3 September 2008 Media Statement

Stronger protection for investors with law change

Finance companies, building societies, credit unions and other deposit takers will be required to obtain credit ratings and meet tougher prudential requirements as a result of important legislation enacted today, says Finance Minister Michael Cullen.

The Reserve Bank Amendment Bill (No 3), extending the Reserve Bank’s responsibilities to become the regulator of non-bank deposit takers, has now been enacted into law.

The framework will apply to non-bank deposit-takers, including finance companies, building societies and credit unions. The minister emphasized that this is a result of a major review of regulations spanning nearly two years and the new legislation required will take time to implement.

“This is not intended to be a ‘quick fix’ response to current challenges facing the non-bank sector. The new legislation is intended to raise standards across the industry and to improve the future resilience of the sector,” Dr Cullen said.

The requirements include:

- A credit rating from a rating agency approved by the Reserve Bank;
- Maintaining a minimum amount of capital and a minimum capital ratio;
- Maintaining an adequate level of liquid assets;
- Restrictions on lending to persons that are related to the deposit-takers;
- New governance requirements, including at least two independent directors.

“All deposit-takers are required to obtain a credit rating by March 2010, but there is nothing to prevent deposit-takers obtaining a credit rating now, which may well be a desirable course of action,” Dr Cullen said.

Deposit-takers will continue to be subject to trust deeds and be supervised by trustee corporations under the Securities Act, but trust deeds will have to comply with the new prudential requirements. Deposit-takers will also continue to be subject to public disclosure under the Securities Act, but this will be strengthened, and made more focused and user-friendly. For more detailed information on key features of the new arrangements please see the Reserve Bank’s website (www.rbnz.govt.nz).

ENDS

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