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Am I covered by the Crown guarantee? Part 1 - Questions and Answers - Retail Deposit Guarantee Scheme

Page updated 3 Nov 2010

Disclaimer: The information posted here as Questions and Answers is provided for general guidance only. The terms of the Guarantee deeds signed by approved institutions (not the terms of these guidance notes) are the rules that govern all arrangements pertaining to the Crown's guarantee and the obligations that bind approved institutions. The Treasury is administrator of the guarantee on behalf of the Crown and is not an independent adviser to depositors about financial or legal issues.

The guidance contained in these Questions and Answers are subject to ongoing clarification, addition and amendment. Please press F5 to refresh this page, to ensure you are viewing the most up-to-date information.

Note: it is not possible before a default for the Treasury to provide assurance that any particular depositor satisfies eligibility criteria. The Treasury will not determine eligibility unless it has received a claim for payment after default by a Crown guaranteed institution.

1.1 How do I know if the Crown retail deposit guarantee scheme covers my deposits or investments?

Updated 12 Oct 2010

For your deposit or investment to be guaranteed by the Crown under the Crown retail deposit guarantee scheme:

  • your deposit or investment must be with an institution that is approved under the guarantee scheme; and
  • the guarantee must not have been withdrawn from that institution at the time you made the deposit or investment; and
  • your deposit must be in a class of deposit that is eligible; and
  • your deposit must be eligible for the Crown guarantee; and
  • you must also be an eligible retail investor.

Special rules:

  • apply to deposits or investments that exceed the coverage limit; and
  • may apply where the guaranteed institution enters a moratorium with its creditors.

Please read the other Questions and Answers on this web page for further guidance.

1.2 Is my bank, finance company, credit union etc participating in the guarantee scheme?

Updated 12 Oct 2010

A list of all institutions participating in the Crown retail deposit guarantee scheme is published here. Participation in the scheme is voluntary. Institutions that want their depositors or investors to be covered by the Crown guarantee must apply to the Treasury.

1.3 My institution was eligible for the extended guarantee, so is it automatically participating in the extended Crown retail deposit guarantee scheme?

Updated 12 Oct 2010

No, your institution will not be automatically participating in the extended Crown retail deposit guarantee scheme. There is no automatic entry to the extended guarantee scheme.

Participation in the guarantee scheme is voluntary and is by application. Institutions that want to participate in the extended Crown retail deposit guarantee scheme must apply to the Treasury and the Treasury must be satisfied that it is necessary or expedient in the public interest for the financial institution to be accepted into the scheme.

1.4 Are my deposits a class of deposit eligible for the Crown guarantee?

Updated 12 Oct 2010

Classes of deposit that are eligible retail debt securities include: deposits, term deposits, current accounts, some bonds, bank bills, debentures.

A retail debt security does not include:

  • equity or equity-like instruments such as shares or redeemable preference shares;
  • interests in superannuation schemes, unit trusts, shares or similar instruments where the income from the investment is shared;
  • subordinated debt issued by banks or non-bank deposit takers (other than some redeemable shares issued by building societies and credit unions). Subordinated debt refers to deposits or loans that are repayable after all other creditors of the bank or non-bank deposit taker have been repaid. It ranks behind other creditors in terms of distributions on insolvency (but ranks before distributions to shareholders);
  • under the terms of the extended scheme, debt securities that have been restructured or rescheduled under a moratorium the terms of which have not been first approved by the Crown.

1.5 Is my deposit eligible for the Crown guarantee?

Updated 12 Oct 2010

Institutions participating in the retail deposit guarantee scheme are able to offer both guaranteed and non-guaranteed deposits. You will need to check:

  • if the institution is participating in the retail deposit guarantee scheme ; and
  • whether the investment you are making or account you are depositing money into is guaranteed or non-guaranteed. This information must be included in the investment statement or prospectus published by the institution.

1.6 Am I an eligible retail depositor?

Updated 12 Oct 2010

For non-bank deposit takers that are participating in the retail deposit guarantee scheme, only debt securities held by New Zealand tax residents or New Zealand citizens are covered by the Crown guarantee. To be eligible for repayment, holders of debt securities issued by non-bank deposit takers that are participating in the retail deposit guarantee scheme must be:

  • New Zealand tax residents;

OR

  • New Zealand citizens.

Generally speaking, you will NOT be an eligible retail depositor if you are:

  • a financial institution (e.g. a bank, superannuation scheme, insurer, investment advisor, professional trustee, a non-bank deposit-taker or others that provide financial services as part of their business);
  • a person that is a related party to the deposit taking institution that is a member of the Crown retail deposit guarantee scheme, or if that person is controlled by a related party;
  • a person who is neither a New Zealand citizen nor New Zealand tax resident;
  • a person who is acting as a trustee or nominee for any of the above;
  • a person who has acquired that debt security after the date on which that debt security has become due and payable.

