This subpart sets out the following key matters:

• a deposit taker must hold a licence:

• a person must not falsely hold out that they are licensed:

• a failure to comply with these duties is an offence with a penalty of imprisonment for a term not exceeding 2 years or a fine not exceeding $500,000, or both, for an individual or a fine not exceeding $5 million in any other case:

• the Bank may apply to the High Court for the liquidation of a deposit taker that carries on business without a licence.

This subpart provides for the Bank to issue licences. In particular, it provides for—

• how a body corporate may apply for a licence; and

• the criteria for the issue of a licence, including that—

  • the applicant has the ability to comply with all prudential obligations under the Bill (for example, standards and licence conditions); and

  • the applicant’s incorporation and ownership structure and its governance structure are appropriate, and its ownership is appropriate; and

  • the applicant’s directors and senior managers are fit and proper persons; and

• additional criteria for overseas applicants. The criteria relate to the law and regulatory requirements of, and the nature and extent of prudential supervision in, the applicant’s home jurisdiction; and

• the Bank to consult the Financial Markets Authority (the FMA). The Bank must also consult the applicant about the conditions and standards the Bank proposes to impose; and

• the Bank to maintain a register of licensed deposit takers.

This subpart allows the Bank to impose conditions on a licence. Conditions may, for example,—

• impose requirements within a range set by standards (such as fixing a minimum capital ratio within a range set out in a standard); or

• impose limits or restrictions on the size or nature of a deposit taker’s business or on its activities.

This subpart sets out fit and proper requirements for new directors and senior managers of deposit takers. The term senior manager includes chief executives and chief financial officers. The subpart provides that—

• the Bank must approve new directors and senior managers. The requirement does not apply to overseas deposit takers (who are instead only required to notify the Bank if a new director or senior manager is appointed):

• a failure to obtain approval is an offence with a maximum fine of $500,000. In addition, the Bank may suspend the director from acting as a director of the deposit taker or the manager from being concerned in, or taking part in the management of, the deposit taker:

• the Bank may at any time require a deposit taker to supply a fit and proper certificate:

• if a deposit taker becomes aware of fit and proper concerns about a director or senior manager, it must disclose those concerns to the Bank:

• the Bank may remove a director or senior manager if it has reasonable grounds to believe that they are not a fit and proper person to hold the relevant position. The Bank may also direct that the person not be reappointed.

This subpart requires the Bank’s approval for—

• a transaction that would result in a person obtaining control over a licensed deposit taker. The requirement does not apply to overseas deposit takers (who are instead only required to notify the Bank of a change in control):

• certain significant transactions (for example, where a deposit taker transfers all or a material part of its business to another person):

• an amalgamation of a deposit taker with 1 or more other persons. The requirement does not apply to overseas deposit takers (who are instead only required to notify the Bank of an amalgamation).

In considering a request for approval, the Bank must consider whether, if the proposed change occurs, the Bank would still be satisfied of the licensing matters set out in clause 17.

A failure to obtain approval does not invalidate a change. But the failure is an offence with a penalty of imprisonment for a term not exceeding 1 year or a fine not exceeding $100,000, or both, for an individual or a fine not exceeding $2,500,000 in any other case.

The Bank may give its approval unconditionally or subject to conditions. A person that contravenes a condition of approval commits an offence with a penalty of a fine not exceeding $100,000 for an individual or a fine not exceeding $2,500,000 in any other case.

This subpart allows the Bank to cancel a licence if the deposit taker—

• provides false or misleading information when applying for the licence and it has not yet commenced carrying on business in New Zealand; or

• has contravened a condition that requires it to commence carrying on business in New Zealand; or

• is not, or is no longer, a deposit taker and does not owe any obligations under any protected deposit; or

• has been liquidated, wound up, or dissolved or has otherwise ceased to exist.

This subpart allows a person to—

• appeal to the High Court against a licensing or fit and proper decision of the Bank; or

• appeal to the High Court on a question of law against a decision of the Bank about licence conditions or a decision of the Bank about whether to approve a change of control, a significant transaction, or an amalgamation.

This subpart requires a deposit taker—

• to have a credit rating from a rating agency that is approved by the Bank. A credit rating is a rating of the deposit taker’s creditworthiness; and

• to notify the Bank of changes in ratings and of credit watch warnings; and

• to disclose the rating on its Internet site; and

• to comply with certain rules if it distributes an advertisement that refers to its rating; and

• not to disclose or advertise credit ratings from non-approved agencies; and

• to give public notice of a downgrade in the rating.

This subpart allows the Bank to grant exemptions from the credit rating requirements in clause 59. The Bank may grant an exemption where the costs of compliance would be unreasonable or not justified by the benefit of compliance.

This subpart allows the Bank to issue standards, which are secondary legislation. A licensed deposit taker that fails to comply with a standard may be liable to a pecuniary penalty. The maximum pecuniary penalty is $5 million or 0.1% of the total assets of the deposit taker’s group. See subpart 2 of Part 5.

Clauses 75 and 76 provide for procedural matters relating to the issue of standards, including a requirement for the Bank to consult persons affected by a proposed standard. The requirement does not apply to minor or technical amendments.

