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

Page updated 30 Jul 2010

Disclaimer: The information posted here as Questions and Answers is provided for general guidance only and cannot be relied on as definitive. The full terms of the relevant deeds governing the Crown retail deposit guarantee scheme can be found by clicking the name of the deposit taking institution on the list of approved institutions. The terms of the deeds, (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. 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.

Questions and Answers

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

Updated 23 December 2009

Subject to the expiry of the current deposit guarantee scheme on 12 October 2010 and the expiry of the extended deposit guarantee scheme on 31 December 2011, 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. (see question 1.2); 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the guarantee must not have been withdrawn from that institution at the time you made the deposit or investment; and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 (see question 1.3); and
your deposit must be in an account that is eligible for the Crown guarantee (see question 1.4); and
you must also be an eligible retail investor (see question 1.5).

Special rules:

apply to deposits or investments that exceed the coverage limit (see question 1.7); and
apply to deposits in New Zealand branches of foreign banks (see question 1.7) and collective investment schemes (see question 1.9); and
may apply where the guaranteed institution enters a moratorium with its creditors (see question2.2).

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

Updated 23 December 2009

A list of all institutions participating in the Crown retail deposit guarantee scheme is published here (see question 4.1 for further details on the scheme). 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 Are my deposits a class of deposit eligible for the Crown guarantee?

Updated 23 December 2009

Classes of deposit that are eligible are retail debt securities include:

deposits
term deposits
current accounts
bonds
bank bills
debentures.

Information about deposits in foreign currencies is included in the answer to question 1.8.

Investments by some collective investment schemes (such as unit trusts and Portfolio Investment Entities) are guaranteed if the collective investment scheme had been approved under the retail deposit guarantee scheme. After 12 October 2010, deposits and investments by collective investment schemes will not be guaranteed under the retail deposit guarantee scheme. Also see question 1.9.

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

1.4 Is my account eligible for the Crown guarantee?

Updated 23 December 2009

If you are making a deposit or investment after 1 January 2010, an institution participating in the retail deposit guarantee scheme is able to offer both guaranteed and non-guaranteed accounts. You will need to check:

if the institution is participating in the retail deposit guarantee scheme (see question 1.2); 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.

1.5 Am I an eligible retail depositor?

Updated 30 Jul 2010

For New Zealand-registered banks that are participating in the retail deposit guarantee scheme the Crown guarantee covers both New Zealand resident and non-resident holders of retail debt securities.

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.

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. Please see question 1.15 for guidance about related parties;
a person who is neither a New Zealand citizen nor New Zealand tax resident (unless your deposit is with a registered bank participating in the retail deposit guarantee scheme);
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 (see question 2.9).

In certain limited circumstances some of these people can still be eligible retail investors. Please see answer to question 1.11 for further guidance.

Note: the Crown will not determine whether or not a depositor is eligible unless it has received a claim for payment from the depositor following the default of a financial institution covered by the Crown guarantee scheme. It is not possible before a default for the Crown to provide assurance that any particular depositor satisfies the eligibility criteria.

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

Updated 30 July 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.

For a more detailed discussion of how the eligibility criteria apply to trusts, please see questions 6.1 to 6.10.

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

Updated 30 July 2010

There is currently a coverage limit of $1 million per eligible depositor per institution that may be paid in the event of a default. Where a retail debt security is held jointly, the coverage limit applies to the joint holders collectively and the maximum that can be claimed by the joint holders collectively in respect of debt securities jointly held will be $1,000,000.

After 12 October 2010, a coverage limit of $500,000 per eligible depositor per institution applies if the deposit is with an approved bank and $250,000 if the deposit is with an approved institution that is not a bank (such as a finance company, a building society or a credit union), that may be paid in the event of a default. Where a retail debt security is held jointly, the coverage limit applies to the joint holders collectively and the maximum that can be claimed by the joint holders collectively in respect of their debt security jointly held will be $500,000 per institution if the deposit is with an approved bank and $250,000 if the deposit is with an approved institution that is not a bank.

For approved local branches of overseas banks existing on 12 October 2008, the guarantee for depositors in these branches who are neither New Zealand residents nor New Zealand citizens is further capped at the total amount owed to such depositors at 12 October 2008, plus an allowance for growth of 10 percent per year. New Zealand tax residents or New Zealand citizens are not subject to this cap but remain subject to the relevant coverage limits.

For deposits or investments made from 1 January 2010 up to 12 October 2010, the Crown has discretion to limit its liability where those deposits or investments are made subject to a moratorium.

From 12 October 2010, the Crown also 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.

Different caps apply in relation to qualifying collective investments schemes that are party to a deed of nomination.

The coverage limit for collective investment schemes participating in the retail deposit guarantee scheme applies to the individual investor rather than the collective investment scheme itself. The coverage limit on collective investment schemes holdings applies to joint holdings in the same manner as it is applied to joint holdings of deposits or investments in banks or non-banks.

Please also read question 1.14.

Please read question 6.8 for guidance about how the cap applies to bare trusts.

