Latest news with #DepositorCompensationScheme
Scoop
21-05-2025
- Business
- Scoop
Depositor Compensation Scheme Transitional Provisions Standard Published
The Reserve Bank of New Zealand - Te Pūtea Matua has published a Transitional Standard, outlining how deposit takers must collect and store customer information in the event of a deposit taker failure so that they can ensure timely payments. The Deposit Takers (Depositor Compensation Scheme Transitional Provisions) Standard 2025 comes into force on 1 July 2025 and sets out how deposit takers should gather alternate bank details from depositors in the event of a failure, so that Depositor Compensation Scheme (DCS) payments can be made as quickly as possible. Deposit takers that provide online software for their depositors to view or manage their accounts, such as internet or mobile applications, must have a pre-positioned DCS depositor page that can be easily accessed on these platforms in the event of a failure. This requirement comes into effect on 1 July 2025 for non-mobile based platforms, and on 31 December 2025 for mobile-based applications. The DCS depositor page will be used to collect customers' alternate bank account details so that DCS payments can be made into an active bank account at another deposit taker. Having a prepositioned DCS depositor page improves the user experience in the event of a failure as depositors will be able to verify their identity through their normal online process and enter their alternate account details. This should make the payment process faster and reduce risks associated with having to verify the identity of depositors on a separate platform. The Transitional Standard also sets out an alternate model for collecting customer data if deposit takers can collect the required information more efficiently using a different approach. Deposit takers have the option to submit a written proposal to the RBNZ that outlines their proposed alternate method for collecting depositor information securely from authorised individuals other than via a DCS depositor page. The RBNZ consulted on a draft of this Transitional Standard between 6 December 2024 and 7 February 2025 and received 10 submissions from a combination of deposit takers and industry bodies.
NZ Herald
09-05-2025
- Business
- NZ Herald
Will new guarantee scheme mean non-bank deposits offer a golden ticket to higher returns?
So why shouldn't we all invest in non-bank deposits after July 1 – up to $100,000 per provider – given that if the finance company goes broke, we will be compensated under the DCS? To use another common saying – which apparently dates way back to one of Aesop's Fables – look before you leap! The Reserve Bank has published a list of deposit takers that will offer protected deposits at But it points out: 'Deposit-takers can offer a mixture of protected and unprotected deposits.' From July 1, deposit-takers will have to keep a list of protected deposits on their website 'and we recommend that people speak with their deposit-taker if they are unsure whether their deposits will be covered by the DCS', the Reserve Bank (RBNZ) says. There also are a couple of other issues: Will it be a hassle to get your money back if a deposit-taker fails – which is probably more likely for a non-bank than a bank? 'If a deposit-taker fails, depositors will be contacted by either the RBNZ or a third party (such as a receiver or liquidator on behalf of [the] RBNZ) with the steps they need to take to receive their DCS payment,' the Reserve Bank says. 'Depositors will need to set up a bank account at another deposit-taker if they don't have one already. They will be provided with instructions on how to submit these account details to the RBNZ so their DCS payment can be made. '[The] RBNZ will need time to process data that is received from the failed deposit-taker, to make sure all eligible depositors receive the correct amount they are entitled to, and to ensure compensation is being paid into the correct account.' How long might it take before you got your money back? 'The RBNZ will work to process DCS payments as quickly as possible, but it could take some time, especially for more complex cases,' the Reserve Bank says. It adds that it will advise on likely timeframes in its communication on a payout. Will the difference in bank and non-bank interest rates continue? When you emailed me, a week or so ago, you mentioned a finance company that was offering 5.8% on a nine-month term deposit. But when I checked whether that was still accurate, their rate had dropped to 5.1%. Logic tells us that non-bank deposit-takers won't have to offer such a big premium in their interest rates, for deposits of up to $100,000, once their customers are guaranteed to get their money back. The rates will probably still tend to be higher than banks offer, because people are less familiar with the companies, and there's the hassle factor mentioned above if they