Govt toughens rules for credit unions, building societies
15th Sep 08, 11:12am
Commerce Minister Lianne Dalziel has toughened the rules for credit unions and building societies so they can be regulated by the Reserve Bank in the same way as other companies. Dalziel has also changed the rules so building societies and credit unions can raise capital more easily and convert into companies if their members allow. The NZ$250,000 limit on deposits in Credit Unions will also be removed. The moves are being made in tandem with the extension of the Reserve Bank's regulatory mandate to include non bank deposit takers such as finance companies, credit unions and building societies. The Reserve Bank will also set up a credit rating regime for those deposit takers with more than NZ$10 million in assets, which is expected to trigger a wave of mergers and consolidation in the sector before the March 2010 start of the regime. These changes will make that consolidation easier. Credit unions and building societies are to be governed by the rules of the Companies Act, Dalziel said in speech to the New Zealand Association of Credit Unions conference in Christchurch. Mutuals will be subject to the same rules of disclosure and transparency and will have to be managed by a board whose directors will be subject to the same duties and qualifications required of company directors. "It is important to ensure that the rules applying to credit unions and building societies do not overlap or conflict with the requirements that they must meet to be licensed as deposit takers by the Reserve Bank, under legislation passed last week as an outcome of the Review of Financial Products and Providers," Dalziel said. Cabinet has taken decisions allowing credit unions to have a legal personality which lets them have limited liability, own property, have perpetual succession and sue and be sued. The decisions allow more flexible capital raising, remove operational constraints imposed under the Friendly Societies and Credit Unions Act (which are no longer required once credit unions come under prudential regulation of the Reserve Bank), remove the limit on the size of deposit each member may have with a credit union, and provide a mechanism that allows credit unions who wish to do so to convert into companies while safeguarding the credit unions reserves, Dalziel said.