'Fit and proper' owner test proposed for finance companies

Friday 8th October 2010 1 Comment

The Reserve Bank is proposing that a "fit and proper" person test be added to the hoops that all non-bank deposit-takers will have to jump through from later this year.

With the first round of the retail deposit guarantee is due to expire next week, the RBNZ today released a discussion paper to further toughen the regulatory regime applying to finance companies, credit unions and building societies from December.

The "fit and proper" test for ownership would be added to similar benchmarks for the executives and directors of non-bank deposit-takers, whose previously lenient regulation is blamed for a spate of collapses over the last four to five years.

The retail deposit guarantee scheme was extended to non-bank deposit-takers as part of the government's response to the global financial crisis, and was called on by South Canterbury Finance after it failed to find a new investor by August 31.

Its first phase expires next week. The few finance companies and credit unions that have elected to stay in the scheme until the end of next year face much steeper fees in the next phase.

"In the absence of a government guarantee, it is vital that depositors understand the risks and the potential trade-off between risk and return," Governor Alan Bollard said in a statement.

"The more stringent regulatory regime for deposit-taking institutions will be a further catalyst for change."

In this year's first financial stability report, the central bank flagged the end of the guarantee as a threat to finance companies' liquidity, joining accounting firm KPMG and rating agency Standard & Poor's in predicting consolidation in the sector after a series of collapses over the past five years.

Bollard said there had been an improvement among finance companies, particularly the larger institutions with stronger balance sheets, while savings institutions such as credit unions and building societies had performed soundly through the downturn.

The bank is also pitching for stronger powers to compel firms to provide it with information, and to give direction of an institution poses a threat to New Zealand's financial stability.

It's calling for submissions on the idea.

From December, most non-bank deposit takers will have to have a credit rating from one of the three major rating agencies, governance arrangements to ensure investors are protected, risk management programmes to identify weaknesses in the business, minimal capital requirements included in trust deeds, restrictions on related party lending, and liquidity provisions to more cash on hand.

Businesswire.co.nz

Comments from our readers

On 10 October 2010 at 6:32 pm gee said:

are these the same credit ratings the big banks in the usa had when some of them went belly up?. credit rating, altogether now-HA HA HA HA............