Consultation released on guidance for overseas banks operating in New Zealand

The Reserve Bank of New Zealand (RBNZ), as prudential supervisor for banks operating in New Zealand, has released a consultation paper requesting feedback on two proposed guidance notes:

  • Guidance note for overseas banks on limitations on the use of restricted words (the Restricted Words Guidance); and
  • Guidance note on the Reserve Bank’s approach to section 65 authorisations for overseas banks (the Authorisation Guidance).

A link to the consultation is available here.

Who needs to read it?

The consultation is relevant to any overseas banks that are not registered in New Zealand under the Reserve Bank of New Zealand Act 1989 (the RBNZ Act), but are providing products or services to persons in New Zealand.

What does the Restricted Words Guidance cover?

In New Zealand, banks must be registered where they carry on activity in New Zealand, directly or indirectly, using a restricted word (being “bank”, “banker”, “banking” and any derivative or translation of those words) unless banks are authorised or exempted by RBNZ to carry on the activity without being registered. The Restricted Words Guidance discusses the scope and elements of the limitation on the use of the restricted words under the RBNZ Act specifically for overseas banks operating in New Zealand. The Restricted Words Guidance also contains scenarios in which overseas banks may establish and maintain customer account relationships with New Zealand persons and reflects on whether or not these situations would amount to carrying on activity in New Zealand under the RBNZ Act (and therefore requiring registration).

What does the Authorisation Guidance cover?

Where an overseas bank has been uncertain on whether its activities meet the “carrying on activity” threshold, the RBNZ’s practice to date has been to issue “non-objection letters” where it views registration as unnecessary.  The RBNZ intends to change its practice to use the ability under section 65 of the RBNZ Act to issue authorisations to overseas banks who operate in New Zealand.  Authorisations may either be for an individual bank or for a class.

The Authorisation Guidance sets out circumstances under which an overseas bank may be eligible for authorisation, the activities that may be authorised by the RBNZ and the conditions that may apply to an authorisation. As a general rule, the RBNZ still expects overseas banks carrying on activities in New Zealand to be registered banks in New Zealand, particularly where activities involve retail investors.

The Authorisation Guidance sets out the proposed process for applying for authorisation, including a template application for authorisation, and the transitional arrangements. Currently, the Authorisation Guidance suggests a two year transition period for banks already operating under a letter of non-objection to obtain authorisation and prevents banks who are not already operating in New Zealand from beginning to carry out any new activity without an authorisation (or being registered).

As part of the new authorisation regime, RBNZ also proposes to establish a register of authorised banks which will be publicly available along with each authorisation notice and to require annual reporting of authorised banks.


The consultation seeks feedback on:

  • the proposal to publicise authorisations and authorisation notices,
  • the content of the template authorisation application;
  • the proposal for annual reporting requirements;
  • the general criteria applying to banks seeking authorisation; and
  • the clarity, correctness and completeness of the guidance.

Our view

The guidance provides greater clarity on aspects of the application of New Zealand’s registration regime for banks which is welcomed, especially given the context of larger volumes of transactions occurring over the internet. At the same time, the impact of the guidance, in particular the Authorisation Guidance, will be to impose increased obligations on overseas banks.  We also recommend (and will submit) that further clarity is needed in relation to the treatment of international lenders in banking syndicates.  It is important that overseas banks consider the implications of the change in RBNZ’s approach to authorisations and determine how they need to comply with the new approach.

The consultation also notes that in the future RBNZ may consider whether to move away from the “restricted word” prohibition to an activities based regulatory regime.  The current consultation, along with this comment by the RBNZ, indicates that New Zealand’s banking regulation is moving closer to other jurisdictions.

What next?

Submissions are due by 5pm on 6 June 2018. Following that date, RBNZ intends to finalise the new policy in the second quarter of 2018.

If you have any questions in relation to the consultation, or require assistance with a submission, please contact one of our experts.

Who can help