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Submission
TO
The Reserve Bank of New Zealand
ON THE
Consultation Document: Review of the Prudential Regime for Non – bank Deposit Takers
17 May 2013
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Introduction
1. This Submission is from Trustee Corporations Association of New Zealand Inc ("TCA”, or “the
Association") in response to the Reserve Bank of New Zealand ("Reserve Bank" or "RBNZ")
Consultation Document: Review of the Prudential Regime for Non-bank Deposit Takers dated April
2013. We are available to meet with the Reserve Bank to discuss our Submission. We can be
contacted at:
Trustee Corporations Association of New Zealand Inc
Level 12
City Chambers
Cnr Johnston & Featherston Streets
PO Box 2382
WELLINGTON 6140
Attention: David Brown Douglas
Ph: 04 499 6791
Email: [email protected]
2. TCA is a long established association to which all Trustee Corporations currently belong. The
members of the TCA are Public Trust and each of the Trustee Corporations authorised under the
Trustee Companies Act 1967 to act as Corporate Trustee for financial products – being Trustees
Executors Limited, The New Zealand Guardian Trust Company Limited, New Zealand Permanent
Trustees Limited (wholly owned by Public Trust) and Perpetual Trust Limited. The Māori Trustee
joined TCA on 1 June 2011. Covenant Trustee Company Limited, although not authorised under
the Trustee Companies Act 1967, is an associate member of TCA.
3. TCA maintains relationships with government ministries, regulatory bodies and financial sector
groups. TCA sets minimum standards as practice guidelines for the performance of Corporate
Trustees – standards for integrity, competence, financial capacity, internal controls, powers and
duties, standards for conflict of interest management and for reports from scheme operators.
4. Trustee Corporations are most often associated with drawing up wills and trusts, putting in place
enduring powers of attorney and handling estates, a service known as Personal Trusts. TCA
contends that its members are uniquely qualified to fill this important role which requires
independence, experience, professionalism and above all a focus on investor and beneficiary
protection.
5. TCA Members also provide prudential supervision of a wide range of investment products and
financial arrangements in a number of ways and at various levels. In certain instances, issuers and
fund managers must appoint a Corporate Trustee to meet regulatory requirements before they can
offer a financial product to the market.
6. TCA members, with the exception of the Māori Trustee, are also licensed under section 16 (1) of
the Securities Trustee and Statutory Supervisors Act 2011 to provide prudential supervision of a
wide range of investment products and financial arrangements. Not all license holders are
members of TCA.
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7. As at 30 June 2012, total Personal Trusts (excluding agencies and administrations) under
supervision exceeded 26,500 with a value in excess of $6.7 billion and Corporate Trust funds
under supervision exceeded $186 billion.
8. TCA appreciates this opportunity to comment on the Consultation Document.
Comments on the Consultation Document
9. Attached below are our responses to the specific questions. However, we preface this with some
general comments which provide the context within which our specific answers are given.
General Comments
Core Issue – Effective supervision
10. The core issue is: what is the most effective supervision for this sector and who can provide this?
This is a sector that Trustees can properly supervise.
it is made up of much smaller, quite disparate entities, so a one size fits all approach is
not appropriate;
the entities are generally not big enough to have teams dedicated to regulatory
compliance, so specific supervision is needed and that is what licensed supervisors are
experts at; and
prudential regulation and individual supervision should ideally be carried out separately,
so that one can concentrate on systemic risk, and the other can concentrate on investor
protection with an entity focus.
Costs
11. The costs are obviously relevant but, in TCA's view, not a decisive factor. TCA believes the costs
of supervision are unlikely to differ significantly in either model. Trustee costs are in fact quite
modest and there will be an additional cost, inherent or explicit, in supervision by the Reserve Bank
alone. So the discussion should be based on the merits of the supervision.