Clauses 77 to 89 set out what standards may relate to. In particular, standards may regulate, deal with, or otherwise relate to—

• governance:

• the remuneration of, and incentives available to, directors, senior managers, and employees:

• incorporation structure (for example, requiring local incorporation):

• capital, liquidity, security interests, and credit ratings:

• bail-in arrangements. A bail-in standard may, for example, require a deposit taker to issue debt securities that are convertible into shares if a certain trigger event occurs:

• ensuring only fit and proper persons are appointed to, and continue to hold, positions as directors or senior managers:

• loan concentration and risk exposures, exposures to related parties of a deposit taker, and a deposit taker’s business of lending money (a lending standard). Generally speaking, standards apply only to deposit takers. However, a lending standard may apply to other lenders:

• risk management, business continuity planning, and problem assets:

• the depositor compensation scheme under Part 6:

• covered bond or other securitisation arrangements (see subpart 10 of Part 7):

• the disclosure of information to the Bank or the public. Disclosure under these standards replaces, for example, financial disclosure in disclosure statements under section 81 of the Banking (Prudential Supervision) Act 1989:

• contingency and recovery plans:

• facilitating resolution under Part 7 (including pre-positioning requirements):

• restrictions or prohibitions on the activities that a deposit taker may carry out other than as a deposit taker and on the activities that a New Zealand deposit taker may carry out outside New Zealand:

• internal controls and assurance:

• any other matters that may be prescribed in the regulations.

Clause 90 allows standards to impose a requirement to obtain the Bank’s approval for a matter.

Clause 91 allows standards to specify matters that may be set by a condition of a licence. For example, a standard may specify a range of capital requirements and allow the Bank to set the particular capital requirement for a deposit taker within that range in a licence condition.

This subpart requires a director of a licensed deposit taker to exercise due diligence to ensure that the deposit taker complies with its prudential obligations. A director that breaches this duty may be liable to a pecuniary penalty not exceeding $1 million. See subpart 2 of Part 5.

The subpart sets out restrictions on indemnities and insurance in connection with liability for a breach of this duty.

This subpart gives the Bank the power, by notice, to require a person to give information to the Bank, to produce documents for inspection, or to reproduce, or assist in reproducing, in usable form, information recorded or stored in those documents. The Bank may exercise the power if the Bank considers it necessary or desirable to do so for the purposes of performing or exercising any of its functions, powers, or duties under this Bill.

A person commits an offence if they refuse or fail, without reasonable excuse, to comply with the notice. The offence has a penalty of a fine not exceeding $50,000 for an individual or a fine not exceeding $500,000 in any other case.

This subpart facilitates the Bank’s ability to undertake prudential supervision by empowering the Bank to conduct on-site inspections for certain purposes (for example, assessing the adequacy of a deposit taker’s policies, processes, controls, or other arrangements for complying with its prudential obligations). The Bank may exercise the power only at a reasonable time and in a reasonable manner. The Bank is not required to give notice of the exercise of the power.

During an on-site inspection, employees, directors, or agents of the licensed deposit taker may be required to answer questions and give all other information that the Bank may reasonably require.

An employee, a director, or an agent of the licensed deposit taker commits an offence if they, without reasonable excuse, refuse or fail to comply with a requirement to answer questions or give information or they resist, obstruct, or delay the Bank in carrying out an on-site inspection. The offence has a penalty of a fine not exceeding $50,000 for an individual or a fine not exceeding $500,000 in any other case.

Clause 144 provides that a person is not excused from answering questions or giving information on the ground that to do so would or might incriminate that person.

This subpart requires a licensed deposit taker to—

• monitor its compliance with its prudential obligations; and

• report to the Bank if it believes it has contravened, may have contravened, or is likely to contravene a prudential obligation in a material respect.

A licensed deposit taker that, without reasonable excuse, contravenes this subpart commits an offence. The offence has a penalty of a fine not exceeding $500,000.

This subpart allows the Bank to issue a remedial notice to a licensed deposit taker if it gives the Bank a report under subpart 3 or the Bank otherwise has reasonable grounds to believe that a licensed deposit taker has contravened, may have contravened, or is likely to contravene a prudential obligation. A remedial notice may require the deposit taker to take specified actions or to develop a remedial plan. The actions or plans are directed to addressing the cause, or remedying or mitigating the consequences, of the contravention or ensuring that the contravention does not occur or recur.

The deposit taker commits an offence if it contravenes a remedial notice or fails to comply with a remedial plan. The offence has a penalty of a fine not exceeding $2,500,000.

This subpart—

• allows the Bank to appoint an investigator to investigate the affairs of a licensed deposit taker or other person if, for example, they have contravened, are contravening, or are likely to contravene a prudential obligation; and

• allows the investigator to obtain information relating to the business, operation, or management of the deposit taker or other person; and

• allows the investigator to enter and search a place (but only with consent or under a warrant issued under the Search and Surveillance Act 2012).

A person commits an offence if they, without reasonable excuse, hinder, obstruct, or delay an investigator or contravene a requirement to give information to the investigator. The offence has a penalty of a fine not exceeding $100,000 for an individual or a fine not exceeding $2,500,000 in any other case.

This subpart allows the Bank to prohibit the publication or communication of information that discloses, or may disclose, the exercise of a power under the Bill or that is obtained in connection with an inquiry, investigation, or other proceeding of the Bank.

A confidentiality order does not prohibit the disclosure of information with the Bank’s consent (and that consent must not be unreasonably withheld).

A person who knowingly or recklessly contravenes an order commits an offence. The offence has a penalty of imprisonment for a term not exceeding 1 year or a fine not exceeding $100,000, or both, for an individual or a fine not exceeding $2,500,000 in any other case.

This subpart allows the Bank to require a person to disclose any of the Bank’s warnings. For example, if the Bank has issued a warning to a licensed deposit taker about a contravention of a prudential obligation, the Bank may require the deposit taker to disclose the warning on its Internet site or in other communications.

This subpart facilitates co-operation with overseas supervisors. The subpart allows the Bank to authorise an overseas supervisor to conduct an on-site inspection of a licensed deposit taker or to require the deposit taker to supply information.

Clause 144 provides that the privilege against self-incrimination does not excuse a person from giving information under Part 4 (for example, in response to a notice given by the Bank under subpart 1, during an on-site inspection under subpart 2, or in response to a notice given by an investigator under subpart 5). However, clause 145 provides that a self-incriminating statement made orally may be used in evidence against the person only in a prosecution for an offence where the person gives evidence inconsistent with the statement. These provisions carry over the substantive effect of sections 175A and 175B of the Banking (Prudential Supervision Act) 1989.

