New Zealand's financial and securities legislation is in the process of a series of transformative changes, with new anti-money laundering legislation recently coming into force and significant financial markets reform underway. In addition, New Zealand's Reserve Bank is proposing to tighten regulation of non-bank deposit takers and payment systems. We outline below some of the more material aspects of these recent developments.
The Anti-Money Laundering and Countering Financing of Terrorism Act 2009 came into force on June 30 2013 and brings the New Zealand regime broadly into line with FATF recommendations. A reporting entity is now required to conduct a risk assessment to determine the risk of money laundering its business faces, develop and implement a compliance programme and appoint a compliance officer, carry out customer due diligence including risk-based verification procedures, report suspicious transactions and maintain required records. As well as New Zealand financial institutions, the requirements of the Act apply to overseas companies carrying on certain financial activities in New Zealand in the ordinary course of business. Financial activities caught by the Act include own-account and customer account trading in derivatives, foreign exchange and transferable securities as well as activities involving the borrowing, lending and transfer of money.
The Financial Markets Conduct Bill is due to be passed into law in late 2013. This legislation represents an almost complete overhaul of New Zealand's existing securities regime. Its features include:
Once enacted, the Bill is expected largely to come into force in 2014. A transition period applies under which issuers can choose to continue to rely on existing securities laws.
The Companies and Limited Partnerships Bill is also likely to be passed into law in 2013. The Bill requires that companies have either a New Zealand-resident director, or a director resident in a prescribed country. This requirement will come into effect six months after the enactment of the Bill. At this stage, it appears that, initially at least, Australia will be the only prescribed country. The Bill also places additional restrictions and requirements for amalgamations and schemes of arrangement affecting companies subject to the Takeovers Code. In particular, long form amalgamation of Code companies would be prohibited, and schemes of arrangement would be required to be approved by a majority of shareholders entitled to vote as well as by 75% of shareholders entitled to vote and voting in each interest class. Given that shareholder turnout is typically low in such circumstances, this may make schemes very difficult to achieve.
The Reserve Bank has also issued a consultation paper earlier this year as part of its review of the operation of the prudential regime for non-bank deposit takers. The current prudential regulation of non-bank deposit takers requires maintenance of a credit rating and a minimum capital ratio, limitations on related party exposures, and other requirements relating to governance, liquidity and risk management. However, the Non-bank Deposit Takers Bill, currently before Parliament, in addition to replicating the existing requirements also provides for a licensing regime for non-bank deposit takers, fit and proper person requirements for directors and senior officers, and enhanced investigation powers for the Reserve Bank. The Reserve Bank is consulting on a number of possible changes to the Bill, including widening the definition of non-bank deposit taker to include entities that are in the business of borrowing and lending but do not issue debt securities to the public.
In addition, the Reserve Bank has issued a consultation paper setting out its proposals on strengthening its payment oversight powers. Overall, the proposed reforms represent a significant increase in the scope and depth of regulation in this area. The current regime is mainly directed at the legal efficacy of settlement and netting arrangements, and does not allow the Reserve Bank to require changes to system rules, intervene in the case of a crisis, or give directions to an operator or participant that is not also a registered bank. The Reserve Bank has concluded that there is a need for more explicit powers for the oversight of clearing and settlement systems in general and systemically important systems in particular. This would bring the Reserve Bank's powers more into line with international practice.
Deemple Budhia, Nick Hegan and Guy Lethbridge lead the Financial Regulation practice at Russell McVeagh.