The Reserve Bank has published its policy decisions on the use of restricted words, such as “bank”, under the Deposit Takers Act 2023 (DT Act). The decisions are significant for registered banks, non-bank deposit takers (NBDTs), fintechs, other financial service providers, and overseas banks that rely on the existing class authorisation regime, an individual authorisation or a letter of non-objection to undertake certain limited wholesale activities in New Zealand. The final policy decisions are consistent with the proposals that the Reserve Bank consulted on last year (see our previous alert here).
All licensed deposit takers may use “bank”
The Reserve Bank will authorise all licensed deposit takers to use restricted words in their names or titles once the DT Act is fully in force. This will be implemented through a new class authorisation. This means all existing licensed NBDTs, including credit unions, building societies and finance companies, will be able to rebrand as banks if they become licensed deposit takers under the DT Act. The Reserve Bank has confirmed that no additional restricted word-specific requirements will apply beyond obtaining the deposit taker licence. Levelling the playing field between all deposit takers was a key recommendation from the Commerce Commission's study into competition in the personal banking sector.
Entities outside the regulatory perimeter may not use "bank"
Financial service providers that are not licensed deposit takers will not be permitted to use restricted words. This includes fintechs and other providers of bank-like products that sit outside the DT Act regulatory perimeter (ie because they do not carry on the business of borrowing and lending). The Reserve Bank will preserve limited exceptions (eg where the restricted word forms part of a geographic place name) where it is obvious to the public that the relevant financial service provider is not a licensed deposit taker.
Implementation
The Reserve Bank does not intend to bring forward the implementation of the restricted word changes. The changes will be implemented as part of the integration of the registered bank and licensed NBDT regimes under the DT Act, which is expected to come fully into force in 2028. The Banking (Prudential Supervision) Act 1989 (BPS Act) only permits the Reserve Bank to authorise certain entities that are not registered banks to use restricted words, which does not include licensed NBDTs, so early implementation would require changes to the BPS Act. In any event, the Reserve Bank considers the changes should be implemented alongside the full commencement of the DTA due to the regulatory uplift that NBDTs will be subject to upon becoming Group 3 deposit takers under the DTA (including falling under the direct supervision of the Reserve Bank).
Class authorisation
The Reserve Bank has confirmed that the existing approach for overseas banks that do not have a place of business in New Zealand will continue. Those overseas banks will be able to use restricted words in connection with a limited range of wholesale activities in New Zealand. This will be implemented through a new class authorisation under the DTA, with materially the same activities permitted as under the existing class authorisation, and new individual authorisations under the DTA for those wishing to conduct activities beyond the scope of the class authorisation.
The Reserve Bank has decided not to widen the class authorisation to cover additional wholesale activities. The Reserve Bank considers that the class authorisation should be tightly framed and preserve the distinction between limited wholesale activities by unlicensed overseas banks and the broader activities available to licensed overseas deposit takers. Overseas banks seeking to undertake activities outside that class authorisation will need an individual authorisation or to be licensed.
Non-objection letters
The Reserve Bank intends to phase out the existing non-objection letters relied on by twelve overseas banks. Affected entities will be contacted directly by the Reserve Bank once the new class authorisation is prepared. If their existing permitted activities do not fit within the new class authorisation, the Reserve Bank expects to replace their non-objection letter with an individual authorisation.