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Financial Regulation Update – Reserve Bank Regulation of Overseas Banks

Home Insights Financial Regulation Update – Reserve Bank Regulation of Overseas Banks

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Contributed by: Tom Hunt and Simon Mackley

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Published on: August 27, 2019

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Over the last 18 months, the Reserve Bank of New Zealand (RBNZ) has been consulting on various aspects of the treatment of overseas banks in New Zealand. The RBNZ has now announced the outcome of that consultation, which includes a range of measures designed to provide greater certainty and transparency about how overseas banks wishing to use restricted words in New Zealand are treated. Those measures include new guidance from the RBNZ on the interpretation of the relevant legislative provisions and, of particular importance, a class authorisation which will authorise overseas banks that are not registered in New Zealand to carry on limited wholesale activities in New Zealand without the need for registration. 

Current position

The requirements for bank registration in New Zealand are relatively unique compared to other jurisdictions in that they focus on the name of the relevant entity rather than the substance of the activities carried on by that entity. More specifically, the Reserve Bank of New Zealand Act 1989 (Act) contains a prohibition on any overseas entity which has "bank" in its name carrying on activities in New Zealand without being registered as a bank (or being otherwise authorised by the RBNZ). The Act does not distinguish between retail and wholesale activities and the concept of "activity" tends to be interpreted broadly by the RBNZ. Consequently, an overseas bank which provides products or services with a New Zealand connection should carefully consider and monitor on an ongoing basis whether or not it is required to register as a bank in New Zealand.

New guidance

Following a period of consultation on the registration of overseas banks, the RBNZ released two guidance notes on 8 August 2019. Respectively, the two guidance notes are intended to assist an overseas bank in determining:

  • when it will be carrying on activity in New Zealand (and be required to be registered); and
  • where an overseas bank would otherwise be required to be registered, whether it should apply to the RBNZ for authorisation to carry on activity in New Zealand without registration, and the process for doing so.

The first guidance note is particularly helpful as it provides detailed insight into the types of activities which the RBNZ considers to engage section 64 of the Act.

Class authorisation for wholesale activities

To help facilitate certain wholesale banking activities in New Zealand, the RBNZ published a class authorisation on 26 August 2019 which, subject to the conditions summarised below, would authorise an overseas bank that does not have a place of business in New Zealand to carry on limited activities in New Zealand without the need for registration, including:

  • wholesale banking and/or lending activities;
  • financial advisory services;
  • involvement and/or supporting roles in capital market issuances (including the Kauri bond market);
  • capital market investment activities; and
  • involvement and/or supporting roles in wholesale foreign exchange and derivatives markets.

An overseas bank that seeks to rely on the class authorisation specified above, will be required to comply with the following conditions:

  • notifying the RBNZ of its intention to rely on the class authorisation before actually doing so;
  • maintaining an authorised agent in New Zealand for the service of documents;
  • providing the RBNZ with any information it requests under the Act in connection with its authorised activities; and
  • only carrying on the activities authorised in the class authorisation which the overseas bank has notified the RBNZ of.

The RBNZ also intends to establish a register which would list all overseas banks that have been authorised (including under a class exemption) to carry on activity in New Zealand and details of the nature of the authorised activities.

The RBNZ has also indicated that overseas banks, which have the benefit of existing letters of non-objection (under the previous regime), shall continue to be able to rely on such letters for the time being.

The class authorisation comes into force on 23 September 2019. Please get in touch with one of our experts, Tom Hunt, Deemple Budhia or Guy Lethbridge, if you have any questions about any of the above. In particular, please let us know if you would like assistance in determining whether the class authorisation is applicable to you and what steps you need to take to ensure it applies.  

Resources

The restricted word guidance note is available here and the authorisation guidance note is available here.

The class authorisation is available here.

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