Not homogeneous
12. The NBDT sector is, unlike the registered bank sector and indeed unlike the insurance sector, not
homogeneous. Its participants – finance companies, building societies and credit unions – differ
considerably in the nature and scope of their activities, their size, and indeed culture. A "one size
fits all" supervision model is not appropriate in this more diversified sector.
Objectives
13. In relation to the current objectives set out in paragraph 20 of the Consultation Document
(maintenance of a sound and efficient financial system and avoiding significant damage to the
financial system that could result from the failure of an NBDT), some participants in the NBDT
sector are clearly riskier than others. In particular, finance companies - which don’t offer cheque
accounts or ATM facilities - are less relevant to these concerns. Moreover, their operations are in
reality indistinguishable from any other issuer under the Securities Act 1978. The building society –
credit union activity is more akin to a registered bank than the finance companies but due to their
small size and lean governance structures (there are no teams or persons dedicated to regulatory
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compliance) and culture are still better supervised by Trustees. This type of supervision is what
Trustees are expert at. TCA questions whether those entities that do not have account – ATM
activities would be a threat to the macro objectives. If that is so, then the objective of supervision
for these entities is simpler: to ensure they remain financially sound and the risk of lending to them
is correctly disclosed – as with any other issuer under the Securities Act. Prudential regulation and
individual supervision should ideally be carried out separately so that one concentrates on systemic
risk and the other, subject to its statutory reporting obligations, concentrates on investor protection
in each entity.
Trustee model appropriate
14. It follows from the above that the Trustee supervisory model of "hands-on", micro supervision –
which involves regular liaison with issuer, management and directors, site visits and tailor-made
trust deeds having regard to the size structure and activity - is a necessary and appropriate part of
effective supervision of this sector.
Timing
15. The review is being conducted too soon, notwithstanding that the original statutory five year period
envisaged under the Reserve Bank Act is now coming to a close. The reality is that since 2008
when the NBDT regulations were drafted , fundamental and far reaching changes have (more
recently) been made to supervision of this sector – and indeed that change process has not
finished. Trustee companies are now required to be licensed. They undergo and have undergone
a rigorous and expensive vetting process by the FMA. They are governed by new legislation the
Securities Trustees and Statutory Supervisors Act 2011 under which they are subject to close
scrutiny and reporting obligations to the FMA in addition to their other statutory reporting
obligations, including the Reserve Bank. It is early days for this new regulatory regime.
16. In TCA's view, it is clear the supervisory regime is working very well. Moreover, it can only get
better with further impending changes. NBDTs will themselves be required to be licensed and then
probably the most fundamental change to the sector will occur when the Financial Markets Conduct
Bill (FMC) becomes law. This is a fundamental change in the overarching rules of this sector. It
would, in TCA's view, be premature to further legislate on this matter until the imminent and
substantive changes have been enacted and some experience of how they are working is able to
be assessed. Only then will an informed view, based on relevant experience, be able to be
reached.
Sector in flux
17. The timing is inappropriate in another sense: the sector is changing fast. When the licensing and
FMC regime is put into place, it is likely that the NBDT sector will change even more. It's
conceivable the sector will continue to contract as the regulatory requirements are found to be too
onerous for many current participants. It would be appropriate to defer making any fundamental
changes to the supervisory model until it has settled down after licensing and FMC - there may not
be much left to supervise.
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RB only
18. The option of Reserve Bank supervision alone is, if one regards finance companies as
indistinguishable from other Securities Act issuers, fundamentally inconsistent and in fact would
represent a dramatic u-turn on all other relevant current policy initiatives relating to supervision,
being the licensing of Trustee companies, their supervision by the FMA and the acceptance of a
role for Trustees in the new regime in the FMC Bill. This is evidenced by the table attachment
"Building Investor Confidence in Financial Markets" prepared by the Ministry of Economic
Development which clearly envisages Trustees being involved in the supervision of the financial
markets and highlights the boundaries between the various constituents of supervision of the
market, including RBNZ. TCA is concerned that the first option of Reserve Bank only supervision
would be a glaring inconsistency with the above direction. The NBDT supervisory regime should
reflect current thinking on the above policy settings. The experience of this record of supervision in
the last 5 years has been very positive.