1.8 Are deposits guaranteed of they are in foreign currencies?

Updated 23 December 2009

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

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

Updated 23 December 2009

Until 12 October 2010, collective investment schemes (such as unit trusts and Portfolio Investment Entities) that are participating in the retail deposit guarantee scheme will be able to claim on the Crown guarantee in the event of a default if they are a “qualifying collective investment” that:

invests exclusively in New Zealand government securities or debt securities issued by institutions that are covered by the Crown guarantee; and
does not increase its investments in guaranteed institutions that are not registered banks beyond the level that existed as at 12 October 2008; and
its rules ensure that any money paid under the guarantee is only distributed to members who are eligible retail depositors.

Collective investment schemes that are offered by institutions participating in the retail deposit guarantee scheme are not automatically covered by the Crown guarantee; they have to be individually approved to participate in the retail deposit guarantee scheme.

After 12 October 2010, collective investment schemes will no longer participate in the retail deposit guarantee scheme and members of collective investment schemes will not be covered by the Crown guarantee.

1.10 What is the eligibility status of some of the more common retail investment products?

Updated 30 Jul 2010

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 Crown 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.

Please read question 6.2 for a definition of a bare trust.

Deposits managed by a financial institution 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.

Deposits held by a financial institution through 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.

Please read question 6.2 for a definition of a bare trust.

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

Updated 30 Jul 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. However a financial institution that is a holder of a retail debt security issued by an institution that is a member of the extended 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;
the person is a share broker, an investment adviser or a fund manager, but that person is not acting in that capacity; and
the Crown has nominated that financial institution (by itself or as a sub-class) as an eligible retail investor.

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.

Please read question 6.2 for a definition of a bare trust and question 6.4 for how the eligibility criteria apply to bare trusts.

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. For example, an individual who is a New Zealand citizen or a New Zealand tax resident acting as a trustee in a family trust, will not normally have a valid claim under the Crown guarantee if one or more of the beneficiaries under that trust is a financial institution, a related party or who is neither a New Zealand citizen nor a New Zealand tax resident. Nevertheless, the Crown may allow claims in this situation where those claims relate to investments made on or after 1 January 2010. In determining whether such claims would be accepted the Crown will have regard to the identity and nature of the beneficiaries and the number of beneficiaries of the trust who would have been eligible if they had been able to claim in their own right.

Joint holders

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

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

Updated 30 Jul 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, among other things:

when the person died; and
whether the deceased person made the deposit or the estate’s administrator/executor made the deposit.

The Treasury is currently developing a process to robustly and fairly assess eligibility for payment to deceased estates.

Please read question 1.5 for guidance about standard eligibility and questions 6.1 to 6.10 for guidance about trusts.

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

New on 30 Jul 2010

When an eligible deposit with an institution approved for the Crown retail deposit guarantee scheme is held by two or more people jointly:

if it was deposited before 1 January 2010, the joint holders will generally be eligible provided at least one of the joint holders is an eligible retail depositor;
if it was deposited on or after 1 January 2010, the joint holders will generally be eligible provided at least one of the joint holders is eligible 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. Please see question 1.7 for information about maximum amounts that can be repaid.

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

New on 30 Jul 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. Please see question 1.7 for information about maximum amounts that can be repaid by the guarantee under the respective guarantee schemes.

1.15 What is a related party?

New on 30 Jul 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 ownership 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 and as supplemented by the deeds of guarantee for each approved deposit taking institution.

1.16 Is a deceased person’s estate eligible for the Crown guarantee if the deposit is with Mascot Finance or Strata Finance?

New on 30 Jul 2010

This guidance applies only to deposits with Mascot Finance Limited or Strata Finance. Mascot defaulted on 2 March 2009 and Strata defaulted on 16 April 2009.

1.16a Death after the date that the guaranteed deposit taking institution defaulted

If the deceased person died after the date of default, the key question is whether the deceased person was themselves an eligible depositor under the standard eligibility criteria.

If the deceased person was eligible in their own right, then the deceased person’s estate can be eligible, but only if each of the beneficiaries under the will would have been an eligible depositor in their own right, had they themselves been the depositor. The status of the executor or administrator is not relevant. However, if one of the beneficiaries is not eligible, then the deceased person’s estate will not be eligible for repayment under the Crown guarantee.

If the deceased person was not 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 status of the executor/administrator and the beneficiaries under the will is not relevant.

1.16b Death before the date that the guaranteed deposit taking institution defaulted

If the deceased person died before the date of default, the key question is whether the deceased person was themselves an eligible depositor under the standard eligibility criteria.

If the deceased person was themselves an eligible depositor, the focus turns to the beneficiaries under the terms of the will or recognised by law. If each of the beneficiaries would have been an eligible depositor in their own right, had they themselves been the investor rather than the deceased person, then the deceased person’s estate will be eligible for repayment under the Crown guarantee regardless of whether or not the executor or administrator is eligible. The eligibility status of the executor/administrator is not relevant.

If the deceased person was themselves an eligible depositor, but just one of the beneficiaries is not eligible, then the deceased person’s estate will not be eligible. The status of the executor/administrator is not relevant.

If the deceased person was not themselves an eligible depositor, then the eligibility of the deceased person’s estate will depend on the status of both the executor/administrator and the beneficiaries. Because the executor/administrator is holding the deceased person’s deposit on trust for the beneficiaries under the terms of will, the eligibility rules that apply to trusts apply to the executor/administrator and beneficiaries. Please read questions 6.1 to 6.10 for guidance about trusts.

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