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New Zealand
Finance Company
NZ FINANCE COMPANIES AND LEGAL
FRAMEWORK
Description of legal framework
governing New Zealand Finance
Companies
Definition of terms:
Bank-
means anyone that carries on the
business of banking (Bills of
Exchange Act 1908, Banking Act
Repeal Act 1995 etc.)
Business of Banking-means conducting
current accounts for customers,
where the amounts are repayable to
the customer’s order, and the person
also either collects cheques payable
to the customer or receives funds
from the third parties to the
customer’s current account (no
statutory definition, common law
definition. See Tyree’s Banking Law
in New Zealand, Second Edition,
pages 69-72)
Financial institution-means someone
who carries on the business of
borrowing and lending money,
providing services, or both (Reserve
Bank of New Zealand Act, section 2,
see also Financial Transactions
Reporting Act 1996 (a more broad
definition)
Security-means an equity security, a
debt security, a unit in a unit
trust, an interest in a
superannuation scheme, a life
insurance policy or a participatory
security. (Securities Act 1978)
Issuer-general definition is a
person who issues securities,
however for the purpose of the
Securities Act 1978 a special more
complex definition applies,
resulting in being an issuer
in the general sense and Approved
issuer under the Approved issuer
levy (AIL) scheme but not an issuer
for the purposes of the Act.
Approved Issuer-means an issuer of
debt securities that is approved by
the IRD for the purpose of the AIL
scheme.
Registered bank-means a financial
institution registered by the
Reserved Bank of New Zealand (may or
may not be a bank under the common
law definition).
The
NZ Finance Company is a financial institution (if
it borrows and lends money or
provides financial services or both) if it conducts
a current
account for its customers and makes
and receives payments from such
accounts.
And
issuer of securities (but not an
issuer for the purpose of the
Securities Act 1978) an Approved
Issuer (for the purposes of the
Approved Issuer Levy scheme) but not
a registered bank.
The
NZFC may carry on the business of
banking and provide financial
services and may issue securities to
the public outside New Zealand also. The
NZFC may not use the restricted words
‘bank, banker, or banking’ in its
name or title and may only use them
in its advertising if it also
includes a disclaiming statement
that the NZFC is not a registered
bank. The NZFC may not issue debt
securities to the public in New
Zealand without a registered
prospectus, a supervisory trustee
and the use of investment statements
as per the requirements of part 11
of the securities Act 1978. The NZFC
may not carry on the business of
insurance without placing a deposit
with the Public Trust in New Zealand
as required by the Insurance
Companies (Deposits) Act. The NZFC
may not carry on business as a
futures dealer unless authorized by
the Securities Commission. Share
brokerage requires a sharebroker
license under the Sharebrokers Act
1908, however this does not apply if
the sharebroker is also a bank.
Entitlement to carry on Business of
Banking
Documented sources showing that
financial institutions are free to carry
on the business of banking include:
1.
Legislation
Most
English common law jurisdictions
entry into the business of banking
through a Banking Act e.g. the
Banking Act 1987 in the UK and the
Banking Act 1959 in Australia.
However in New Zealand the Banking
Act 1982 was repealed by the Banking
Act Repeal 1995.
2.
Regulatory authorities and official
sources
Reserve Bank
of New Zealand, in the article
summarizing the regulatory framework
for the New Zealand financial
sector, prepared in the consultation
also with the Securities Commission
and the Ministry of Economic
Development: Unlike in many
countries, where the licensing of
the bank determines what the bank
can do, bank registration in New
Zealand does not determine the
permissible activities of the bank.
In most respects a non- (registered)
bank financial institution can
conduct banking business (including
deposit-taking and lending on
current account) without being
registered bank. Registration as a
bank merely enables the entity to
include ”bank” or a derivative of
that word in its name.
Bulletin Volume 66, number 4, page
26 of the attached, or accessible at
http://www.rbnz.govt.nz/research/bulletin/2002
2006/2003dec66
4mortlock.pdf
Reserve Bank in New
Zealand"- We do not license the
business of banking per se".
Financial
Institutions do not have to be
registered banks in order to take
deposits and make loans. A financial
institution can conduct the business
of banking without being subject to
the Reserve Bank’s prudential
requirements of registered for the
banks, so long as it does not use
word “bank” in its name.
(Alan Bollard,
RBNZ Governor, Financial System
Regulation in New Zealand, Financial
Sector Ombudsman Conference, 25 July
2003, page 5,
http://www.rbnz.govt.nz/finstab/banking/supervision/0137359.pdf
Reserve Bank
of New Zealand: Bank registration
does not involve the licensing of
the business of banking or deposit
taking. It is only if an institution
wishes to call itself a bank that
there is a requirement for it to be
registered for it to be registered
by the RBNZ. Hence non-licensed
institutions are able to take
deposits and conduct other aspects
of the banking business in New
Zealand. (The Role of the Reserve
Bank of New Zealand in Supervising
the Financial System, RBNZ, March
2001,
http://www.rbnz.govt.nz/finstab/banking/supervision/role
financialsys.pdf
–Note: this paper is no longer
current as some aspects of our
banking supervision policy have
change.
3.