Australian example
19. The paper refers to international experience. The Australian example suggests a distinction in
supervisory treatment between building societies and credit unions (supervised by APRA) and
finance companies (supervised by ASIC) may be appropriate. This implies that the underlying
assumption of this review, namely that one model should apply to the entire sector – is incorrect.
Big Technical Challenges
20. The Reserve Bank alone option would have some significant technical challenges. Not all
participants in the NBDT sector can raise funds on a negative pledge, unsecured basis. For
example, finance companies need to give charges – security interests to support their borrowings.
As a matter of law, that charge needs to be held by a representative of the entity's creditors.
Moreover, in any enforcement situation, the entity's creditors would need their own appointee to act
in their interests if, as would be the case, the paramount interests of the Reserve Bank were
national macro objectives. Experience shows that this duty could not be discharged by the
Reserve Bank alone, absent unacceptable conflicts of interest on its part. If this issue was not
resolved, clear disclosure of the risk NBDT creditors take would have to be made. A Trustee for
the creditors can speak for them, act in the protection of their interests, and where appropriate
involve the investors in the decision making process, and (again, where appropriate) act in concert
with the Reserve Bank.
To summarise:
21. This is a sector that Trustees can properly supervise.
22. The review – which in principle TCA supports is premature. It should be deferred until some
experience of the still evolving FMC legislation has been gained. Reform of the supervision of the
sector, begun effectively in October 2010, is continuing with NBDT licensing and the FMC Bill still
to come. What evidence there is of the new regime suggests it is working well.
23. The NBDT sector is changing fast, a trend likely to be intensified by NBDT licensing and the FMC
Bill, making it premature to make any further fundamental change in "mid stream".
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24. The diversified NBDT sector is not an obvious candidate for micro supervision by the RBNZ alone.
Many of its entities are small or otherwise not relevant to RBNZ with its statutory "macro"
objectives.
25. The types of entities in the NBDT sector lend themselves to the involvement of Trustee
supervision.
26. Reflecting its diversity, this sector needs flexible funding instruments (security interests,
subordinated debt) that, as a matter of law and practice, require a Trustee.
Trustee Corporations Association of New Zealand Inc
17 May 2013
WGTN_DOCS\1147948\3 7
Consultation Document: Review of the Prudential Regime for Non-bank Deposit Takers
Submission by Trustee Corporations Association of New Zealand Inc
Section two: Objectives of the prudential regime
No Questions Submission
1. Do you agree with the issues identified with the objectives of the regime?
Are there other issues that we should be considering?
The statement of the objectives of the Reserve Bank regime is for the most part not
relevant to the NBDT sector. Currently only UDC would come close to being relevant
to the objectives based on the financial system as the criterion. As a minimum, the
objectives should include the interests of the NBDT sector and, to the extent
permissible, the financial soundness of the NBDT and its creditors and other holders
of securities (some NBDTs will not affect the NBDT sector itself let alone the New
Zealand financial system). The objectives should include the interests of the
creditors or investors (such as the members of a building society) as a discrete
group.
2. Which of the three options for the objectives of the NBDT regime that we
have identified do you think is preferable? Are there other potential
objectives for the NBDT regime that you think we should be considering?
Option 3, but with a rider that, to the extent not inconsistent with the interests of the
financial system and the NBDT sector, make the interests of creditors and other
security holders of the NBDT itself an objective – see above comments on Q1.
NBDTs are inherently more risky than registered banks and the sector is not
homogeneous (a finance company bears no relationship to a building society or credit
union) and the objectives need to reflect this. The Trustee is the most obvious
representative of the interests of the NBDT creditors/investor members.
Section three: Definition of NBDT
No Questions Submission
3. Do you consider that the current definition of NBDT accurately describes
who should be covered in the regime?
