A proportionality framework allows for diversity while promoting financial stability

2024-03-15 13:00:21 · RBNZ

Following the Deposit Takers Act (DTA) becoming law in July 2023, the Reserve Bank is pleased to publish the first legislative document, the Proportionality Framework, under the DTA.

“The Proportionality Framework sets out how we will take a proportionate approach to balance the costs and benefits of regulation for different types of deposit takers, while protecting and promoting the stability of New Zealand’s financial system. Taking a proportionate approach means that the public can benefit from a safe, sound, and stable deposit-taking sector, but also one that can be diverse, innovative and inclusive,” Deputy Governor Christian Hawkesby says.

“We have heard deposit takers’ message which is to ensure the new regulatory environment will be proportionate. Comprehensive submissions and engagement with industry have given us a rich and broad context as we begin the important task of writing regulations and standards. We are confident that the proportionality framework we are publishing today provides for the diverse range of institutions, and their unique points of difference and service offerings for New Zealanders,” Mr Hawkesby says.

For the purpose of developing prudential standards, the Proportionality Framework groups locally-incorporated licensed deposit takers into three groups based on the total asset sizes, with a fourth group for overseas licensed deposit takers (branches). The Framework includes flexibility to accommodate deposit takers’ particular circumstances and to transition a deposit taker between groups if needed (e.g. for growth or reorganisations).

“We cannot regulate on a ‘one-size-fits-all model and have thought carefully about how we suit different sizes of deposit takers, while protecting and promoting financial stability, which is our core purpose,” Mr Hawkesby says.

From 2028, under the DTA, the Reserve Bank will begin regulating and supervising credit unions, building societies and finance companies (known as non-bank deposit takers or NBDTs), together with banks, under a single, consistent, and proportionate framework. Currently, NBDTs are supervised by a trustee under the Non-Bank Deposit Takers Act 2013 which will be superseded by the DTA.