Reserve Bank to get tougher powers to regulate finance companies

Finance Minister Bill English File photo

The Reserve Bank will have tougher powers to deal with finance companies under new legislation that will complete several years of work to tighten up supervision of the sector.

Finance Minister Bill English will table the Non-Bank Deposit Takers Bill in Parliament next week, with the law to take effect in June 2013, completing the new regulatory regime for companies that offer debt securities to the public.

Under the proposed legislation, the central bank will introduce a licensing regime for NBDTs, and will have the ability to dump a firm's director or executive if need be, according to a Cabinet Paper on the proposed regulation.

The bank will also have greater access to probe a firm for information.

The bill is the second tranche of legislation to crack down on non-bank deposit takers after the collapse of the finance sector through the latter half of the past decade destroyed billions of dollars of wealth.

The previous act introduced minimum capital ratios and credit ratings for NBDTs.

"Last year we implemented the first stage of prudential regulation for non-bank deposit takers - bringing in rules around credit ratings, risk management, governance, capital, related party exposures, and liquidity," English said in a statement. "This bill completes that regulation."

Changes in ownership will have to be okayed with the central bank under the new regime.

"The Reserve Bank considers that open and unchecked changes of ownership could result in undesirable ownership structures and may present a significant risk to depositors of the NBDT, with possible spill over impacts to depositors in other NBDTs," Toby Fiennes, head of prudential supervision at the RBNZ, said in the regulatory impact statement.

"Restricting changes in ownership will prevent unsuitable changes, while still allowing changes in ownership to occur at a level that will allow consolidation and strengthening of the NBDT," he said.

According to the cabinet document, the central bank will also be able to charge licence fees in the future, though this won't be applied as NBDTs go through the transition period.

The legislation will introduce stiffer penalties for failing to comply with regulatory requirements. The offences will be graded according to their severity, up to a maximum fine of $2 million for an entity, and individual fines of up to $200,000 and/or 18 months imprisonment, the cabinet paper said.