Clause 146 provides for the effect of a final court decision that the exercise of a power under clause 99 or 127 is unlawful. For example, the clause requires unlawfully collected information to be destroyed.

This subpart allows the Bank to accept an undertaking from a deposit taker or other person. An undertaking may include an undertaking to pay compensation, to take specified action to address a contravention or to ensure that a contravention does not occur or recur, or to pay an amount in lieu of a pecuniary penalty.

No proceedings may be brought for a contravention against—

• a person who makes an undertaking in relation to the contravention, while there is no contravention of the undertaking:

• a person who made, and has completely discharged, an undertaking in relation to the contravention.

A person that contravenes an undertaking commits an offence. The offence has a penalty of a fine not exceeding $50,000 for an individual or a fine not exceeding $500,000 in any other case.

In addition, the Bank may take a proceeding in the High Court to enforce the undertaking.

This subpart allows the High Court to impose a pecuniary penalty against a person who has contravened a standard or a licence condition, has been involved in a contravention of a standard, or has breached the directors’ due diligence duty in clause 92.

The maximum amount of pecuniary penalty for a contravention, or involvement in a contravention, of a standard or a licence condition is the greater of $5 million and 0.1% of the total assets of the group. The maximum amount of a pecuniary penalty for a breach of a director’s due diligence duty is $1 million.

This subpart sets out standard provisions for infringement offences. The Bill provides for certain lower-level contraventions to be infringement offences. For example, a failure of an overseas licensed deposit taker to notify the Bank if a new director or senior manager is appointed is an infringement offence under clause 30. The infringement offence has a penalty of an infringement fee of $10,000 or a fine imposed by a court not exceeding $25,000.

This subpart prohibits a person from making a false or misleading declaration or representation for the purposes of the Bill. A contravention of this prohibition is an offence with a penalty of imprisonment for a term not exceeding 1 year or a fine not exceeding $100,000, or both, for an individual or a fine not exceeding $2,500,000 in any other case.

If a licensed deposit taker or an associated person is convicted of the offence, a director of the deposit taker or associated person is also guilty of the offence if it is proved that the offence took place with their authority, permission, or consent and that they knew, or could reasonably be expected to have known, that the offence was to be or was being committed and failed to take all reasonable steps to prevent or stop it.

This subpart gives the District Court the power to ban a person from participating in a deposit-taking business. An order may be made if, for example, the person—

• is a director who has persistently or seriously failed to comply with the due diligence duty under clause 92; or

• is a director of a deposit taker that has persistently or seriously contravened any prudential obligation, and the person has persistently failed to take reasonable steps to prevent or stop the contravention.

This subpart provides for—

• the state of mind or conduct of a director, an employee, or an agent to be attributed to a body corporate or other principal; and

• a general defence for certain offences under the Bill; and

• the time for filing charging documents for certain offences; and

• the jurisdiction of the High Court; and

• general provisions about court orders.

This subpart—

• sets out an additional purpose of this Part, namely, to contribute towards protecting and promoting the stability of New Zealand’s financial system through a depositor compensation scheme (the scheme); and

• defines key terms. They include—

  • eligible investor, which in general terms is a holder of a protected deposit (other than a government agency or certain financial institutions); and

  • protected deposit, which in general terms is a debt security issued by a licensed deposit taker where the payments of the principal and interest are in New Zealand currency only. However, debentures, bonds, notes, commercial paper, and convertible notes are not protected deposits. To be a protected deposit, a debt security must either meet requirements prescribed by the regulations or be of a kind specified in the regulations; and

  • specified event notice (see clause 193). A specified event notice triggers entitlements to compensation. The Bank may issue a notice if—

    • a deposit taker has been put into liquidation or receivership or has entered resolution; and

    • the deposit taker’s financial or other difficulties are likely to cause serious and prolonged disruption to the ability of eligible investors to deal with their protected deposits; and

    • issuing the notice is the most appropriate means to deal with the disruption; and

• sets out the Bank’s functions under the Part. These include determining entitlements to compensation, collecting levies, and administering, operating, and investing the depositor compensation fund.

This subpart sets up the Depositor Compensation Fund (the fund). The subpart provides for—

• the fund to consist of levies collected under subpart 6, fund investments, and money recovered after the exercise of rights of subrogation under subpart 4; and

• the fund to be managed by the Bank on behalf of the Crown; and

• payments out of the fund. In particular, the fund may be used to pay compensation under the scheme. The fund can also be used to support resolution measures under subpart 5; and

• fund investments. The Bank must comply with the requirements for the investment of the fund that are contained in the statement of funding approach (see subpart 7).

This subpart sets out the key rules for entitlement to compensation from the scheme. In general terms, a person who has a protected deposit with a licensed deposit taker is entitled to compensation if—

• the deposit taker is put into liquidation or receivership or enters resolution, and the Bank has issued a specified event notice under clause 193; and

• the person is an eligible investor; and

• the deposit is held by the person in their own right or is held for them or on their behalf.

The amount of compensation is generally based on the amount of the eligible investor’s protected deposits as at a quantification time set by the Bank. However, the amount of compensation is generally limited to $100,000.

