The Reserve Bank of New Zealand
The Reserve Bank of New Zealand is New Zealand’s central bank. Its primary function is to formulate and implement monetary policy with the aim of achieving and maintaining price stability.
Policy targets are set to achieve this; these are currently defined as maintaining underlying inflation within a 1-3% range. The Bank is required to publish a monetary policy statement every quarter.
The Reserve Bank’s other functions are:
- maintaining the note and coin issue and the public debt and forex reserves
- advising the Government on matters relating to monetary policy, banking credit and overseas exchange
- licensing and the prudential supervision of banks and insurers, and
- regulating non-bank deposit takers.
Financial institutions
Among the wide range of financial institutions in New Zealand are banks, building societies, private savings banks, merchant banks, finance companies, stock and station agents, trust and mortgage companies, small loan companies and insurance companies.
The New Zealand Government operates both retail and wholesale deposit guarantee schemes.
Banks
Following substantial de-regulation of the banking industry, New Zealand has maintained a relatively open policy on the entry of new registered banks with the philosophy that greater competition leads to greater efficiency and innovation.
There are currently 19 registered banks operating in New Zealand, representing a particularly high banks per capita figure by international standards. Not all of these banks operate full retail banking businesses.
The banks with the largest operations in New Zealand are:
- ANZ National Bank Limited
- ASB Bank Limited
- Bank of New Zealand
- Westpac (through Westpac New Zealand Limited and Westpac Banking Corporation), and
- Kiwibank (which is owned by and run through New Zealand’s postal operator).
Finance sector regulation
Any person who advises on financial products, provides an investment planning service in New Zealand, makes investment management decisions on behalf of another person under an authority or receives, holds, pays or transfers client money is subject to disclosure requirements and conduct obligations under the Financial Advisers Act 2008 (FAA).
Persons providing services relating to more complex products will generally also have to become authorised by the Financial Markets Authority and meet qualification, training and competence requirements. Persons providing services on simpler products will generally need to be registered in New Zealand. The FAA applies regardless of the country in which the person performing the services resides.
The Financial Service Providers (Registration and Dispute Resolution) Act 2008 (FSPA) requires that any person or entity which provides a financial service is registered on the Financial Service Providers Register and (if they provide financial services to the public) is a member of a dispute resolution scheme. This includes financial advisers under the FAA, securities issuers, KiwiSaver managers, custodians, money managers, credit contract providers, credit card providers, travellers cheque providers, currency exchanges, insurers, trustees, listed companies, and foreign exchange and futures dealers. Generally the FSPA will not apply to financial service providers who reside outside New Zealand and provide financial services in New Zealand.
Separate licensing of securities trustees and statutory supervisions is currently proposed under the Securities Trustees and Statutory Supervision Bill, and is expected to be introduced by 2012.
New Zealand is also in the process of introducing new licensing and prudential supervision of insurers. Provisional licences are generally required by March 2012, and full licences by September 2013.
The Financial Transactions Reporting Act sets out the current anti-money laundering regime, requiring financial institutions to carry out customer due diligence, identity verification and suspicious transaction reporting. An expanded regime is expected to be introduced in 2013, under the Anti-Money Laundering and Countering Financing of Terrorism Act.
Financial markets
The New Zealand Exchange (NZX) regulates and facilitates New Zealand’s three securities markets, as follows:
NZSX – New Zealand stock exchange
The NZSX Market is New Zealand’s principal market for equity securities. It features the securities of the majority of New Zealand’s listed companies and a number of overseas companies. There are approximately 200 companies listed on the NZSX with a combined market capitalisation of approximately NZ$46 billion.
The NZSX Market is suited to large and established enterprises. To list on the NZSX Market the company must, among other things, have an appropriately qualified board of directors, at least 500 shareholders who hold at least 25% of the class of securities between them, and comply fully with NZX disclosure and other requirements. NZX also recommends that such companies have annual revenue of at least NZ$50 million. In certain situations, securities of overseas issuers which are listed on a recognised overseas stock exchange can be dual listed on the NZSX without complying with a number of these requirements.
The NZSX Market is the first of the world’s markets to open each day, due to New Zealand’s proximity to the International Date Line.
NZAX – New Zealand alternative market
The NZAX Market is designed for use by small to medium sized companies (with a minimum of 50 shareholders and recommended annual turnover of between NZ$5 million and NZ$50 million), which are fast-growing or looking for additional sources of capital.
The NZAX Market is also suited to non-standard companies or entities such as co operatives and mutual societies. The NZAX Market has a non-standard listing function that allows for closed trading for companies that have a defined group of shareholders.
In comparison with the NZSX Market, the NZAX Market has lower levels of compliance and corporate governance, and lower costs associated with listing.
NZDX – New Zealand debt market
The NZDX Market provides investors with a transparent and liquid market to buy and sell debt securities. Debt securities which may be offered on the NZDX include:
- government bonds
- state-owned enterprise bonds (bonds issued by companies owned by the Government, and thus similar to government bonds but trading at slightly higher yields)
- local authority stock (issued by city councils and regional councils, etc)
- corporate bonds and debentures
- money market instruments including treasury bills, bank bills, promissory notes and certificates of deposit
- capital notes
- perpetual notes, and
- preference shares.
Futures and options market
New Zealand futures and options contracts are currently traded on the Sydney Futures Exchange, in relation to:
- the NZSX index of top 15 shares
- share options in Contact Energy, Fletcher Building, Telecom and The Warehouse Group
- 90 day bank bills
- three and 10-year government stock, and
- 30-day official cash rate bonds.
Dealing in futures and options contracts requires authorisation from the New Zealand Securities Commission, and dealers will be required to comply with a new conduct and disclosure regime under the Financial Advisers Act 2008, and the registration and dispute resolution scheme membership requirements of the Financial Service Providers (Registration and Dispute Resolution) Act 2008.
Foreign exchange market
There are no restrictions on the buying and selling of foreign currencies. The New Zealand banking system offers a full range of foreign exchange services including spot, forward, futures, options and the more sophisticated derivative products.
Raising finance
New Zealand operates a very open regime. For businesses operating in New Zealand, there are no exchange controls, licensing, approval or similar regulatory restrictions on on-shore or foreign borrowing or fund-raising.
Borrowers may raise finance both on and off-shore and in the currency of choice. Banks are actively engaged in the provision of short and medium-to-long term debt to the consumer, commercial and corporate sectors. Market forces determine the level of interest rates.
Equity finance is available through issuing shares and listing on the NZSX or NZAX. Public offerings are regulated by the Securities Act 1978 and other securities legislation, and are generally made pursuant to a prospectus and an investment statement (although simplified disclosure can be made in certain circumstances).
Repatriation of funds
There are no restrictions on the repatriation of capital or earnings of a New Zealand business to overseas investors. This includes the remitting of dividends, profits, interest, royalties, management fees, etc. In many cases, however, non-resident withholding tax will be required to be deducted from the amount of those payments. For more information on New Zealand tax, please refer to the chapter on Taxation.