Proposed duty for directors of deposit takers

The government is one step closer to introducing a new prudential framework for deposit takers in New Zealand.

In late April, the government announced high-level policy changes that will form the basis of a new Deposit Takers Act (replacing the Reserve Bank of New Zealand Act). A key change is the decision to decouple key director responsibilities from the existing disclosure requirements and the attestation process including through the creation of a new high-level director duty. 

The duty will require directors to ensure that there are “adequate systems, processes and policies in place to ensure the deposit taker complies with its prudential requirements and obligations". There will be a defence for directors if they can show they took reasonable steps to meet their obligations.  

This duty is similar to the new due diligence duty for directors and senior managers under the Credit Contracts and Consumer Finance Act.

Directors will be able to take out personal insurance to protect themselves in the event of a breach. However, the entity itself won’t be able to insure or indemnity the director.

Alongside this, there will be an “executive accountability regime” that extends the individual accountability framework beyond directors to senior employees. This regime will apply to deposit takers and insurers, and will cover both prudential and conduct matters. This is being developed separately (outside of the Phase 2 Review process for deposit takers).

The government has announced that drafting of the new Deposit Takers Act has begun and a bill is expected to be introduced into Parliament by the end of the year.

For more on the reforms see:

• the Treasury’s website 
• the RBNZ website
• the IoD’s submission on Phase 2 of the Reserve Bank Act Review – Consultation 3.