On 18 December 2019, the Minister announced decisions made by Cabinet relating to the governance and accountability arrangements for the Reserve Bank, and in-principle decisions on the regulation of deposit takers and the introduction of a deposit insurance scheme.
Cabinet's decisions on the Review are split into two parts:
- Decisions announced in relation to the governance and accountability arrangements for the Reserve Bank. These decisions will be progressed through an 'Institutional Act'. Key decisions include:
- The Board and the Governor – a governance board will be established that will be responsible for all the functions of the Reserve Bank, except those undertaken by the Monetary Policy Committee.
- Objectives – the Reserve Bank's high-level financial stability objective will be "protecting and promoting the stability of New Zealand's financial system".
- Financial Policy Remit – the Minister of Finance will issue a Financial Policy Remit providing for matters that the Reserve Bank should have regard to when pursuing the financial stability objective.
- Accountability – accountability of the Reserve Bank will be enhanced through greater alignment of reporting and monitoring requirements with state sector practice.
- Funding – the Reserve Bank's funding will continue to be set through a funding agreement. A portion of the Reserve Bank's costs for regulatory functions will be able to be collected through levies charged to regulated entities.
- Monitoring – the Treasury will be the external monitor of the Reserve Bank.
- Coordination – coordination and cooperation among regulatory agencies will be reinforced through mandating the role of the Council of Financial Regulators in legislation.
- In-principle decisions relating to the regulation of deposit takers and the introduction of a deposit insurance scheme. These in-principle decisions will be progressed through a 'Deposit Takers Act'. Key decisions include:
- Depositor protection – deposits will be insured up to a limit of $50,000 per depositor, per institution. The scheme will apply to all institutions that take deposits.
- Single prudential regulatory regime – non-bank deposit takers and banks will be subject to a single prudential regulatory regime, which will allow tailoring of requirements to different entities as appropriate.
- Prudential standards – standards set by the Reserve Bank will be the primary tool for imposing regulatory requirements.
- Director and executive accountability – accountability requirements on directors will be significantly strengthened.
- Supervision and enforcement – the Reserve Bank's supervision and enforcement tools will be strengthened, including with powers to undertake on-site inspections as part of its supervision activities.
- Crisis resolution – the crisis resolution framework will be strengthened and clarified.
Key documents for this update:
To aid the understanding of the Cabinet decisions, the following documents are available:
- Cabinet Paper – decisions relating to the Institutional Act.
- Cabinet Paper – decisions relating to the Deposit Takers Act and depositor insurance.
- Regulatory Impact Assessment on the proposed Institutional framework for the Reserve Bank.
- Review Update
- Questions and Answers
What comes next?
The Review team will consult further on the regime for the regulation of deposit takers and the design of the deposit insurance scheme early next year. The Review team will release documents for a third round of consultation early next year.
Enquiries? Get in touch
For general enquiries about Phase 2 of the Reserve Bank Act Review, please email [email protected].
The Review team will respond to enquiries made through this channel as part of its role leading Phase 2 of the Review.
All media enquiries should be directed to [email protected].