Foreign banks 'must abide by the laws of the land' – RBNZ

by Ksenia Stepanova25 May 2018

The Reserve Bank has published an article on the conduct of banks that register in New Zealand, and says that any bank looking to operate here ‘must be bound by domestic law.’

According to Reserve Bank governor Adrian Orr, New Zealand-registered banks are an important part of the financial ecosystem. However, increasing public focus and concern surrounding bank behaviour and culture has led to a number of questions; “Are banks too profitable, too short-term, incentivised to over-lend, insufficiently sound to be managed, too global to be regulated and too open to operational and security risks?”

The noise surrounding financial sector misconduct and the Australian Royal Commission is constant and plentiful. This will inevitably yield confusion, but Orr says that there are three main issues banks need to be aware of when they register in New Zealand.

Firstly, operating in New Zealand means abiding by the country’s unique set of investor, consumer tax and prudential laws. Locally incorporated banks would need to have local directors who would take liability for bank decision making, and these directors are bound by local laws. Banks must also be financially prepared to meet New Zealand-specific risks, which often differ to those of their countries of origin.

Secondly, foreign-owned banks must abide by New Zealand’s ‘host’ regulations which include specific legal requirements, capital requirements and transparency rules.

“We prefer to assess and understand what home regulators have done, repeat where specifically necessary for New Zealand conditions and supplement them with relevant New Zealand requirements,” says Orr. “We deliberately draw a line through some of the replication, where international approaches are not a good fit for New Zealand.”

Finally, regulators will strive to create a regulatory environment that is ‘equitable across all banks, not just banks from other jurisdictions.’ According to Orr, the challenge is to make sure all parties are treated fairly and have their specific circumstances taken into account.

“Our aspiration is to have the best regulator-regulated relationship in the world based on mutual respect,” he concludes. “[Banking] is a profitable business, and our goal is for customers to be well-served, taxpayers’ money preserved, and our financial systems sound and efficient.”


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