In May 2024 the Reserve Bank of New Zealand (RBNZ) opened consultation on the Core Standards: Capital, Liquidity, Depositor Compensation Scheme (DCS) and Disclosure Standards, that will apply to deposit takers under the Deposit Takers Act 2023 (DTA). Following 26 industry submissions, on 1 May 2025 the RBNZ released its Summary of Submissions and Policy Decisions (Responses Document) in relation to the Liquidity, DCS and Disclosure Standards (but not the Capital Standard). The RBNZ's response in relation to the Capital Standards was not included following the RBNZ's announcement in March that it would undertake a review of key aspects of the deposit takers capital settings to assess whether the capital requirements are set at appropriate levels (2025 Capital Review).
All deposit takers should read the Responses Document as it provides important insights into key policy decisions of the RBNZ in relation to the implementation of the DTA regime and consider submitting on the 2025 Capital Review consultation, as discussed further below.
Responses Document
Background to the DTA
The DTA provides a single regulatory framework, regulated and supervised by the RBNZ, for credit unions, building societies and finance companies (ie non-bank deposit takers) and banks. The DTA divides locally incorporated deposit takers into three "Groups" based on total assets, to allow for the application of standards proportionately to the scale of business and risks of each Group:
- Group 1 deposit takers: those with assets greater than $100b, which are also recognised as domestically systemically important banks
- Group 2 deposit takers: those with assets of $2b or more but less than $100b
- Group 3 deposit takers: those with total assets of less than $2b.
Core Standard: Liquidity Standard
The Liquidity Standard contains qualitative and quantitative liquidity requirements that will be applied proportionately across deposit takers.
The RBNZ's key policy decisions for Group 1 and 2 deposit takers are to:
- Remove the one-week mismatch ratio (MMR) for deposit takers, but with the addition of a qualitative requirement that would ensure deposit takers are appropriately managing any timing differences in stressed cash flows throughout the entire 30-day MMR period
- Continue allowing deposit takers to make "simplifying assumptions" in their methods for calculating quantitative metrics (if it may decrease the ratio of those metrics). However, the RBNZ intends to amend existing requirements to require deposit takers to analyse, document and review their simplifying assumptions regularly
- Require deposit takers to comply with their quantitative requirements on a "continuous basis" (rather than "at the end of each business day"). Deposit takers will not be expected to calculate or report liquidity ratios throughout the day or on non-business days
- Include amounts from undrawn committed lines as a cash inflow in the MMR. However, the RBNZ will look to mitigate the potential for contagion risk arising from the use of these facilities, in the exposure draft phase.
The RBNZ's key policy decision for Group 3 deposit takers is to use the same 3% run-off rate for deposits that are protected by the DCS as is applied in the MMR when calibrating the cash-flow coverage ratio (CFCR). However, the CFCR will have one run-off rate of 50% applied to uninsured deposits.
The RBNZ will adopt the qualitative requirements for branches of overseas deposit takers that were proposed in the consultation. These qualitative requirements will be flexible and generally align with the Basel Committee on Banking Supervision (BCBS) framework, whilst still allowing branches to leverage some of their group or entity level liquidity policies, processes and documentation (Group Liquidity Framework) in complying with the New Zealand requirements. Branches may choose to use a standalone New Zealand framework for the branch or the Group Liquidity Framework. For branches that do not have 'standalone' liquidity policies and processes, the NZ CEO should ensure the Group Liquidity Framework is reviewed and amended for the branch as needed to comply with the Liquidity Standard, including considering any liquidity risks specific to the New Zealand branch in doing so.
Core Standard: DCS Standard
The proposed DCS Standard will be in two parts, the customer facing disclosure requirements that will apply to protected deposits and the Single Depositor View (SDV) files that deposit takers will be required to prepare.
The RBNZ's key policy decisions for all deposit taker Groups are to:
- Require a "product disclosure" approach, where deposit takers will be required to use the prescribed DCS branding elements on the main product webpage for each protected deposit (excluding credit products) and to provide a copy of supporting information to depositors as part of the process of opening an account
- Reduce the testing frequency of deposit taker testing of SDV files from six monthly to twelve monthly
- Develop supporting documentation that clarifies that the $100,000 threshold applies per depositor rather than per product.
Core Standard: Disclosure Standard
The Disclosure Standard will cover what information deposit takers must make publicly available or provide to the RBNZ, and how and when they must do so.