The current definition lends itself to regulatory arbitrage which is undesirable, it
doesn't include collective investment schemes and participatory securities, being
based on the Securities Act. They could be included in the definition of NBDT.
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No Questions Submission
4. Are there any parts of the current definition of NBDT that you consider are
unnecessary or problematic.
Conduits are problematic and should be excluded and supervised under the FMA
regime.
5. How effectively do you consider the Bank has been managing boundary
issues relating to the definition of NBDT?
.More engagement is required from the RBNZ with individual Trustees to set
boundaries. Ongoing communication is the key.
6. What has your experience (if any) been of the process of applying for
exemptions under the current regime?
Mixed experiences. Initially helpful, but less so as the regime matured. This was
affected by quite high staff turnover.
7. Do you agree that the current definition results in an unnecessary number
of entities needing to be carved out of the definition?
Yes, but much better to have the carve outs than their inclusion on a purely technical
or capricious basis.
8. Do you consider that relying on securities law concepts in the definition of
NBDT is appropriate?
It has mixed results but for the most part TCA sees securities law as the best basis
for the definition. The essence of the definition should be an entity that is "bank like",
i.e. has cheque account and ATM facilities and as a minimum is lending to the
general public (viz systemic risk). In this regard, the Table attachment is a useful
guide to those "bank like entities" and the rest.
9. Do you agree that the types of offers we have identified as raising
prudential risks, despite being exempt under securities law, should be
covered by definition?
Yes, prudential risk could arise from entities that are exempt under securities law.
10. Do you agree that we have correctly identified the high level options for
the definition of NBDT? Are there any other options you consider we
should be looking at?
The thrust of the definition should be to distinguish between entities that are "bank
like" in that they provide transaction based services and those that are debt issuers
but whose business is in lending. It should be noted these latter entities are more
similar to issuers of debt securities that are not lenders..
11. Do you agree with our assessment of the costs and benefits of the status
quo? Are there other costs and benefits of the status quo that we should
be considering.
The assessment of costs and benefits seems reasonable. We note that the APRA
and ASIC structure imposed a higher cost to the end user.
12. Do you agree with our assessment of the costs and benefits of this
option? Are there other costs and benefits of this option that we should be
Yes, but statutory carve outs may also require statutory "carve ins" – borrowing and
lending activity in paragraph 75 of the Consultation Document may exempt credit
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No Questions Submission
considering? unions and building societies which is not intended.
13. Do you agree with the statutory carve outs we are proposing as part of
this option? Are there other statutory carve outs that we should be
considering?
Statutory carve outs may require statutory "carve ins" – buying and lending activity
with transacting shareholders paragraph may exempt credit unions and building
societies which is not intended.
14. Do you agree with our assessment of the costs and benefits of this
option? Are there other costs and benefits of this option that we should be
considering?
This would allow the criterion of the entity being bank-like in its activities and dealing
with the general public as well as clarifying what is meant by lending.
15. Do you agree with the statutory carve outs we are promising as part of this
option? Are there other statutory carve outs that we should be
considering?
No comment.
16. Which of the three options proposed for the definition of NBDT do you
prefer? Are there other options we should be considering.
On balance, given familiarity of securities law, Option 2 but with proviso that entity
must be conducting "bank like" activities with the public; arguably a similar result
could be achieved under Option 3, similarly modified to take into account "the public".
Section four: Supervisory arrangements for NBDTs
No Questions Submission
17. Do you agree with these intended benefits of having Trustees act as
frontline supervisors under the regime? To what extent do you consider
that these benefits of using Trustees as frontline supervisors have
eventuated?
The summary of benefits of having Trustees is in itself accurate, but does not go far
enough or strike the right emphasis. Subject to statutory obligations only, the role of
Trustee is to protect investors’ interests. Ultimately the only job of a Trustee is to act
for the investors and other benefits/obligations perceived in this section are
subordinate to that. In this sense, the benefit of the Trustee is that its job is simpler
and is the "pure" representative of investors and clearer in a conflict sense. In this
sense, it’s job is simpler and clearer than that of the RBNZ as the regulator.