Commentaries:
Banking business is
not, however, restricted to
registered banks. While registered
banks’ business must compromise of
borrowing and lending money and/or
the provision of financial services,
any non-(registered) bank
institution may conduct business
that is traditionally regarded as
banking business- such as deposit
taking, the provision of credit and
the offer of cheque accounts and may
be regarded as a “banker” for the
purposes of mutual common law rights
and duty of the banker- costumer
relationship. Tyree’s Banking Law in
New Zealand. Second Edition. Pages
8-9
Approved Issuer
The NZFC
status as an approved issuer will be
obtained and documented in each
instance, as in the example company
documents above. The Approved Issuer
levy (AIL) scheme enables the issuer
to pay interest on registered debt
securities to non-residents of New
Zealand for tax purposes without
disclosure to the IRD and without
deduction of Non-Resident
Withholding tax (NRWT). We register
Saving Account and Term Deposit as
classes of securities for the
purpose of the scheme for each NZFC,
as in above example. Note: this
scheme only applies to debt
securities, equity securities are
subject to NRWT and the company
itself is subject to income Tax. The
issuer must pay a 2% AIL on the
interest on such securities in lieu
of NRWT. See
http://www.ird.govt.nz/resourses/file/ebc1eb4f43d41f3/ir395pdf
for the official guide from the IRD
about the scheme.
Entitlement to Borrow and Lend
Money and Provide Financial Services
Documents showing that most types of
financial institutions need not be
registered, licensed, approved or
authorized
1.
Legislation
Various entity related legislation
exist for different types of
financial entities, including:
.
Reserved Bank of New Zealand Act
1998-for registered banks and their
prudential supervision by the
Reserved Bank of New Zealand
. Unit Trusts Act
1960-for Unit Trusts for the
regulation of Unit Trusts and
requires registration of the trust
deed with the District Registrar (of
Companies)
. Life Insurance Act
1908- for life insurance companies,
includes requirements to make
deposit with Public trust
. Building Societies
Act 1965-requires the registration
of Building Societies
. Insurance
Companies’ Deposits Act
1953-requires insurance companies to
make deposit with the Public Trust
. Friendly Societies
and Credit Unions Act 1982-requires
the registration of Credit Unions
and the similar entities.
. Securities Markets
Act 1988-requires the registration
of stock exchanges and the
authorization of futures dealers.
. Superannuation
Schemes Act 1989-requires
registration of superannuation
schemes.
. Secondhand Dealers
and Pawnbroker Act 2004-requires
pawnbroker to be licensed (other
types of lenders need not have a
license, and the licensing only
relates to non-objection by the
Police)
There is no requirement for
companies that carry on the business
of borrowing and lending money
and/or providing financial services
to register or obtain approval or
license if they do not want to use
the word Bank in their name and do
not carry on the business of
insurance or pawn brokerage.
Some roles in registered or
authorized entities are restricted
e.g. manager and custodians of unit
trust must be approved by the
Securities Commission.
Activities related legislation
includes the Securities Act 1978 in
relation to issue of securities to
the public in New Zealand, the
Credit Contract and the Consumer
Finance act 2003 in relation to
consumer credit.
2.
Regulatory authorities and official
sources
See table 3 of
http://www.rbnz.govt.nz/research/bulletin/2002
2006/2003dec66 4morlock.pdf
as
showing that ‘finance companies’ are
not subject to registration by RBNZ’
supervision by RBNZ’ or other
registration requirement. This table
also show that there no ‘deposit or
other insurance’ and no required
actuarial assessment’ special
insolvency arrangement or mandatory
credit rating requirement’ For the
Securities Act 1978 requirements
shown in the table see below for how
they do not apply to the NZFC either.
Entitlement to Issue Securities to
the Public outside New Zealand
Documents Showing that securities
can be offered to the public in New
Zealand by issuers incorporated,
resident or carrying on business in
New Zealand without part 2 of
Securities Act, concerning
requirements for registered
prospectus, statutory trustee,
investment statement etc, applying.
1.
Legislation
(1)
Part 2 applies to securities
offered to the public in New Zealand
regardless of-
(a)
Where any resulting allotment
occurs:
(b)
Where the issuer is resident,
incorporated, or carries on
business.
(2)
For the purpose of this Act, a
security is offered to a person in
New Zealand if an offer of that
Security for subscription is
received by a person in New Zealand.
Unless the issuer demonstrates that
it took all reasonable steps to
insure that members of the public in
New Zealand may not accept the
offer.
(3)
Section 38B and 58
(except section 58(3) and
(4) also apply to any
advertisement that contains or
refers to an offer of securities to
the public outside New Zealand and
that is distributed or to be
distributed to a person outside New
Zealand by,-----
(a)
in case of section 38B, a
person resident or having a place of
business in New Zealand:
(b)
in case of section 58, a
person resident a principal place of
business in New Zealand.
(4)
For the purpose of subsection (3),
the definition of advertisement and
offer extend to communication or
offers received by persons outside
New Zealand.
(5)
The territorial scope of Part 2
may be further extended under Part
5
(6)
For the avoidance of doubt, nothing
in Part 2 applies to a
security or an advertisement unless
it applies under subsections (1)
to (5), (Securities Act 1978,
Section 7)
This
section show that securities offered
by New Zealand issuers to the public
outside New Zealand are outside the
scope of the Act, and that
requirements of the Act do not apply
in such case. However criminal
liability for untrue statements in
prospectuses or offers of securities
remains.
2
Commentaries:
Securities offered overseas: Nothing
in Part 11 of the Act applies in
respect of any security that is
offered for subscription only to
person outside New Zealand and
persons in New Zealand who can
properly be regarded as having been
selected otherwise than as member of
the public. Guidebook to New Zealand
companies and securities law, 7th
Edition, CCH, Andrew Beck and Andrew
Borrowdale, page 211.
Back
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The
material above has been taken from
material put together by CAPITAL
CONSERVATOR SAVINGS & LOAN LIMITED
and credit is given to them for its
assembly. We have reformatted the
material into a different sequence.
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