The subpart sets out provisions relating to the following:

• rules for calculating a person’s share of a deposit when it is held by or on behalf of 2 or more persons jointly; and

• rules for calculating a person’s share of a deposit when it is held by or on behalf of 2 or more persons other than jointly; and

• the entitlement of beneficiaries when a deposit is held under a bare trust or certain other relevant arrangements (for example, under a regulated client money or property service); and

• regulations that provide for the calculation of the amount of a person’s protected deposits or share of protected deposits when deposits are held on trust, by a partnership, or by a person under a relevant arrangement; and

• regulations that provide for a person’s entitlement to compensation to be subject to conditions (for example, a condition that requires them to supply information); and

• regulations that provide for transactions connected to a protected deposit that have not yet been processed at the quantification time; and

• regulations that provide for the calculation of an eligible investor’s entitlement to compensation to take into account funds that the eligible investor has withdrawn, or that are otherwise available to the eligible investor, after the deposit taker enters resolution; and

• a power for the Bank to not pay compensation where, for example, a calculation may not be made with reasonable certainty; and

• a rule that provides for liabilities owed by an eligible investor to the licensed deposit taker to be disregarded when calculating their entitlement to compensation; and

• how the Bank may determine what interest has accrued on a deposit; and

• when the Bank may rely on a licensed deposit taker’s records and information from eligible investors and other persons; and

• the payment of compensation; and

• a power for licensed deposit takers and certain other persons to disclose to the Bank information (including personal information) to facilitate the payment of compensation; and

• a power for the Bank to disclose information (including personal information) to facilitate the payment of compensation; and

• the recovery of compensation that has been paid in excess or in error.

This subpart provides that, if the Bank pays compensation to an investor (A) in respect of a protected deposit, the Bank (or a subsidiary) is subrogated to A’s rights and remedies in relation to the deposit. That is, the Bank may be able to recover the amount of compensation it has paid from the money that is owed by the deposit taker to A.

A must (at the Bank’s or a subsidiary’s expense) do anything reasonably required by the Bank (or subsidiary) to enable it to exercise or enforce any subrogated rights or remedies.

This subpart allows the Bank to use the fund to support a resolution measure undertaken for a licensed deposit taker.

Resolution measures are actions taken by the Bank to further the purposes set out in clause 256 or paying compensation under subpart 9 of Part 7 (no creditor or shareholder worse off). For example, money from the fund could be advanced to the deposit taker to support its customers having some continued access to liquidity and banking services.

The amount that the Bank may use is subject to a limit based on the net amount of compensation that would be payable to eligible investors in a hypothetical liquidation.

This subpart requires licensed deposit takers to pay to the Bank a levy prescribed by the regulations. The levies are used to fund the depositor compensation scheme. In particular,—

• the regulations may provide different levies for different classes of licensed deposit taker:

• the Minister must, before recommending regulations, have regard to the principle that it is desirable for the levies to be prescribed on the basis that certain costs should, over time, be met fully out of the fund. Those costs include the costs of entitlements to compensation, including the cost of establishing and maintaining the fund, the Bank’s costs of acting under the Part, the costs of repaying any money provided under subpart 8, and collection costs:

• the Minister must also have regard to the following principles:

  • the scheme should be fully funded by licensed deposit takers; and

  • the amount of levies for each class of deposit taker should take into account various matters. These include the risks of the Bank issuing a specified event notice in relation to that class, estimates of costs in connection with such a notice, and the effect on financial stability of the obligation to pay the levy; and

  • the desirability of predictability in levies:

• the Minister must also have regard to the statement of funding approach (see subpart 7) and the Bank’s advice. The Bank must consult licensed deposit takers and other significantly affected persons before it gives the advice.

The requirement to pay a levy does not apply to a licensed deposit taker to which regulations referred to in clause 191(2)(c) apply. Those regulations have the effect that debt securities issued by those deposit takers are not protected deposits.

This subpart requires the Minister to publish a statement of funding approach at least every 5 years. The statement must set out—

• estimates of the costs of the scheme; and

• requirements for the investment of the fund (for example, requirements relating to liquidity); and

• the Minister’s proposed approach to managing the financial position of the Crown in connection with the scheme (for example, if there is a deficiency in the fund); and

• information about whether the levies will be set with a view to the fund balance reaching a target level and being maintained within a target band.

The Minister must consult the Bank and seek the views of public before publishing the statement.

This subpart deals with a situation where the Bank has issued a specified event notice but the fund is insufficient to pay entitlements to compensation or meet the Bank’s costs.

In this situation, the Minister must provide to the fund money by way of grant or advance as may be necessary to meet the deficiency. The money is provided on the terms and conditions that the Minister determines (for example, terms about repayment by the Bank of money lent to the fund and interest on that money).

Subpart 6 provides for levies to recover any money provided under this subpart (and any associated interest, fees, charges, or costs).

This subpart provides for—

• financial statements of the fund; and

• the Auditor-General to be the auditor of the fund; and

• accounting records.

Financial information about the fund is not consolidated into the Bank’s financial statements unless that is required by financial reporting standards.

This subpart—

• requires a liquidator of a licensed deposit taker to give all reasonable assistance to enable the Bank to perform or exercise any function, duty, or power under this Part; and

• prohibits an issuer of a financial product or an associate from falsely holding out that the product is a protected deposit or that a holder is entitled to compensation. A breach of the prohibition is an offence with a penalty of imprisonment for a term not exceeding 1 year or a fine not exceeding $100,000, or both, for an individual or a fine not exceeding $2,500,000 in any other case.

This subpart sets out the purposes of Part 7 (in addition to the purposes in clause 3). These include the following:

• to avoid significant damage to the financial system that could result from a licensed deposit taker being in financial distress or other difficulties; and

• to enable a licensed deposit taker that is in resolution to be dealt with in an orderly manner; and

• to support the purpose of Part 6; and

• to the extent not inconsistent with those purposes,—

  • to minimise the costs of dealing with, or costs or losses otherwise incurred in connection with, a licensed deposit taker that is in financial distress or other difficulties; and

  • to support the effective and efficient management of public financial resources by avoiding or minimising, and otherwise managing, the need to rely on public money to deal with the financial distress or other difficulties.