In certain limited circumstances some of these people can still be eligible retail investors. Please read the other Questions and Answers on this web page for further guidance.

Note: Citizenship is not the same as residency. Not all residents of New Zealand are citizens and some New Zealand citizens are resident outside New Zealand. Citizenship is defined by the Citizenship Act (Legislation website). Guidance about tax residency is published by the Inland Revenue Department (IRD website). Also, see sections YD1 (Legislation website) and YD2 (Legislation website) of the Income Tax Act 2007 (Legislation website).

1.7 Are deposits or investments by businesses or family trusts covered by the deposit guarantee scheme?

Updated 12 Oct 2010

Retail deposits of family trusts and businesses placed with an institution that is participating in the retail deposit guarantee scheme are guaranteed in many cases, but some exclusions apply, such as where the trustees or the business are financial institutions, or if not all of the beneficiaries of the trust are eligible retail investors.

To be eligible for repayment, a business that holds debt securities issued by non-bank deposit takers participating in the retail deposit guarantee scheme must be New Zealand tax resident. Under the Income Tax Act 2007 (Legislation website) a business that is incorporated is New Zealand resident if;

  • it is incorporated in New Zealand; or
  • its head office is in New Zealand; or
  • its centre of management is in New Zealand; or
  • its directors, in their capacity as directors, exercise control of the company in New Zealand, even if the directors’ decision-making also occurs outside New Zealand.

For guidance about how the eligibility criteria apply to trusts, please see Part 3 of the Questions and Answers.

1.8 Is there a cap or limit on the value of the guarantee?

Updated 12 Oct 2010

A maximum of $250,000 per eligible depositor per institution will be paid in the event of a default by an approved institution that is not a bank (such as a finance company, a building society or a credit union).

A maximum of $500,000 per eligible depositor per institution will be paid in the event of a default by an approved institution that is a registered bank.

Where a retail debt security is held jointly, the coverage limit applies to the joint holders collectively and the maximum that will be paid to the joint holders collectively in respect of their debt security jointly held is $500,000 per institution if the deposit is with a registered bank and $250,000 if the deposit is with a non-bank deposit taker.
The Crown has discretion to apply a higher cap in relation to any claim or class of claims against an entity that is the product of the merger, amalgamation or takeover of one or more approved institutions.

1.9 Are deposits guaranteed if they are in foreign currencies?

Updated 12 Oct 2010

Retail debt securities denominated in a foreign currency and issued by financial institutions participating in the guarantee scheme are guaranteed in the same way as deposits denominated in New Zealand dollars. The amount guaranteed is the New Zealand dollar equivalent of the foreign currency amount on or about the date of payment.

1.10 Are collective investment schemes or PIEs covered by the Crown guarantee?

Updated 12 Oct 2010

Collective investment schemes can no longer participate in the retail deposit guarantee scheme and members of collective investment schemes are not covered by the Crown guarantee.

1.11 Are there circumstances where a person that is otherwise ineligible can still be covered by the Crown guarantee?

Updated 3 Nov 2010

Financial Institutions

A financial institution is not just a bank, a finance company, or a building society. People who provide financial services, including professional trustees, are treated as a financial institution for the purposes of the Crown guarantee.

A financial institution that is a holder of a retail debt security issued by an institution that is a member of the Crown retail deposit guarantee scheme may still have a valid claim under the guarantee if:

  • the financial institution is a bare trustee for another person, but then only so long as that other person would have been an eligible retail investor if they had held the debt security personally; or the person is a share broker, an investment adviser or a fund manager, but that person is not acting in that capacity; or
  • the Crown has nominated that financial institution (by itself or as a sub-class) as an eligible retail investor.

Financial institutions under an enduring power of attorney

Generally, debt securities issued by an institution that is a member of the Crown retail deposit guarantee scheme, held by an investor:

  • in their own name, and
  • who is otherwise eligible under the guarantee,

will be covered by the guarantee if the investor has granted their adviser authority over their affairs under an enduring power of attorney, even though the adviser may be a financial institution.

Financial institutions using a pooling mechanism (such as a wrap account)

A financial institution that holds debt securities issued by an institution that is a member of the Crown retail deposit guarantee scheme as custodian or manager of a pooling mechanism (such as a wrap account) will generally not be covered by the guarantee. The exception to this is where the financial institution is a bare trustee for the underlying investors. In that case, the financial institution will be eligible if the underlying investors are eligible.