The RBNZ's key policy decisions for Group 1 and 2 deposit takers are to:
- Require deposit takers to have a board-approved "Disclosure Policy", which include internal controls and procedures for publishing their disclosure statements, replacing existing director attestation requirements
- Require the Disclosure Policy to assign one or more senior persons to ensure that the disclosure statements are prepared and published in accordance with the Disclosure Policy
- Require deposit takers to disclose remuneration of CEO and senior executives that are based on the BCBS Pillar 3 remuneration disclosure recommendations. This may include both qualitative and quantitative requirements but will not include individual level remuneration disclosures, as the RBNZ will incorporate aggregated quantitative remuneration disclosures. Some banks are currently already required to disclose aspects of their senior executives' remuneration and associated policies as required by the Companies Act 1993, the NZX, APRA requirements for Australian parent group for their Group 1 deposit takers, etc. There is significant overlap between the BCBS-recommended disclosures and the NZX disclosure template and APRA for Group 1 deposit takers' Australian parent groups
- Require a standardised order for presenting information in disclosure statements and to separate financial statements from prudential disclosures, rather than prescribing a standardised template. However, the RBNZ is currently considering the idea of standardising the index requirement for full-year disclosure statements and may consult on this at a later date.
The RBNZ's key policy decisions for Group 3 deposit takers are to:
- Require disclosure through Group 3 deposit takers' quarterly Dashboard publications, but no requirement for any prudential disclosure statement document
- Not require a regular audit of data included in the Dashboard but rather the use of targeted mechanisms, eg thematic reviews of reporting, formal investigation, bespoke audit requirements, etc.
The RBNZ's key policy decision for all deposit taker groups is that it will develop a reporting standard under section 88 of the DTA to require reporting of certain types of information to the RBNZ. The RBNZ intends to conduct further consultation on any changes to private reporting requirements as part of the exposure draft process.
The RBNZ will impose the same requirements for branches of overseas deposit takers that were proposed for Group 1, but with the following differences:
- Only carry over the requirements from applicable disclosure order in council (OIC) for branches
- Require full- and half-year disclosure statements, but no Dashboard publication (aside from "dual registered" branches)
- Ensure revisions are tailored to the unique circumstances of branches.
For branches, the RBNZ will require disclosure of the NZ CEO and executive management's remuneration and associated policies and will address stakeholder feedback in the exposure draft stage. The RBNZ will mitigate any risks of inconsistencies with other remuneration disclosure requirements and focus on aggregated quantitative remuneration of the branch's executive management rather than individual remunerations.
The RBNZ will require a "Disclosure Policy" for branches, which will need to be approved by the NZ CEO, rather than the overseas deposit taker's board. Overseas deposit takers may rely on its overseas deposit taker's Disclosure Policy if it exists and the NZ CEO approves it as being sufficient for the branch to meet its Disclosure Standard requirements.
Use of restricted words
Sections 428 and 429 of the DTA provide that the RBNZ may authorise licensed deposit takers or a class of licensed deposit takers (via a notice issued as secondary legislation) to use a name or title that includes the word ‘bank’ or related words. The RBNZ is currently reviewing their "restricted word" regime. The RBNZ intends to consult on this later this year and update their Statement of Prudential Policy accordingly.
2025 Capital Review
On 6 May 2025 the RBNZ released the Terms of Reference for the 2025 Capital Review, which will include assessment of key developments since the 2019 Capital Review (such as the Commerce Commission's market study into personal banking services), assessment of capital levels against international comparators, review of the degree of proportionality in the capital framework and utilising international expert assessments.
The RBNZ proposes to consult on their key capital setting proposals later in 2025. Following the consultation process, the RBNZ intends to release its final decisions before the end of 2025.
Our thoughts
A key theme of many submissions was that the initially proposed Core Standards did not adequately incorporate "proportionality" into the standards, which did not promote healthy competition while minimising compliance costs for smaller deposit takers. These themes were also evident in other contexts including the Minister of Finance's Letter of Expectations and Financial Policy Remit from December 2024, and in submissions heard in during the Finance and Expenditure Select Committee's inquiry into banking competition.
In the Responses Document the RBNZ has stated that it is confident that its policy decisions reflect a reasonable balance between its financial stability mandate and its purposes and principles, including to promote proportionality and competition. Indeed, the policy options taken by RBNZ in the Responses Document in general lean towards lower compliance options (such as removal of MMR and permitting simplifying assumptions for qualitative metrics), including some reduced requirements for Group 3 deposit takers (such as the Dashboard-only disclosure approach). However, some submitters have noted that differentiation between Group 1 and Group 2 deposit taker compliance requirements was not significant enough.
Market participants will get another opportunity be heard in relation to exposure drafts of these Core Standards, including the Capital Standard following completion of the RBNZ's assessment. Consultation on the Standards is expected in late 2025 or early 2026.
In addition, we consider that the 2025 Capital Review is an appropriate step to for the RBNZ following developments in market settings and Government expectations since the initial 2019 Capital Review, and will provide a welcome opportunity for deposit takers to have further input into these critically important economic settings later this year.
For further information on the DTA, including the DCS, please see our previous articles titled Changes to the regulation of deposit takers in New Zealand and RBNZ announces expanded ESAS access; and DCS provisions commence.
If you would like to discuss or remain informed on developments relating to the DTA/DCS, please get in touch with our financial services regulation team.
This article was prepared by Andrew Suggate (senior associate) and Nicole McAnulty (solicitor).