This subpart allows the Bank to give a direction to—

• a licensed deposit taker (A) if—

  • certain circumstances exist (for example, A is likely to become insolvent, A is contravening or is likely to contravene its prudential obligations, or A has been or is operating fraudulently or recklessly); and

  • a direction is necessary or desirable to remedy or avoid the matter, to avoid or mitigate any adverse effects, or to avoid any further contravention; and

• an associate (B) of a licensed deposit taker (A) if—

  • certain circumstances exist (for example, if A’s business and affairs are so closely connected with B that the Bank would be unable to effectively exercise its powers in relation to A unless a direction is issued to B or if B’s circumstances or affairs are prejudicial to A’s solvency); and

  • a direction is necessary or desirable to remedy or avoid the matter, to avoid or mitigate any adverse effects, or to avoid any further contravention.

A direction may require A or B to do certain things, including—

• to consult the Bank:

• to carry on, or cease to carry on, its business (in whole or in part) in accordance with the direction:

• to ensure that certain persons do not take part in the management or conduct of its business:

• to take specified actions to address a contravention or any circumstances of financial difficulties:

• to implement contingency and recovery plans.

In addition, a direction may trigger consequences under a bail-in instrument (see clause 79(4)). For example, a direction may trigger the conversion of debt securities into shares.

The subpart allows the Bank to approve a sale or other disposition of the whole or part of the capital or business of a licensed deposit taker or an associate. If the Bank gives its approval, the provisions of any legislation requiring any consent, licence, permission, or clearance or other authority do not apply.

The subpart allows the Bank to remove, replace, or appoint a director of a licensed deposit taker (A) if, for example, the Bank has reasonable grounds to believe that A is, or is likely to be, insolvent or is contravening, or is likely to contravene, any prudential obligations.

The subpart prohibits a person from disclosing or publishing the fact that the Bank has given a direction or exercised a power to remove, replace, or appoint a director. Disclosure or publication may be made with the Bank’s consent (which must not be unreasonably withheld). A breach of the prohibition is an offence with a penalty of a fine not exceeding $100,000 for an individual or a fine not exceeding $2,500,000 in any other case.

This subpart provides for an Order in Council to be made that puts a licensed deposit taker and any of its associates into resolution. This state of affairs has similarities to statutory management under the Corporations (Investigation and Management) Act 1989, but the provisions in this Bill relating to resolution have been adjusted to ensure that they are fit for purpose in relation to deposit takers.

The Bank may appoint 1 or more persons as the resolution manager (see subpart 8). The resolution manager exercises various powers under the Bank’s supervision (see subparts 6 and 8).

The Bank may appoint itself as resolution manager and must act as the resolution manager if no other person holds that office.

The Bank may recommend that a deposit taker be declared to be in resolution if the Bank—

• is satisfied on reasonable grounds that certain matters apply. These include that the deposit taker is insolvent or is likely to become insolvent, has contravened capital requirements, has contravened a direction, or has persistently or seriously contravened any other prudential obligation; and

• is satisfied that there is no reasonable prospect of the matters being adequately dealt with to the Bank’s satisfaction in a timely and orderly way other than through resolution.

All of the deposit taker’s subsidiaries also enter resolution unless the Order in Council provides otherwise.

The Bank may recommend that an associate be declared to be in resolution if the Bank—

• is satisfied on reasonable grounds that certain matters apply. These include that the deposit taker’s business and affairs are so closely connected with the associate that the Bank will be unable to exercise effectively the powers conferred by the Part unless the associate is in resolution; and

• is satisfied that there is no reasonable prospect of the matters being adequately dealt with to the Bank’s satisfaction in a timely and orderly way other than through resolution.

Covered bond special purpose vehicles (and similar entities) are not associated persons or subsidiaries for these purposes.

The resolution of an overseas person only relates to its New Zealand business.

A resolution ends if a deposit taker—

• is declared, by Order in Council, to no longer be in resolution; or

• is put into liquidation on the application of the Bank.

This subpart prevents a person from taking certain actions in relation to a deposit taker in resolution (A). For example, a person may not—

• commence or continue a proceeding against A; or

• enforce a judgment or an order against A; or

• take steps to put A into liquidation or exercise powers or rights under a security interest over A’s property; or

• determine a tenancy; or

• exercise a right of set-off.

The moratorium by default ends 12 months after A enters resolution (or at the earlier end of the resolution). However, the Bank may extend the period of moratorium on 1 or more successive occasions.

In addition to a moratorium, the subpart places restrictions on resolution acting as a trigger for certain matters under an agreement to which the licensed deposit taker (A) is a party. For example, the fact that A enters resolution does not allow the agreement or another party to the agreement to deny a liability, accelerate performance of an obligation, terminate a transaction, or enforce a security interest.

The subpart sets out qualifications to the moratorium rules and the restriction on a resolution trigger. In particular,—

• a person may commence or continue a proceeding only with the leave of the Bank or the High Court:

• the Bank may waive the application of the moratorium or restriction in relation to the claims of, or security interests held by, a creditor or class of creditors:

• the moratorium and restriction do not affect the existence or priority of a security interest:

• the moratorium does not limit or prevent actions in relation to obligations incurred or rights granted after A enters resolution:

• the moratorium and restriction do not limit or affect certain rights under a netting agreement or rights under the rules of a designated financial market infrastructure (FMI):

• the restriction does not limit or prevent certain actions in relation to derivatives and certain agreements relating to netting agreements if those actions are taken after a stay. The actions include denying a liability, accelerating performance of an obligation, or terminating or closing out a transaction. The stay ends at the close of the day after the date on which A enters resolution (or at an earlier or a later time specified by the Bank). The moratorium also does not limit or prevent similar actions (but the stay only relates to the restriction on a resolution trigger).

This subpart sets out how a resolution of a deposit taker (A) is carried out.