Professionally managed retail portfolios

Debt securities issued by an institution that is a member of the Crown retail deposit guarantee scheme, held by an investor:

  • in their own name, and
  • who is otherwise eligible under the guarantee,

will generally be covered by the guarantees when held as part of a portfolio, so long as the investor retains the power to direct his or her investments (with or without the advice of a professional adviser). If however the debt securities are held by a financial institution on trust for an otherwise eligible retail investor, the investment will not be covered by the guarantee unless the financial institution is acting as a bare trustee for eligible investors.

Bare Trusts

If a person who is otherwise ineligible is the trustee of a bare trust, that person may still be eligible in certain circumstances.

For guidance about how the eligibility criteria apply to trusts, please see Part 3 of the Questions and Answers.

Trustees or nominees for beneficiaries that would be ineligible

A person can’t claim under the Crown guarantee if they are acting as a trustee or nominee for one or more beneficiaries that would not be eligible if those beneficiaries had been claiming in their own right, unless that person is acting as a the trustee of a bare trust.

For guidance about how the eligibility criteria apply to trusts, please see Part 3 of the Questions and Answers.

Joint holders

See the answer to question 1.13 for how the eligibility criteria apply to persons who hold debt securities jointly.

Related parties

Please read the answer to question 1.15 for guidance about related parties.

1.12 Is a deceased person’s estate eligible for the Crown guarantee?

Updated 12 Oct 2010

If a person dies before being able to make a claim under the Crown guarantee, the person’s estate can make a claim for payment and the standard eligibility criteria will generally still apply. However, the eligibility criteria can apply in different ways that depend on when the person died.

When a person dies, their property passes automatically to the deceased person’s executor (or administrator, if the person died without a will). The executor or administrator is a trustee and the way the eligibility criteria apply under the Crown guarantee must take into account not just the status of the deceased person but also the status of the executor/administrator (the trustee) or the beneficiaries of the deceased person’s estate – which is effectively a trust.

1.12a Death after the date that the guaranteed deposit taking institution defaulted

If the deceased person died after the deposit-taking institution defaulted, the only question is whether the deceased person was themselves an eligible depositor under the standard eligibility criteria.

If the deceased person was an eligible depositor, then their estate will be eligible under the guarantee, regardless of whether or not the executor/administrator and the beneficiaries are eligible. All that counts is the eligibility of the deceased person at the date of default.

If the deceased person was not themselves eligible (for example, because they were neither a New Zealand citizen, nor a New Zealand tax resident), then the deceased person’s estate will not be eligible for repayment under the Crown guarantee. The eligibility of the executor/administrator and the beneficiaries under the will is not relevant. The deceased person’s estate is not covered by the Crown guarantee.

1.12b Death before the date that the guaranteed deposit taking institution defaulted, where the deceased person made the deposit

If the deceased person died before the deposit-taking institution defaulted, the key question is whether it was the deceased person who made the deposit (and then died while still holding the debt securities), or whether it was the executor/administrator of the estate who made the deposit (after the deceased person died, but before the date of default).

If the deceased person made the deposit and was still holding the debt securities at the date of their death, all the focus then turns to the beneficiaries under the terms of the will (or the beneficiaries recognised by law, if the person died without a will). If each of the beneficiaries would have been an eligible depositor in their own right, then the deceased person’s estate will be eligible to claim under the Crown guarantee. In this case, the eligibility status of both the deceased person and the executor/administrator is not relevant.

If one of the beneficiaries is not eligible, then the deceased person’s estate is not eligible for repayment under the Crown guarantee. However, the Crown has discretion in these circumstances to recognise a claim and make payment. In using this discretion, among other things the Crown will take into account the identity and nature of the beneficiaries and how many of the beneficiaries would be eligible depositors in their own right.

1.12c Death before the date that the guaranteed deposit taking institution defaulted, where the executor/administrator made the deposit

If the deceased person died before the deposit-taking institution defaulted, the key question is whether it was the deceased person who made the deposit (and then died while still holding the debt securities), or whether it was the executor/administrator who made the deposit (after the deceased person died, but before the date of default).

If the executor/administrator made the deposit (meaning the deceased person was not holding the debt securities at the date of their death), then eligibility is determined by the status of both the executor/administrator and the beneficiaries. Note that the executor/administrator is deemed to have made the deposit even when the deceased person held debt securities with the same deposit-taking institution when he or she died, if those debt securities matured before the date of default and the executor/administrator had the opportunity to prevent them from being automatically re-invested in the deposit-taking institution. To have had that opportunity, the executor/administrator must have been granted probate under the terms of the will no less than one week beforehand. If the securities matured and were automatically re-invested before the executor/administrator was granted probate, the deceased person is still deemed to have made the deposit (see 1.12b, above).

