The RBNZ publishes conclusions of its stocktake of prudential regulations

The Reserve Bank of New Zealand (RBNZ) has released its conclusions of its stocktake of the prudential regulations that apply to banks and non-bank deposit takers (NBDTs), which are available here. The RBNZ has also released a summary of feedback from the Industry Update for NBDTs (Industry Update) which is available here.

Who needs to read it?

All registered banks and NBDTs (and supervisors of NBDTs) should read these documents to stay up-to-date on current developments.

What do they cover?

On 21 July 2015, the RBNZ published the consultation document Regulatory Stocktake of the Prudential requirements applying to Registered Banks(Consultation Document) and a separate Industry Update. Submissions on the Consultation Document and Industry Update closed on 16 September 2015 and the RBNZ received 20 submissions (11 from banks, two from industry associations, one from a rating agency, and six from private individuals).

The RBNZ’s primary objective in conducting the stocktake was to enhance the efficiency, clarity and consistency of the specific prudential requirements applying to banks and NBDTs. The RBNZ consulted on a number of different work streams and found broad support for most of its specific proposals. The key conclusions from the stocktake are:

  • Data reporting and disclosure requirements: as a result of the consultation process, the RBNZ is now looking into the possibility of a new ‘dashboard’ mechanism for providing off-quarter disclosures for banks as well as a private reporting template that banks would be required to complete with figures from their disclosure statements. The RBNZ also proposes a number of other detailed changes to the content of disclosure statements.
  • Format and structure of the Banking Supervision Handbook (Handbook): the RBNZ plans to reorganise the Handbook in a number of ways to address existing problems such as the unclear delineation between legally binding regulatory requirements and general guidance, inconsistently defined terms across different documents and unclear drafting. The RBNZ plans to implement the restructuring of the Handbook as largely set out in the Consultation Document in a four-stage project running between January 2016 and January 2017.
  • Capital Requirements: no material proposals were made in this area but some issues have been flagged for future work, and there are also separate initiatives currently underway outside the scope of the stocktake.
  • The Reserve Bank’s policy making approach: the RBNZ is proposing to take a number of steps to address bank and NBDT stakeholders’ interest in greater transparency regarding the RBNZ’s policy making process and enhanced engagement with industry regarding policy changes. These steps include continuing to conduct targeted industry workshops, lengthening the indicative timeframe for primary consultations, revising the content of the RBNZ website, developing newsletters, using the Banking Forum, and making historical materials more readily available.
  • Differentiated approaches in the banking prudential regime: some specific proposals coming out of the stocktake include reducing the disclosure requirements applying to branches, considering whether the application thresholds for the outsourcing and OBR requirements should be made the same and assessing whether to extend a form of one week liquidity mismatch ratio to branches.
  • Miscellaneous changes to Bank policies and regulations: the RBNZ also proposes to narrow the definition of “senior manager” in relation to the process for addressing the suitability of banks’ directors and senior managers, and add as a condition of registration that banks have, and follow, internal processes to ensure the ongoing suitability of directors and senior managers. The RBNZ also intends to set up a formal standing obligation for banks to privately report breaches to the RBNZ.

The summary of feedback in relation to the NBDT Industry Update indicates that more material will follow in relation to the decision to have different credit rating exemption thresholds ($20 million and $40 million), capital requirements for NBDTs, liquidity requirements, and risk management guidelines. The RBNZ also intends to make improvements to the NBDT section of its website and to make a targeted email list. The RBNZ also noted, but declined to carry out any work at this time, submissions in relation to related party exposure limits and set off when calculating related party exposure.

What next?

A key matter which was and still is being considered is the content and frequency of disclosure statements that banks are required to publish. The RBNZ’s ‘dashboard’ mechanism for providing off-quarter disclosures is still at the early conceptual stage and the RBNZ intends to develop a more detailed proposal and consult with banks and users in the New Year. In addition to the submissions on the work streams listed above, the RBNZ also received feedback on several matters relating to the prudential requirements for NBDTs and will carry out further work on these.

If you have any questions in relation to any of the proposed changes or issues raised in the documents, please contact one of our experts.