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The Deposit Taker Act 2023 (DTA) received royal assent on 6 July 2023 (Deposit Takers Act - Reserve Bank of New Zealand - Te Pūtea Matua (rbnz.govt.nz)
This kicks off a significant 5-year programme of work for the Reserve Bank and licenced depositor takers (being registered banks and non-bank deposit takers), with some of the important areas of change not coming into force until 2028.
However, from a mass-market customer perspective, the most tangible change the DTA will bring is the introduction of the deposit-taker compensation scheme (DCS) in late 2024.
Under the DTA, for eligible depositors, compensation of up to $100,000 per licenced deposit-taker will be paid if a deposit-taker is determined to be unable to meet its repayment obligations to that eligible depositor.
As outlined further below, we expect this will take significant effort from all stakeholders to be ready in time.
But first, the important but behind-the-scenes and far-away changes
The overriding purpose of the DTA is to protect and promote the stability of New Zealand’s financial system.
There are several important behind-the-scenes changes (at least from a customer’s perspective) brought about by the DTA, most of which will not come into effect until 2028; They are:
In addition, the Reserve Bank will begin consulting on the various standards that depositor takers must comply with under the DTA. Those standards are expected to be issued in late 2027 ahead of the eventual licencing (or re-licensing) of depositor takers under the DTA, which is scheduled to occur in 2028.
While the DTA will require the Reserve Bank to take ‘a proportionate approach to regulation and supervision, as well as ‘the need to avoid unnecessary compliance costs’, it is unlikely that these changes will be ‘cost neutral’ over time for any depositor taker. The impact on non-bank depositor takers, in particular, will likely be material.
DCS, the interesting, tangible, and not too-far-away change
The DCS is particularly significant because New Zealand has never had such a scheme, unlike other jurisdictions such as Australia, the United Kingdom and the United States.
Like most things in life, the DCS is not free; while the Reserve Bank (Government) will backstop the DCS, the intention is that licenced deposit takers will pay levies (amount and methodology yet to be determined), which will, over time, fund or recover any payments that are made under the DCS.
What this means for customers of depositor-takers regarding the interest paid on their deposits going forward will be interesting. Presumably, deposit-takers will seek to ensure their net interest margin is not impacted.
However, to the extent eligible depositors are losing sleep at night worrying about whether their deposits were at risk of not being available (repaid) when needed, from late 2024, they will be able to sleep a bit easier so long it is below $100,000.
In the meantime, those at banks and non-bank deposit-takers (and the Reserve Bank) tasked with implementing the DCS will not be sleeping easy.
Extensive work will be required before October 2024 to ensure: that eligible depositors have been, and can be, correctly identified; the value of the protected deposits can be accurately determined (and capped at $100,000); levies can be correctly calculated; the required information and, if necessary, payments to or from Reserve Bank can be supplied and applied on time.
On top of this, depositor communication and education will be required to ensure the terms of DCS are clearly understood.
That’s potentially a lot of work.
If that is feeling daunting, remember we are all customers of a licenced deposit taker. By 2025, we will all be able to sleep easy, taking comfort that not only does our deposit taker (under CoFI) have to treat us fairly, the risk of the total of any deposits under $100,000 not being available when we need it will be materially lower.
A good customer outcome… but in the meantime, if you would like some help with the DTA interpretation, readiness or solution implementation, feel free to contact us.