When the executors/administrators have made the deposit, each of the executors/administrators must be eligible in their own right. In this regard, the standard eligibility criteria apply except that, where the Crown so chooses, an executor/administrator may still be eligible even if he or she is neither a New Zealand citizen, nor a New Zealand tax resident, and even if he or she is acting as a trustee for a person who is not eligible (for example, where one of the beneficiaries under the will isn’t eligible).

If the executors/administrators are all eligible, the final question is whether each of the beneficiaries would have been an eligible depositor in their own right, had they themselves been the depositor. If each beneficiary is eligible in their own right, then the deceased person’s estate will be covered by the Crown guarantee (subject only to the Crown’s discretion in those cases where none of the executors or administrators is either a New Zealand citizen, or New Zealand tax resident). If one of the beneficiaries is not eligible, then the deceased person’s estate will not be eligible for repayment under the Crown guarantee. However, the Crown has discretion in these circumstances to recognise a claim and make payment. In using this discretion, the Crown will take into account the identity and nature of the beneficiaries and how many of the beneficiaries would have been eligible depositors in their own right, if they had made the investment themselves.

1.13 Am I eligible for the Crown guarantee if I am a joint holder of an eligible deposit with a guaranteed deposit taker?

Updated 12 Oct 2010

When an eligible deposit with an institution approved for the Crown retail deposit guarantee scheme is held by two or more people jointly, the joint holders will generally be eligible provided at least one of the joint holders is eligible under all the eligibility criteria and none of the joint holders is a financial institution, a related party to the deposit taking institution, controlled by a related party to the deposit taking institution, or a trustee for any of the same.

Where an eligible deposit is held jointly, the coverage limit applies to the joint holders collectively.

1.14 If I am a joint depositor and also have deposits as an individual, what coverage limits apply?

Updated 12 Oct 2010

If a person holds one eligible deposit jointly with another person and a separate eligible deposit individually in their own name, with both deposits made with the same institution, the relevant coverage limit will apply separately to the joint deposit and the individual deposit.

1.15 What is a related party?

Updated 12 Oct 2010

Related party does not mean a joint holder of a deposit or a family member of a deposit holder.

You are a related party if you are a director or senior officer of the deposit taking institution, or if you own or control, or have the right to own or control, 10% or more of the deposit taking institution, or if you are a close relative of any of these people.

You can read the definition of a related party in the Reserve Bank of New Zealand Act 1989 (Legislation website) and as supplemented by the deeds of guarantee for each approved deposit taking institution.

1.16 Do I need to pay a fee or insurance premium to have the guarantee on my deposits or investments?

Updated 12 Oct 2010

Eligible depositors do not pay any direct fees for the Crown guarantee. However, institutions participating in the Crown retail deposit guarantee scheme pay fees and can make their own choices about if and how the costs of the scheme are passed on to their customers.

1.17 Can the Crown guarantee be changed?

Updated 12 Oct 2010

Yes. The Crown may withdraw the guarantee deed and offer a new Crown guarantee deed to the financial institution on different terms, so long as the replacement guarantee covers substantially the same investors and the cap on liability is not less that the cap that applies under the extended Crown guarantee.

1.18 Can the Crown guarantee be taken away from me or from the institution that I have deposited money with?

Updated 12 Oct 2010

Eligible deposits made with an institution approved for the Crown guarantee continue to be covered after any withdrawal of a guarantee until the earlier of the date they become due and payable and the expiry of the guarantee.

The Crown can withdraw a guarantee so that an institution can no longer offer guaranteed deposits, but that is not the same as revoking an existing guarantee.

The Crown can withdraw (but not revoke) the guarantee if a participating financial institution engages in "inappropriate conduct" such that:

  • the benefit of the extended guarantee may be available to persons not intended to receive that benefit;
  • such conduct is inconsistent with the Crown's intentions in entering into the Crown guarantee;
  • the financial institution fails to comply with its relevant obligations under the guarantee deed;
  • (in the case of non banks only) the financial institution has come under the control of another person, that the Crown has not first approved; or
  • there has been a material reduction in the financial institution’s net tangible assets and the Crown's net liability under that guarantee will or may be materially greater as a result of that reduction.

1.19 Are my deposits still covered if the Crown guarantee is changed or withdrawn?

Updated 12 Oct 2010

Eligible deposits made with an institution approved for the Crown guarantee continue to be covered after any withdrawal of a guarantee until the earlier of the date they become due and payable and the expiry of the guarantee. Withdrawal of a guarantee from an institution does not revoke coverage of the guarantee for eligible depositors who made their deposits prior to withdrawal of the guarantee. New deposits made after withdrawal of a Crown guarantee are not guaranteed. Roll-overs of deposits or investments occurring after the date of withdrawal are deemed to be new deposits and therefore will not be covered in the event they are rolled over.

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