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New Zealand

The Reserve Bank of New Zealand Bill, a new Bill aimed at strengthening the Reserve Bank of New Zealand's (New Zealand's Central Bank) powers of supervision and regulation of registered banks to bring them into line with international best practice was introduced on April 23 2002. The Reserve Bank first indicated that it was going to propose significant changes to its governing legislation in October 2000. This governing legislation is the Reserve Bank of New Zealand Act 1989, which sets out the functions and powers of the Reserve Bank and provides for a system of regulation and supervision of banks. The new Bill was introduced following consultation on the proposed amendments with interested parties and will have significant implications for both domestic and foreign-owned banks that do business in New Zealand.

Under section 64 of the Act there is a general restriction on using the words 'bank', 'banker' and 'banking' as part of the name of any entity "carrying on business" in New Zealand, unless it is a registered bank. There have been some difficulties interpreting this provision, which has led to inconsistent enforcement. The result is that entities that are not registered banks find it relatively easy to use names that suggest that they are banks. The Reserve Bank also predicts that the changing technology in the banking industry will lead to problems determining what constitutes carrying on business "in New Zealand".

The Bill attempts to solve the interpretation problems and account for new technologies by prohibiting use of the restricted words by any entity "carrying on any activity, directly or indirectly, in New Zealand". The new section 64 also prevents the use of the words 'bank', 'banker' and 'banking' in a trade mark. Geographical references are exempt from section 64 and the Reserve Bank has the power to authorize the use of restricted words in certain circumstances. Entities using any of the restricted words in New Zealand are advised to review their use to ensure compliance before the proposed legislation comes into force – now most likely to be early 2003.

There are also proposed changes to the bank registration process. At present, section 73 of the Act sets out the matters to which the Reserve Bank must have regard when considering an application for registration as a bank. The Bill adds a new section 73A to the Act, which sets out additional mandatory considerations where the applicant for registration is an overseas person. An 'overseas person' is defined as a corporate body incorporated outside New Zealand or an unincorporated body that has its head office or principal place of business outside New Zealand.

Where an overseas person applies for registration as a bank in New Zealand, the Reserve Bank must have regard, among other things, to the law and regulatory requirements of the overseas person's home jurisdiction that relate to insolvency, disclosure of information, accounting and auditing standards, the duties and powers of directors and banking supervision. A new section 73B sets out similar mandatory considerations where an applicant is a subsidiary of an overseas person. The Bill also gives the Reserve Bank the power to impose additional disclosure requirements on overseas persons.

Under the Bill, the Reserve Bank must give written consent to any transaction that would result in a change in the level of significant influence that a person has over a registered bank. This may include a change of ownership or a change in the constitution of a registered bank to give certain shareholders additional rights under their shares. In giving its consent the Reserve Bank can impose certain terms on the transaction or specify the level of significant influence that a person may have or acquire over a registered bank. Failure to gain the Reserve Bank's consent to a change in significant influence is an offence and may lead to a cancellation of the bank's registration. However, a new section 77B provides that a contract or transfer of ownership made without the Reserve Bank's consent is not invalid.

The proposed new sections 98A and 98B will also affect foreign-owned banks carrying on business in New Zealand. These sections give the Reserve Bank the power to authorize central banks or similar authorities in other countries to exercise powers of supervision and inspection similar to those of the Reserve Bank. The Reserve Bank may only give an authorization if it is satisfied that the investigating authority has made sufficient provision for the protection of privacy.

The Bill was originally scheduled to be passed by September 30 2002. However, Parliament has dissolved for the general election in New Zealand on July 27 so this enactment date is now most unlikely. The Bill has not yet had its first reading and it is doubtful that it will come into force until early 2003.

Ian Stewart/Hannah McKechnie

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