New Zealand’s financial sector is a strong backbone that supports the island nation’s vibrant economy. The industry has a rich history and operates under the supervision of several important laws and agencies. Delving into the intricate details of New Zealand’s financial landscape, it becomes clear that understanding its roots, structure and challenges helps to understand its current place on the global stage.
New Zealand Financial Industry Story
New Zealand’s financial system can be traced back to the establishment of banks brought by European settlers in the early 19th century. Initially, the banking sector was dominated by Australian banks. However, local New Zealand banks emerged in the second half of the nineteenth century. The industry has seen a lot of consolidation over the years with a number of mergers and acquisitions that have resulted in a few key players gaining significant positions. This historic integration laid the foundation for today’s New Zealand financial system, characterized by stability, robustness and strong regulation. Key Laws and Institutions of the New Zealand Financial System
1. Reserve Bank of New Zealand (RBNZ): The RBNZ was established in 1934 and is the central bank of New Zealand. Its main functions include issuing currency, implementing monetary policy and monitoring the stability of New Zealand’s financial system. The Reserve Bank of New Zealand also has a supervisory role, overseeing chartered banks and certain financial institutions.
2. The 1989 Banking Act: This Act was important in laying the foundation for modern banking regulation in New Zealand. The Reserve Bank of New Zealand Act 2021 came into effect on 1 July 2022, replacing the previous RBNZ Act 1989.
Under the RBNZ Act 2021, significant changes have been implemented, fundamentally transforming how the Reserve Bank – Te Pūtea Matua operates and is governed.
Firstly, the Reserve Bank is now overseen by an independently-appointed governing board responsible for all decision-making, except for decisions made by the Monetary Policy Committee. The Reserve Bank Governor serves as a member of the Board and also holds the position of Chief Executive.
Secondly, Te Tai Ōhanga – The Treasury now acts as an external monitor, and the Reserve Bank reports to them quarterly on its progress.
Thirdly, the Reserve Bank’s work must now consider a new Financial Policy Remit issued by the Minister of Finance.
Furthermore, there is a commitment to increased transparency through the publication of an annual Statement of Performance Expectations and a Statement of Financial Risk Management.
3. Financial Markets Conduct Act (FMCA) 2013: The FMCA provides a regulatory framework for financial products and services and is a major milestone in New Zealand’s financial regulatory environment. It promotes fair, efficient and transparent financial markets.
4. The 2009 Anti-Money Laundering and Countering the Financing of Terrorism Act (AML/CFT Act): This Act was introduced to implement the international recommendations of the Financial Action Task Force (FATF). It requires financial institutions to put in place strong systems and controls to detect and prevent money laundering and terrorist financing.
The 2008 financial crisis and New Zealand
The global financial crisis of 2008 swept the world, and New Zealand was not immune. Although state-owned banks have remained solvent throughout the crisis, they are under intense pressure, especially from short-term borrowing abroad. In response, the RBNZ has adopted policy measures to increase the stability and resilience of the financial sector. This includes new requirements for banks to hold a greater proportion of their funds in long-term and domestic sources.
FATF and New Zealand commitments
The Financial Action Task Force (FATF) is an intergovernmental body that sets standards and promotes the implementation of effective legal, regulatory and operational measures to combat money laundering, terrorist financing and other related threats. As a member of the FATF, New Zealand is committed to implementing its 40 recommendations on money laundering and combating the financing of terrorism.
The above mentioned Anti-Money Laundering/Combating the Financing of Terrorism Act demonstrates New Zealand’s compliance with FATF objectives. Regular assessments by the Financial Action Task Force ensure that New Zealand maintains robust systems to combat illicit financial activity.
Main banking laws and institutions
1. Deposit Takers Act: This Act applies to all institutions that receive deposits from the public, including banks, building societies and credit unions. The law lays down the rules and regulations that these institutions must follow.
2. Major Banks: New Zealand’s banking landscape is dominated by a few large banks, often referred to as the ‘Big Four’. They are ANZ Bank New Zealand, Westpac Bank New Zealand, Bank of New Zealand (BNZ) and ASB Bank. These banks are owned by Australia and make up a significant portion of the financial industry in terms of assets, deposits and loans.
3. KiwiSaver Scheme: Launched in 2007, KiwiSaver is a voluntary long-term savings scheme that helps New Zealanders save for retirement. With a variety of service providers and public investment, it is an integral part of New Zealand’s financial fabric.
In conclusion, New Zealand’s financial industry combines a long history, strong regulatory framework and flexibility to adapt to changes in the global economy. The industry’s structured approach to regulation, combined with its commitment to international standards set by the FATF, ensures that it remains a resilient and reliable player on the global stage. As the global financial landscape continues to evolve, New Zealand’s financial industry is well positioned to respond to the challenges and opportunities ahead with confidence and knowledge.
(Disclaimer: Please note that the information provided herein is for general informational purposes only and does not constitute financial, investment, tax, legal, or other forms of advice.)