The subpart provides for the Bank to act as the resolution authority. As resolution authority, the Bank is responsible for ensuring that a resolution is carried out in a way that furthers the purposes of Part 7.

The subpart provides for certain functions, powers, and duties to be performed or exercised by the Bank and other functions, powers, and duties to be performed or exercised by a resolution manager. As resolution authority, the Bank must supervise the resolution manager to ensure the manager is efficiently and effectively carrying out the resolution. See subpart 8, which imposes certain duties on a resolution manager, including a duty to comply with the Bank’s directions and to regularly report to the Bank.

The subpart provides that—

• the management of A vests in the resolution manager as soon as A enters resolution:

• directors, managers, and other persons may be engaged in the management or conduct of A’s business only with the resolution manager’s permission:

• the resolution manager has all of the powers, rights, and authorities that are necessary or desirable to enable the manager to further the purposes set out in clause 256. In addition, the resolution manager—

  • has all of A’s powers, rights, and privileges; and

  • has all of the powers of A’s shareholders and directors; and

  • may carry on A’s business (in whole or in part); and

  • may pay, in whole or in part, any creditor of A or class of A’s creditors or make a compromise or an arrangement with any creditor of A; and

  • may deal with all questions relating to A’s property; and

  • may offer and issue shares and other financial products in A (on the terms and conditions that the resolution manager thinks fit); and

  • may disclaim onerous property. See section 269 of the Companies Act 1993; and

  • may change A’s balance date; and

  • has any additional powers conferred by the regulations:

• the court has certain powers to trace A’s property that has been improperly disposed of. For example, the court may order that the property be transferred or delivered to the resolution manager or that a sum be paid to the resolution manager:

• the Bank has the powers of an investigator under subpart 5 of Part 4:

• if A is an overseas person, the Bank may form a company to acquire all or part of its New Zealand business. The New Zealand business may be vested in the company by Order in Council. Any vesting of property or rights subject to a security interest continues to be subject to the security interest. The company must be treated as also being in resolution:

• the Bank may dispose of the whole or any part of A’s business undertaking or any of its property, rights, or liabilities. The disposal may be made to a company formed by the Bank (for example, a bridge institution or an asset management vehicle). The company formed by the Bank must be treated as also being in resolution (unless the Bank publishes a notice in the Gazette that provides otherwise). The provisions of any legislation or agreement requiring any consent, licence, permission, clearance, or other authority do not apply to the disposal:

• the Bank may exercise its powers of disposal despite any security interest. However, holders of certain security interests over property must be paid out of the proceeds of the disposal of the property in priority to all other claims (apart from the Bank’s costs). In addition, property disposed of to a company formed by the Bank may continue to be subject to the security interest. If shares or property of the company are disposed of, a holder of a relevant security interest must be paid out of the proceeds of the sale in priority to all other claims (apart from the Bank’s costs):

• if a liability of A is included in a sale, transfer, or other disposition, A is relieved from its obligations in respect of the liability and the person entitled to performance in respect of the liability may enforce performance against the person to whom the business undertaking is sold, transferred, or otherwise disposed of:

• the Bank may suspend in whole or in part the repayment of A’s debts (other than debts incurred after A entered resolution). In addition, the Bank may not suspend payment of an amount included in a netted balance (for example, under a designated FMI’s rules):

• the regulations may confer additional powers on the Bank:

• the court may give directions concerning A’s business and property and the exercise of powers under the subpart:

• certain provisions of the Companies Act 1993 are applied to A as if it were in liquidation (including provisions relating to a prohibition on a refusal to supply essential services, voidable transactions, voidable dispositions, and recovery in the case of transactions made at undervalue). However,—

  • certain provisions of that Act do not apply (for example, provisions relating to annual meetings, auditors, annual reports, and annual returns); and

  • provisions of that Act relating to major transactions, voidable transactions, and voidable dispositions do not apply to transactions or dispositions entered into after the licensed deposit taker enters into resolution:

• neither the Bank nor a resolution manager may be treated as being a director of A by reason only of the fact that they are acting under the Part:

• any winding up, liquidation, receivership, or voluntary administration must cease for so long as A continues to be in resolution:

• the Bank must appoint auditors for A:

• no person may transfer or remove A’s property from New Zealand without the resolution manager’s consent:

• the expenses of the resolution must be paid out of A’s property in priority to other claims:

• a person commits an offence if they destroy, alter, or conceal A’s records. The offence has a penalty of imprisonment for a term not exceeding 1 year or a fine not exceeding $100,000, or both, for an individual or a fine not exceeding $2,500,000 in any other case:

• the rules in the Reserve Bank of New Zealand Act 2021 relating to the Bank’s subsidiaries do not apply.

This subpart allows the Minister to give certain directions if—

• public money is involved in the resolution (for example, the Crown has given a guarantee or lent money in connection with dealing with the deposit taker’s financial distress or other difficulties); and

• the Minister is satisfied that exercising a resolution power in a particular manner would present a material risk to the prudent management of public money or that a resolution power should be exercised in a particular manner to reduce a material risk to the prudent management of public money.

The types of directions that the Minister may give include the following:

• to exercise, or not exercise, a resolution power in a particular manner:

• to have regard to specified matters before exercising a resolution power:

• to take any other specified action to avoid or minimise, or otherwise manage, the risk to the prudent management of public money.

The Minister’s power is subject to procedural safeguards, including the Minister being satisfied that the direction is necessary or desirable for the purpose of avoiding or minimising, or otherwise managing, that risk, that the direction is not inconsistent with any of the purposes in clause 256(1)(a), (b), and (c), and that the extent of the direction is not broader than is reasonably necessary.

This subpart provides for certain creditors and shareholders of a New Zealand entity that has been put into resolution to receive compensation if they have received, are receiving, or are likely to receive, as a result of the resolution, less favourable treatment than would have been the case had the entity been put into liquidation.

