5Overview

1. This Act provides for the licensing, regulation, and prudential supervision of banks and other persons in the business of borrowing and lending money (deposit takers).

2. In this Act,—

   Preliminary

3. this Part provides for—
   1. the purposes of this Act; and
   2. the principles that the Reserve Bank of New Zealand (the Bank) must take into account when acting under this Act:

Licensing of banks and other deposit takers

4. Part 2—
   1. requires deposit takers to hold a licence:
   2. provides for when the Bank must issue a licence:
   3. provides for licence conditions:
   4. requires directors and senior managers of deposit takers to be fit and proper persons:
   5. requires the Bank’s approval for certain important changes (for example, a change in significant influence over a bank or a significant transaction):
   6. provides for when the Bank may cancel a licence:
   7. provides for appeals against licensing decisions:

Regulation of deposit takers

5. Part 3—
   1. requires a deposit taker to have a current rating of its creditworthiness:
   2. requires a deposit taker to comply with prudential standards. Those standards may relate to, for example, governance, capital, liquidity, exposures to related parties, risk management, disclosure of information, contingency and recovery plans, and internal controls and assurance:
   3. requires directors of a deposit taker (or a New Zealand chief executive officer, in the case of an overseas deposit taker) to exercise due diligence to ensure that the deposit taker complies with its prudential obligations:

Supervision of deposit takers

6. Part 4—
   1. requires the Bank to prudentially supervise deposit takers:
   2. provides for information-gathering, on-site inspection, and investigation powers:
   3. requires a deposit taker to monitor its compliance with the prudential obligations and to report a failure to comply to the Bank:
   4. allows the Bank to require a deposit taker to take action to address a failure to comply:
   5. allows the Bank to require a deposit taker to disclose warnings:

Enforcement

7. Part 5—
   1. allows the Bank to accept undertakings:
   2. provides for the High Court to impose a pecuniary penalty for a failure to comply with applicable standards, conditions of a licence, or the due diligence duty for directors and New Zealand chief executive officers:
   3. provides for infringement offences:
   4. creates an offence of giving false or misleading information under this Act:
   5. provides for the District Court to ban persons from participating in a deposit-taking business:
   6. provides for when a state of mind or conduct is attributed to a body corporate or other principal:

Depositor compensation scheme

8. Part 6 establishes a depositor compensation scheme to—
   1. provide certain compensation to eligible depositors when the Bank has issued a specified event notice in relation to a licensed deposit taker. The Bank may issue a notice in certain circumstances after, for example, the deposit taker has been put into liquidation or receivership or has entered resolution:
   2. support a resolution measure undertaken in relation to a licensed deposit taker under subpart 5 of that Part:

Crisis management and resolution

9. Part 7—
   1. gives the Bank the power to issue directions to a licensed deposit taker or an associated person (for example, a direction to avoid or mitigate any adverse effects arising from a deposit taker being in financial distress or other difficulties):
   2. gives the Bank the power to remove, replace, or appoint a director of a licensed deposit taker (for example, when it is necessary or desirable to do so in circumstances where a deposit taker is insolvent or is likely to become insolvent or has materially breached a prudential obligation):
   3. provides for the resolution of a licensed deposit taker or an associated person that is in financial distress or other difficulties:
   4. provides for compensation to be paid to creditors or shareholders that are worse off as a result of a resolution:
   5. regulates covered bonds:

Miscellaneous provisions

10. Part 8—
    1. imposes restrictions on the use of the words bank, banker, and banking:
    2. provides for co-operation with Australian financial authorities:
    3. provides for the confidentiality of information given to the Bank:
    4. gives the Bank the power to specify how certain things are done under this Act (for example, how to apply for a licence):
    5. provides for regulations to support the Act.

11. This section is only a guide to the general scheme and effect of this Act.