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RBNZ airs concerns about trust deed liquidity requirements and risk management programmes in NBDT licencing process

Business
RBNZ airs concerns about trust deed liquidity requirements and risk management programmes in NBDT licencing process
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The Reserve Bank has received just five applications for non-bank deposit taker (NBDT) licences so far and has identified several cases where liquidity requirements in a trust deed don't appear to meet regulatory standards.

The prudential regulator has provided a brief update of the NBDT licencing process in a newsletter. It says that, as of July 24, five licence applications had been received.

"As part of our assessment process we have identified a number of areas where we consider that further guidance would assist licence applicants," the Reserve Bank says.

The licencing process stems from the Non-bank Deposit Takers Act, which was passed by Parliament last year and came into force on May 1. Under the Act all NBDTs must be licensed. However, a one-year transition period is in place to assist them to meet the new licensing rules.

In its newsletter the Reserve Bank says as part of its assessment process it has identified several instances where the quantitative liquidity requirements included in a trust deed don't seem to meet the required standards.

"The Reserve Bank understands that a number of NBDTs only have a quantitative liquidity requirement to hold a particular percentage of total assets as liquid assets. The Reserve Bank considers that this metric is unlikely to be appropriate because it does not support the underlying reasons for having a liquidity requirement, ie to be able to continue to meet liabilities as they fall due," the Reserve Bank says.

The newsletter also comments unfavourably on the use by some NBDTs of templates as a basis for risk management programmes.

"We have seen some instances where the risk management programme makes references to having systems and controls that do not actually appear to be in place or that do not appear to be necessary or appropriate to the applicant. We expect an applicant's risk management programme to be relevant to their business and to reflect the risk management processes that are actually applied in practice."

"We have also identified that some risk management programmes do not contain procedures for trustee approval to amendments, as required," the Reserve Bank says.

The definition of NBDT includes finance companies, building societies and credit unions. In terms of finance companies there are just a few left today borrowing money via deposits from the public, with only the ANZ owned UDC and Fisher & Paykel Finance of significant scale, compared to several dozen a few years ago. See out deep freeze list here.

Interest.co.nz's current table of finance companies taking deposits from the public includes Asset Finance, Baptist Savings, Bible Society, FE Investments, Finance Direct, F&P Finance, General Finance, Gold Band Finance, Liberty Financial, Medical Securities, Mutual Credit Finance, Presbyterian Savings, Prometheus Finance, and UDC Finance. There are also four building societies and eight credit unions.

NBDT licence applicants must submit a licence application form to the Reserve Bank, plus a suitability notice for each director and senior officer, or proposed director and senior officer. Applicants must also provide financial information and, in some cases, information about their controllers.

This story was first published in our email for paying subscribers on Wednesday morning. See here for more details and how to subscribe.

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