The persons entitled to compensation are persons who were creditors or shareholders immediately before the entity entered resolution (pre-resolution creditors and pre-resolution shareholders).

The subpart provides that—

• the Minister must appoint a valuer. The functions of a valuer are to make a valuation in relation to the affected entity and decide whether any pre-resolution creditor or pre-resolution shareholder is eligible for compensation (and, if so, the amount of the compensation):

• a valuer must meet certain independence requirements. For example, a person is not eligible for appointment if, within the 2 years before the resolution, they have been a member of the board of the Bank or of the monetary policy committee or they have been an employee of the Bank:

• the valuer must act in accordance with the regulations. The regulations may provide for a wide range of technical matters in connection with the valuer’s functions, including valuation methods, principles, matters to be taken into account, and matters that must be disregarded. The regulations may require or permit a valuer to make assumptions:

• the valuer determines compensation by reference to the difference between a liquidation value and a resolution value. The liquidation value is what each pre-resolution creditor or pre-resolution shareholder would have been likely to receive had a liquidation of the affected entity occurred. The resolution value is what each pre-resolution creditor or pre-resolution shareholder has received, is receiving, or is likely to receive as a result of the resolution:

• the valuer must prepare a draft report setting out the valuer’s decision. The Minister and the Bank may then require the valuer to reconsider certain matters before the valuer finalises and publishes their report:

• the Bank must manage and administer payments of compensation in accordance with the regulations. Money from the depositor compensation fund may be used to pay compensation in accordance with subpart 5 of Part 6. However, if this is insufficient, the Crown must provide money that is sufficient to pay the compensation:

• the valuer has information-gathering powers to assist them to perform or exercise their functions, powers, or duties:

• the valuer’s decisions may be appealed to the High Court on a question of law.

This subpart carries over sections 139D to 139J of the Banking (Prudential Supervision) Act 1989.

The subpart relates to covered bonds. A covered bond is a debt security that represents an unsecured obligation of a licensed deposit taker (or another issuer of a class specified in the regulations) where the amounts owing are guaranteed by a special purpose vehicle (SPV). The obligations under the guarantee are secured by property (cover pool property) that is owned by the SPV under a security interest (the security interest).

Clause 403 requires an issuer to issue a covered bond only under a registered covered bond programme. A breach of the requirement is an offence with a penalty of a fine not exceeding $100,000 for an individual or a fine not exceeding $2,500,000 in any other case.

The subpart provides for—

• the Bank to keep a public register of registered covered bond programmes; and

• the Bank to remove a programme from the register if, for example, all obligations under the programme have been fulfilled or the security interest has been enforced; and

• requirements for registration. These include requirements for—

  • the cover pool property to be owned by an identified covered bond SPV; and

  • a cover pool monitor to be appointed; and

  • a register of cover pool property to be maintained; and

  • tests to determine whether the value of the cover pool property is at least equal to amounts owing under the covered bonds (the tests); and

• the process for considering applications for registration, including giving the issuer an opportunity to provide further information in response to a proposed decision; and

• on-going requirements for the issuer. These include requirements for—

  • carrying out the tests at intervals of not more than 12 months; and

  • maintaining the register of cover pool property; and

  • notifying the Bank of every covered bond issued and of certain material changes; and

  • ensuring that reports by the cover pool monitor are provided to the Bank and any bond or security trustee; and

• a power for the Bank to require corrective action. A breach of the requirement to take corrective action is an offence with a penalty of a fine not exceeding $100,000 for an individual or a fine not exceeding $2,500,000 in any other case; and

• requirements for the cover pool monitor to be independent of both the issuer and any associated person and to be required to perform certain services under a contract of appointment. The services include—

  • assessing the arithmetical accuracy of the tests and the issuer’s compliance with on-going requirements; and

  • providing reports on those matters to the issuer and reports on all other matters required by the regulations.

Clause 418 limits the application of certain resolution or statutory management provisions to covered bond SPVs. The provisions relate, for example, to the moratorium and the restriction on a resolution trigger (see subpart 5 of Part 7) and to powers to suspend payment. The clause provides, for example, that nothing in those provisions—

• prevents the transfer of the legal title to property in a cover pool from an issuer to a covered bond SPV (where the SPV is the owner of the property in the cover pool):

• affects the issuer’s obligation to pay to the SPV money collected on behalf of, and held on trust for, the SPV.

The clause also provides that an SPV is not an associated person or a subsidiary for certain purposes.

This subpart allows the Bank or a resolution manager to apply to the High Court under the Companies Act 1993 to put a licensed deposit taker or an associated person into liquidation under that Act. In the case of—

• a licensed deposit taker, the power applies whether or not it is in resolution:

• an associated person, the power applies only if the associated person is in resolution.

The High Court may appoint a liquidator if the deposit taker or associated person is unable to pay its debts or has persistently or seriously contravened any prudential obligation or it is just and equitable that the deposit taker be put into liquidation.

This subpart provides that deposit takers (and any associates, directors, and employees) do not have a right to be consulted or informed about the exercise, or possible exercise, of any powers conferred by this Part.

This subpart prohibits financial service providers from using bank, banker, and banking (restricted words) in their name or title. However, the Bank may authorise particular persons or classes of person to use a name or title that includes a restricted word. The Bank may give an authorisation subject to conditions.

See clause 18 of Schedule 1, which provides for existing registered banks to be authorised to use restricted words in a name or title.

A breach of the prohibition is an offence with a penalty of a fine not exceeding $100,000 for an individual or a fine not exceeding $2,500,000 in any other case.

In addition, the subpart—

• requires the Bank to outline in general terms its policies for giving an authorisation. In particular, its policies in relation to the minimum requirements for a deposit taker to be authorised to use a restricted word (for example, a requirement relating to financial strength); and

• limits the use of restricted words in advertisements by financial service providers that are not licensed deposit takers; and

• gives the Bank a power to require a person to stop using a restricted word.

