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 over the medium term, with a focus on keeping average inflation near 2%. 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.
Among the wide range of financial institutions in New Zealand are banks, building societies, private savings banks, merchant banks, finance companies, trust and mortgage companies, small loan companies and insurance companies.
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 25 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 Bank New Zealand 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, New Zealand Post).
Finance sector regulation
Any person who advises on financial products, provides an investment planning service, 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, banks, securities issuers, KiwiSaver managers, custodians, money managers, credit contract providers, credit card providers, travellers cheque providers, currency exchanges, insurers, trustees, listed companies, issuers of derivatives to the public and foreign exchange dealers. Generally the FSPA will not apply to financial service providers who reside outside New Zealand and provide financial services in New Zealand.
Securities trustees and statutory supervisors are registered under the Securities Trustees and Statutory Supervisors Act 2011. Insurers are regulated by the Insurance (Prudential Supervision) Act 2010.
In August 2013, the Financial Markets Conduct Act (FMCA), described as a “once in a generation” rewrite of capital markets law, was passed and came into effect progressively from April 2014. The FMCA governs how financial products are created, promoted and sold as well as the responsibilities and behaviour of those who work with them. Market participants have up to 24 months from 1 December 2014 to comply with the new disclosure and governance requirements.
The Anti-Money Laundering and Countering Financing of Terrorism Act sets out the current anti-money laundering regime, requiring financial institutions to carry out customer due diligence, identity verification and suspicious transaction reporting. The regime reflects the Financial Action Task Force Recommendations.
The New Zealand Exchange (NZX) regulates and facilitates New Zealand’s four securities markets, as follows.
NZX Main Board
The NZX Main Board 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 155 companies listed on the NZX with a combined market capitalisation of approximately NZ$100 billion (at 31 March 2015).
The NZX Main Board is suited to large and established enterprises. To list on the NZX Main Board 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 NZX without complying with a number of these requirements.
The NZX Main Board is the first of the world’s markets to open each day, due to New Zealand’s proximity to the International Date Line.
NXT and the NZX Alternative Market
NZX has recently established a new market - NXT - for small to medium sized companies (with an expected market capitalisation of more than $10 million and less than $100 million). Companies can apply to list on NXT, either in conjunction with a capital raising (in which case at least $5 million must be raised) or as a compliance listing where no capital is raised. In general, NZX will encourage companies with an anticipated market capitalisation of $50 million or less to list on NXT rather than the NZX Main Board. To be eligible for NXT, companies must also meet minimum spread requirements (have at least 50 shareholders who are members of the public who, together, hold at least 25% of the applicant’s shares). NXT offers lower standards of compliance and corporate governance requirements, and lower costs, than the NZX Main Board.
NXT is intended to be a long-term replacement for the existing NZX Alternative Market (which had been available to small to medium sized companies). NZX is not accepting new listings for the NZX Alternative Market and is actively promoting the migration of eligible NZX Alternative Market companies to NXT. It is likely that NZX will disestablish the NZX Alternative Market in the medium term.
NZX Debt Market
The NZX Debt Market provides investors with a transparent and liquid market to buy and sell debt securities. Debt securities which may be offered on the NZX Debt Market 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)
- corporate bonds and debentures
- money market instruments, including treasury bills, bank medium term notes, 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 Australian Securities Exchange (ASX), in relation to:
- electricity futures and options at the Otahuhu and Benmore grid reference points
- 90 day bank bills
- three and 10-year government stock, and
- 30-day official cash rate bonds.
The NZX is in the course of establishing an exchange traded equity options market, which will initially have share options in Fletcher Building, Spark and Trade Me.
To enter into futures and options contracts with, or on behalf of, members of the public a dealer must be licensed by the Financial Markets Authority and comply with the Financial Service Providers (Registration and Dispute Resolution) Act 2008 and with the regulated offer disclosure regimes and (where applicable) the property custody requirements of the Financial Markets Conduct Act 2013 (FMCA) and the FAA.
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.
New Zealand operates a very open regime. Borrowers may raise finance 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.
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.