assets.
Unlike other peer regulators, the RBNZ does not statutorily protect depositors currently. However, the government approved the introduction of a deposit insurance scheme through amendments in the Deposit Takers Act, targeting launched by 2023. The scheme proposes capping coverage at NZ$ 100,000 per depositor, funded via charges collected from member institutions. It intends to cover specific transaction, savings, and term products offered by registered banks and equivalent NBDT offerings. The scope remains subject to revision by the Treasury Secretary in future.
Use of terminology like “bank”, “banker” or “banking” also stands restricted only to licensed banks without requisite RBNZ approvals. This holds true for international and domestic banks alike.
Apart from a banking licence, registration under the Financial Services Providers Act 2008 remains mandatory. Any additional activities like managing an investment scheme, issuing derivatives or advising retail clients call for supplemental licences under the Financial Markets Conduct Act 2013.
Key information required
A New Zealand bank registration application requires details such as:
- Ownership breakdown including beneficial owners, major shareholders, voting rights and group structures
- First 3 years' financial forecasts — balance sheets, P&L statements and assumptions
- Summary of proposed risk management policies, audit systems, outsourcing contracts and AML procedures
- Parent company’s or bank’s previous 3 years' financial statements
- Profiles of proposed directors and senior management
- Capital structure summary and confirmation of any parental capital support
Proposed regulatory changes
The impending revamp of the Banking Act is expected to require:
- Licence application instead of registration
- Directors and key management to evidence compliance with prescribed suitability standards, akin to the Insurance Act 2010.
Features of applying for a banking licence in New Zealand
- The RBNZ expects prospective applicants to informally express interest before submitting a formal licence application. This facilitates identification of potential issues early on.
- A formal application seeking registration as a registered bank must be addressed to the RBNZ Governor.
- Upon receiving the formal application, the Reserve Bank prepares an assessment report examining all salient factors warranting consideration.
- While no entity restrictions apply, only applicants primarily engaged in lending or financial services qualify for banking registration.
- No prescribed application format exists. However, submitting two copies to the RBNZ remains advisable.
- The current application fee stands at NZD 21,000 for an overseas bank's branch/subsidiary or a subsidiary of an existing New Zealand registered bank.
- For all other applicants, the prevailing application fee equals NZD 36,000.
Notably, certain financial sector regulations undergo ongoing review and imminent revision. TKDeal's specialists stay abreast of New Zealand's regulatory shifts to aptly guide clients on navigating the licensing and compliance aspects. We would be best positioned to advise on recent and upcoming developments in this jurisdiction.
Therefore, engaging industry experts assumes critical importance when venturing into a new geography to allow factoring in emerging norms and aligning appropriately. TKDeal, with its finger on the pulse of global regulatory transformations, has the credentials to offer timely insights to entities seeking New Zealand banking access.