RBNZ launches review of overseas bank branches in New Zealand

On Wednesday, the Reserve Bank of New Zealand (RBNZ) announced a review of its policy for the registration of branches of overseas banks in New Zealand.

The review is aimed at creating “a simple, coherent and transparent policy framework for branches of overseas banks”.  The consultation closes on Wednesday, March 2, 2022.

The RBNZ intends to develop a policy approach after considering all submissions, and to subsequently undertake further consultation on that approach.

The links to the consultation documents and the media release are available here, here and here.

Who needs to read it? Why?

The review will be relevant to all overseas banks operating a branch in New Zealand, as the results may directly impact how they can conduct their New Zealand business.

The review also covers the treatment of “dual registered” banks (i.e. groups with an NZ incorporated subsidiary, and a parent that also operates in New Zealand through a branch) and so may affect the local subsidiaries of overseas banking groups.

What does it cover?

The RBNZ has identified three key issues relating to the regulation and supervision of branches of overseas banks:

  1. The current policy is not applied consistently to overseas branches operating in New Zealand. RBNZ’s policy in this area has developed over time and as a result different branches are subject to different conditions of registration that permit them to undertake different activities in New Zealand.
  2. There are inherent limitations on the RBNZ’s ability to regulate branches, which will be primarily subject to home country rules, which may change over time.
  3. There are inherent limitations on the RBNZ’s ability to supervise branches. As the “host country”, RBNZ primarily relies on “home country” supervision.  Home country supervisors may not apply particular scrutiny to an overseas bank’s New Zealand operations, where they represent a very small part of the bank’s global business.

In response to these three key issues, the RBNZ is consulting on the following policy questions:

  1. What is the appropriate threshold for local incorporation?
  2. Should branches be permitted to take retail deposits?
  3. Should dual registration (i.e. belonging to a banking group that has both a subsidiary and a branch that are registered as banks in New Zealand) be allowed?
  4. Should the RBNZ pursue greater regulatory and supervisory integration with home country supervisors?

Our view

We agree with the RBNZ that the current regime for registration of overseas branches could benefit from increased transparency and consistency.

Depending on the approach taken, changes could have a significant impact on the structure of the New Zealand market. As the RBNZ recognises, branches of overseas banks fulfil an important role in providing specialised services to corporate, wholesale, and institutional customers.  Care will need to be taken to ensure that any new policy settings don’t undermine the continued viability of these services.

What next?

If you have any questions in relation to the review or its potential impact on your business, please contact one of our experts.

This article was co-authored by Scott Yang, a solicitor in our Financial Services team.

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