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Government looking at enacting Building Societies Act changes later this year to stop New Zealand registered building societies from operating overseas

Banking / news
Government looking at enacting Building Societies Act changes later this year to stop New Zealand registered building societies from operating overseas
General Equity Building Society took out naming rights on an Auckland CBD building.

The Government's move to change the law to stop New Zealand registered but unregulated building societies from operating overseas may finally be enacted later this year, four years after changes were proposed.

In 2018 the Government moved to make changes to the 1965 Building Societies Act following a Reserve Bank warning issued as long ago as 2009.

Since 2012 has detailed the activity of three New Zealand building society exports, - General Equity Building Society, Kiwi Deposit Building Society and Safe and Sound Building Society. As building societies they've been able to offer banking services outside the Reserve Bank’s non-bank deposit taker regulatory regime because they don't take deposits from the NZ public. 

We detailed how General Equity Building Society claimed to hold almost US$5.5 billion of equity through unnamed mines, gold, silver and granite ore. The Financial Markets Authority (FMA) subsequently issued a warning about General Equity saying it didn't hold the assets it claimed to hold, and had engaged in misleading and deceptive conduct, including the way it represented how it was regulated in NZ.

In a 2018 report the Comptroller and Auditor General of India flagged the doubtful recovery of ₹5.91 crore. This was due to the lack of due diligence in the export of yarn to two private parties in Pakistan by the National Textile Corporation Ltd without verification of their credentials, and following the acceptance of a letter of credit issued by General Equity.

Having changed its name to Pacific Eagle Capital, General Equity appeared to thumb its nose at a FMA warning. The Kuala Lumpur-based Anametrics Holdings Ltd, apparently Pacific Eagle Capital's ultimate parent company, is registered in the corporate secrecy haven of the Marshall Islands.

Pacific Eagle Capital's registration under the Building Societies Act was suspended last year because the filing of its annual return, auditor's report on the annual return and audited financial statements were late, leaving it in breach of both the Building Societies Act and the Financial Markets Conduct Act.

We've also previously reported on how a wholly-owned Danish subsidiary of Kiwi Deposit Building Society was referred to the police by Denmark's equivalent of the FMA - Finanstilsynet - and fined after buying into a sharemarket listed Danish company and waiting nine days before informing the market of its obligation to make an offer to minority shareholders.

We've also reported on how Equinor Trust Ltd, a NZ registered trustee with links to Kiwi Deposit, claimed to oversee around €5 billion worth of assets on behalf of some of the world's richest people, and how Kiwi Deposit's Australian managing director threatened to sue the Reserve BankKiwi Deposit was put into dissolution in 2013 by its members.

Meanwhile, a NZ-based director of Safe and Sound Building Society with a background in ready mix concrete told he was only on the board because the Australian based CEO, a relative, asked him, and he had no financial services experience. Safe and Sound is now known as Alliant Perpetual.

'Progress on these changes was delayed in 2020 and 2021' asked the Ministry of Business, Innovation & Employment (MBIE) where things are at with the proposed law changes. An MBIE spokesman says Cabinet agreed to the proposed Building Societies Act changes in 2019, and they will be included in the Regulatory Systems (Economic Development) Amendment Bill (No.3).

"In May 2021, Cabinet also approved additional amendments for this Bill. We note that this Bill includes amendments to over 30 different Acts from the Commerce and Consumer Affairs, Immigration, Workplace Relations and Safety, and Building and Construction portfolios. Drafting instructions have been sent to the Parliamentary Counsel Office," the MBIE spokesman says.

"Progress on these changes has been delayed in 2020 and 2021 due to the need to prioritise the Government’s COVID-19 response. We are now working towards this Bill being introduced late this year. You can find updates on the regulatory systems bills on MBIE’s website."

The changes propose that all services provided by NZ registered building societies will have to be provided to people living or incorporated in NZ, and that NZ building societies will be required to have a director either living in NZ or Australia - bringing building society director rules in line with those of NZ companies.

Other changes MBIE's proposing include that building societies must primarily be in the business of advancing loans to members that are secured over residential property in NZ, and that all members of a building society are living or incorporated in NZ and are not related parties.

All existing building societies would have six months to satisfy the Registrar of Building Societies that they meet the new registration criteria. Any society failing to meet the criteria would have its registration cancelled subject to to a right of appeal to the High Court.

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About time, plug this loophole, and say no to dodgy foreign capital.