A person that contravenes the advertising requirement or a requirement to stop using a restricted word commits an offence. The offence has a penalty of a fine not exceeding $50,000 for an individual or a fine not exceeding $500,000 in any other case.

This subpart requires the Bank to—

• support Australian financial authorities when performing or exercising its functions, powers, or duties; and

• to the extent reasonably practicable, avoid actions that are likely to have a detrimental effect on financial system stability in Australia; and

• consult Australian financial authorities to the extent that is reasonably practicable if a proposed action under this Bill (or any other prudential legislation) is likely to have that effect.

This subpart imposes certain confidentiality obligations on the Bank. The subpart applies to information given to the Bank under this Bill, information derived from or based on that information, and information about the exercise, or possible exercise, of the powers under the Bill.

In particular,—

• the Bank may publish or disclose the information only on particular grounds. The grounds include where the publication or disclosure is—

  • for the purposes of the Bank performing or exercising a function, power, or duty; or

  • made under information sharing arrangements with other regulators under subpart 3 of Part 6 of the Reserve Bank of New Zealand Act 2021; or

  • made to a person who the Bank is satisfied has a proper interest in receiving the information; or

  • made with the consent of the person to whom the information relates:

• the Bank may impose conditions when information is published or disclosed under certain grounds (for example, conditions in relation to the publication, disclosure, or use of the information by a person to whom the information is disclosed):

• certain persons to whom the Bank publishes or discloses the information are subject to restrictions on the further publication, disclosure, or use of the information. An intentional or a reckless breach of the restrictions is an offence with a penalty of imprisonment for a term not exceeding 1 year or a fine not exceeding $100,000, or both, for an individual or a fine not exceeding $2,500,000 in any other case.

Clause 440 clarifies that the Bank may make the information available under the Official Information Act 1982 only if 1 or more grounds under clause 439 apply.

This subpart relates to the provisions of the Bill that provide for something to be done in the manner specified by the Bank. For example, clause 16 provides that a body corporate may apply for a licence in the manner that is specified by the Bank.

The subpart allows the Bank to—

• impose requirements on particular persons or classes of person. For example, it may require a person to provide information or other evidence or documents; and

• require a person to provide information to assist the Bank in performing or exercising its functions, powers, or duties.

A notice issued by the Bank that imposes requirements on a class of persons is secondary legislation under the Legislation Act 2019.

The Bank may refuse to perform or exercise a function, power, or duty if the requirement is not complied with.

This subpart provides for regulations to be made for the purposes of the Bill, including—

• prescribing, for the purposes of any provision of the Bill that requires a thing to be done in a prescribed manner, the manner in which the thing must be done; and

• providing for anything the Bill contemplates will or may be provided for by regulations (for example, prescribing additional eligibility criteria for licences, additional matters that standards may relate to, and the manner in which a valuer must act under clause 368); and

• prescribing matters relating to the depositor compensation scheme, including—

  • prescribing classes of persons that are not eligible to compensation; and

  • prescribing requirements that debt securities must meet in order to be a protected deposit or kinds of debt securities that are protected deposits; and

  • specifying kinds of deposit takers whose debt securities are not protected deposits; and

  • declaring classes of debt securities not to be protected deposits; and

  • providing for the calculation of the amount of a person’s protected deposits or share of protected deposits in certain cases (see clause 211); and

  • providing for the calculation of an eligible investor’s entitlement to compensation to take into account funds that the eligible investor has withdrawn, or that are otherwise available to the eligible investor, after the deposit taker enters resolution; and

  • imposing conditions on a person’s entitlement to compensation (for example, imposing a requirement to give information to the Bank in connection with an entitlement).

The subpart sets out various procedural safeguards in connection with the regulations for the depositor compensation scheme. For example, it requires the Minister to have regard to the purpose of Part 6 set out in clause 189.

See also section 292 of the Reserve Bank of New Zealand Act 2021, which will allow regulations to be made that impose fees, charges, and costs in connection with this Bill.

This subpart requires licensed deposit takers (or licensed deposit takers of a prescribed class) to pay a levy prescribed by the regulations to recover a portion of the following costs that have been incurred by the Crown (and the costs of collecting the levy money):

• costs incurred in connection with dealing with the financial distress or other difficulties of a licensed deposit taker or an associated person that is or was in resolution:

• costs incurred under new sections 25B and 25C of the Public Finance Act 1989 (see clause 486).

The Minister determines the portion to be recovered by levies after taking into account—

• any actual or likely recovery of those costs; and

• the extent to which incurring the costs was necessary or desirable to maintain the stability of the financial system or to maintain the continuity of systemically important activities.

The subpart—

• allows the levy regulations to—

  • provide different levies for different classes of licensed deposit taker; and

  • specify the amount of levies, or the method of calculating or ascertaining the amount of levies, for each class; and

  • include in levies, or provide for the inclusion in levies of, any shortfall; and

  • provide for the payment and collection of levies; and

• requires the Minister, before recommending the levy regulations, to—

  • consult the Bank; and

  • be satisfied that the costs were incurred as referred to above; and

  • be satisfied that the costs were incurred within the previous 5 years; and

  • have regard to the extent to which deposit takers of each class directly or indirectly benefited from the Crown’s expenditure, the effect that the obligation to pay a levy is likely to have on the soundness of those deposit takers, and the net cost to the Crown of incurring the expenditure; and

  • ensure that licensed deposit takers (or persons or organisations that are able to represent their views) are consulted.

This subpart provides for—

• how notices, directions, and other documents must be given under the Bill; and

• when certain notices, directions, or documents are treated as having been given; and

• the definition of deposit taker in Schedule 2. See the explanation relating to clause 6 for information about this definition.