The summary is simplistic. Trustee responsibilities extend well beyond monthly
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No Questions Submission
reporting to the RBNZ. They include:
(1) negotiating Trust Deed terms to recognise the unique characteristics of
individual issuers where the vanilla statutory provisions may not be adequate
to maximise investor protection. This often entails provisions which are more
stringent or specific than the statutory minimums;
(2) undertaking a detailed due diligence before accepting appointments – acting
as a gate keeper;
(3) holding security interests where the issuer has given securities or (for
unsecured debt) holding benefit of covenants and promise to pay on behalf of
specified creditors;
(4) if required (and not limited to secured instruments) taking enforcement action
on behalf of creditors;
(5) being Trustee for a variety of instruments, e.g. security/subordinated offers,
(necessarily involving Trustees) thereby allowing more sophisticated and
flexible funding options in the market;
(6) holding moneys and assets on trust if an NBDT goes off-market – which
happens often;
(7) regular visits;
(8) review of public issue documentation prior to release;
(9) statutory monitoring responsibilities including the FMA and RBNZ;
(10) an ongoing relationship with auditors as part of the monitoring of the issuer;
(11) extensive reporting from finance companies including all papers and weekly
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No Questions Submission
liquidity reporting;
(12) acting as sounding board for the issuer on what is permissible and what is not;
(13) giving the issuer and other regulators the benefit of the Trustee's views based
on its involvement in the market generally and knowing what has worked with
other issuers.
(14) Other specific functions:
six monthly audited accounts and meetings with auditors;
auditor’s letter to Trustee (each audit);
management accounts to Trustee beyond RBNZ requirements (monthly);
receiving and considering directors certificates – monthly and quarterly;
monthly reviews of capital adequacy, asset quality;
oversight of risk management programme;
ensuring issuers have an AML programme;
exercising discretion on issuer request to consents in a number of
circumstances;
meetings of investors be called by the Trustee where appropriate.
18. How effective do you consider that Trustees have been as frontline
supervisors of NBDTs?
The added powers have confirmed the status of Trustees as government mandated
frontline supervisors.
19. How effective do you consider the Bank has been in its broader role in
monitoring the sector?
No comment.
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No Questions Submission
20. Are there other powers that you consider Trustees may require in carrying
out their role?
No, when one considers the current powers under the Securities Act, those
envisaged in the FMC Bill, the Statutory Supervisors Legislation and powers under
the Trustee Act.
21. What fees are currently charged by Trustees for their supervision of
NBDTs?
TCA's belief is that the fees are competitive and not unreasonable.
22. What information is sought by Trustees from NBDTs? Refer to the answers to Q17 relating to information. Trust Deed gives Trustees
extensive powers to require further information on an as needed basis which is
invoked frequently where an NBDT is showing signs of financial stress.
23. What is the nature and frequency of Trustees' interactions with NBDTs? Again, refer to the answers to Q17: the interaction with NBDTs is reasonably regular
given that the trust deed is a living document and as an ongoing matter at regular
intervals needs to be updated or amended to comply with legislation. The Trustees
and NBDTs are in close personal contact in addition to the regular scheduled visits,
regular reports and chase ups under the trust deed, and liaising with management in
relation to this. The Trustee is pro active in its dealings with the issuer, the Trustee
being the entity that has professional obligations and expertise in regulatory
compliance, frequently taking the initiative (and equally frequently by law being
entrusted to do so) to ensure amendments are made on a timely basis and ensure
the deed complies with changes in law. The Trustee can also act as an important
sounding board (with its industry wide experience) where an issuer has a problem
under the deed or securities law. This contributes to promoting best practice.
24. Do you agree with the three potential options we have identified? Are
there other options you think we should be considering?
Yes, however there is a role for macro and micro supervision being done by separate
entities.
25. Do you agree with our assessment of the costs and benefits of the status
quo? Are there other costs or benefits of the status quo that we should be
considering?
Yes, though in TCA's view, the issue of costs on these options is unlikely to be
material as the Trustee's costs are, compared to the funds under supervision, modest
and, absent Trustee-supervision, undoubtedly there would be additional costs
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No Questions Submission
imposed by RBNZ in taking up the role.
26. Do you agree with our assessments of the costs and benefits of an
enhanced Trustee supervisory model for supervising NBDTs? Are there
other costs or benefits that we should be considering?
Yes, this seems an acceptable model. The new powers envisaged in fact mirror the
current FMA powers under the Securities Act. TCA doesn't agree with central
appointment of Trustees however: for better or for worse, that cuts across
commercial considerations. In any event, there may be more than one Trustee for an
NBDT – e.g. senior bonds and junior bonds Trustees.
27. Do you agree with our assessment of the costs and benefits of direct
supervision of NBDTs by the Bank? Are there other costs or benefits that
you think we should be considering?
Option 3. The prudential requirements ignore the fact that the NBDT sector is not
homogeneous and one size doesn't fit all. RBNZ would have to negotiate individual
terms of operation which may involve moral hazard for the Crown. This option means
NBDTs will be exempt from prospectus requirements: that means the RBNZ will
need to pre-vet offer documents. Again, a moral hazard possibility.
Direct supervision is unlikely to be more cost effective. It is difficult to assess the
costs of "micro" supervision that the RBNZ would need to implement. Undoubtedly
RBNZ would need additional resources and would likely need to charge a fee to
issuers.
The role clarity benefit is necessarily dependent on all creditors being equal: finance
companies support their borrowings by charges and security interests as against
other creditors. How would RBNZ deal with this? Would it recognise the priority of
secured lenders or apply an "across the board" moratorium parity? That would blur
the perceived role clarity and put RBNZ in exactly the same position as a Trustee.
The perceived alignment with overseas experience is not correct. In Australia ASIC
supervises finance companies but they have Trustees; APRA supervises ADIs –
offers of banks and bank-like products in credit unions and building societies. There
are international examples therefore of this NBDT sector being carved up for
regulation.
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No Questions Submission
28. Do you think that Trustees should be retained as frontline supervisors of
NBDTs, or do you consider that direct supervision of NBDTs by the Bank
is a better option?
Yes, Trustees should be retained as frontline supervisors of NBDTs except possibly
those NBDTs which conduct "bank-like" services and are systematically relevant to
New Zealand's financial system. Currently none actually fit this model and if they did,
the Reserve Bank would encourage them into the registered bank regime.
Section five: Prudential requirements for NBDTs
No Questions Submission
29. How have you found the prudential requirements have worked to date? The prudential requirements have acted as a high barrier to entry; there is a high
incentive to exit either into the registered banks status or to exit from public issuance
as is evidenced by the industry continuing to contract.
30. Do you think the prudential requirements are appropriate for the NBDT
sector?
TCA notes that the calibration of capital adequacy for NBDTs is tougher than for
registered banks. If NBDTs are to be subsumed in this sector, in principle there
should be alignment to bank ratios more closely so that investors can be better
informed of the risk compared to bank risk.
In fact, the prudential requirements have not been truly tested: what would regulators
do to a financial organisation that fell below the 8% requirement, but was otherwise
undoubtedly solvent? Distress on a non-terminal basis is yet to be tested.
The regime is still too immature in terms of a credit cycle to make a firm determination
of the success or otherwise of the regime. Other funding structures lend themselves
to a less restrictive covenant regime and recent issues suggest regulatory arbitrage is
resulting. That is an undesirable result for this sector.
31. Are there any prudential requirements that you consider should be added,
removed, or amended?
Please see above.
32. Do you agree that it would be preferable to set capital, liquidity and related
party exposure requirements via conditions of licences or standards rather
than regulations? Are there other costs or benefits of this option that you
This would require to be negotiated with the NBDT. Inherently they should be
tailored to the issuer: too tough and they will exit the sector; too lenient and there will
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No Questions Submission
think we should be considering? be risk of failure. Regardless, one size doesn't fit all.
33. Do you think that the other prudential requirements should be set via
conditions of licences or standards, or by regulations?
No comment.
Section six: Disclosure requirements for NBDTs
No Questions Submission
34. Do you agree with the costs and benefits of this option that we have
identified? Are there other costs or benefits that we should be
considering?
Some comments on this question: information on prudential requirements can be put
on the website of the NBDT: it can be made easily accessible.
For better or for worse, the disclosure of financial data on test compliance with
prudential requirements needs to be translated in a clear and concise and effective
manner and tailored to the prudent, but not expert, investor.
TCA does not consider bank general disclosure statement publication as that user
friendly itself.
The alternative options for disclosure of NBDTs will depend on which is the preferred
supervision method: if RBNZ is sole supervisor, then all they need is a general
disclosure statement because effectively the NBDT will benefit from the RBNZ brand
or its implication of soundness. In the eyes of investors, such exclusive regulation
will be perceived as a implicit government guarantee.
35. Do you agree with the costs and benefits of this option that we have
identified? Are there other costs or benefits that we should be
considering?
The separate government agencies in fact have working memoranda of
understandings, e.g. between FMA (in process) and the RBNZ.
36. Do you agree with the costs and benefits of this option that we have
identified? Are there other costs or benefits that we should be
considering?
No comment.
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No Questions Submission
37. Do you consider that a separate disclosure regime for NBDTs would be
appropriate, or should prudential disclosures for NBDTs be integrated into
the disclosures required under securities law?
If RBNZ is sole supervisor, then FMA should drop out. However, if, as TCA believes
to be the case, NBDTs are like finance companies and perhaps other NBDT's should
be treated as any other investments, then the latter option (i.e. securities law basis) is
clearly the correct one.
Section seven: Crisis Management Powers
No Questions Submission
38. Do you agree that a tailored statutory management regime for NBDTs
should be provided for in legislation?
Even in a tailored statutory management regime, there will inevitably remain a
potential for significant conflict of interest of the RBNZ if there is no entity such as a
Trustee acting discretely in the interests of the creditors of the NBDT.
Section eight: Offences and Penalties
No Questions Submission
39. How do you think the current offence and penalty regime has worked? Criminal sanctions should be limited for egregious behaviour.
40. Do you think a hierarchy of penalties, where there is a more proportionate
response to the breach, would be more appropriate?
No comment.
41. Would the use of infringement notices be a better way of ensuring
compliance with certain lower level requirements?
No comment.
42. Would the use of civil pecuniary penalties provide for a more proportionate
response to some breaches where a conviction may outweigh the
wrongdoing?
No comment.
43. Should the level of penalties reflect whether the regime focuses on
systemic risk to the NBDT sector or systemic risk to the financial system?
No comment.
Section nine: Other Matters
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No Questions Submission
44. Do you have any views on the provisions in the Bill dealing with the issue
and cancellation of licences and the Bank's ability to impose conditions of
licences?
We suspect that these licensing requirements will be a real challenge for the RBNZ.
It will be working in a diversified sector, by activity, size and risk of operation. Making
decisions on conditions of licences in the knowledge that licence cancellation
effectively means the entity must cease trading will be very challenging. TCA is not
aware of any licence issued by the RBNZ having been cancelled, reflecting perhaps
the death sentence it implies. This sector will test that reality. We also comment that
Trustees could add value by their involvement in the licence application/cancellation
process.
45. Do you have any views on the operation of the suitability assessment
process in the Bill at present?
The suitability notice should not be set too widely: most otherwise appropriate and
suitable candidates will have a potential conflict of interest and it's not inconceivable
they'll have been involved in regulatory non-compliance by a market participant since
that includes all forms of non-compliance including that which is merely technical.
46. Do you have any views on the structure of the change of ownership
provisions in the Bill?
No comment.