fail. But I predict the gap will lessen. Mind you, banks may also pay somewhat lower interest. Their term deposits will be more attractive – relative to other investments – because of the DCS, so there will be less need to entice people with high rates. What could go wrong? Q: In light of the start of the Depositor Compensation Scheme (DCS) on July 1 giving $100,000 protection to investors in term deposits, an expansion of the protections around KiwiSaver and other managed funds in the event of the failure of a bank that manages such funds might be helpful to your readers. Provided the fund is not directly invested in the same bank's products – say, it invests in a diversified share portfolio – the fund should not be significantly impacted if the bank fails. All that is needed is the appointment of some other fund manager – unless there is fraud or other criminal activity or, for example, inept management of fund member records, in play. However, if the fund invests in the same bank's term deposits, the fund will likely be severely affected. PIE fund term deposits in the same bank may well be a case in point, but I leave it with you to clarify or confirm that one. A: The DCS protects 'debt securities of eligible depositors', the Reserve Bank says. These include everyday bank accounts and savings accounts, term deposits and the like. It adds: 'Some banks offer cash and term PIEs that invest only in debt of that bank, and many depositors will view this interchangeably with regular call or term deposit products' and they may also be covered. 'Deposits-takers will be required to have a list of protected products, which may include cash and term PIEs' from July 1, 12025, the Reserve Bank says. As mentioned above, if in doubt, ask your bank or other deposit-taker. What about a bank's KiwiSaver fund that invests only in that bank's securities? I don't think there is such a creature, but what if one was created? 'No KiwiSaver funds are intended to be a captive cash PIE or protected by the DCS,' the Reserve Bank says. On the failure of a KiwiSaver provider, every provider has a supervisor, a separate company, that monitors what it does. I asked the Financial Markets Authority (FMA) several questions about this: What would happen if a KiwiSaver fund got into financial trouble? 'Under the law, fund managers are required to notify the supervisor if they are, or are likely to become, insolvent,' the FMA says. 'The supervisor is responsible for monitoring the manager's performance of its functions and obligations, as well as its financial position. 'In the event that the licensed fund manager becomes insolvent or is otherwise unable to continue operations, the supervisor has the power to appoint a temporary manager to ensure the continued management and operation of the fund until a permanent replacement is appointed. 'Importantly, investor assets are held separately in trust by an independent custodian (either the supervisor or a third-party custodian appointed by the supervisor, distinct from the manager) which provides an additional layer of protection.' Okay, but what might happen to KiwiSaver members' accounts if fraud or criminal activity was found? 'The licensed fund manager has a general duty to act in the best interests of investors, along with a specific fiduciary duty to exercise care, diligence and skill in carrying out its responsibilities,' says the FMA. 'Managers are expected to maintain appropriate systems and controls to manage operational risks, including those arising from fraud and criminal activity. The supervisor oversees the design and effectiveness of these controls to help safeguard investor assets from such risks. 'So where a loss arises due to fraud linked to a failure by the manager to exercise reasonable care and diligence, the manager may be held liable and required to compensate affected members.' There's an exception to this, though. 'If a loss results from a member's own actions – such as sharing log-in credentials or falling victim to a scam – the manager cannot generally be held responsible and the outcome will depend on a case-by-case basis.' Is it possible the manager could go bankrupt in the process, so that KiwiSaver members lose some of their money? 'It is possible, but in our view unlikely,' the FMA says. 'KiwiSaver providers are obliged to act with care, diligence and skill and this includes managing known risks. Typically, this will involve professional indemnity insurance, strong capital positions, a parent company guarantee or other similar arrangements. Supervisors are responsible for monitoring these arrangements.' What else could go wrong? Q: Recently, Australian superannuation funds have been hit by a cyber attack, and it makes me think about how secure our KiwiSaver retirement funds are in this digital world with artificial intelligence (AI) technology and deepfakes that could be so real. In a worst-case situation and if our providers are being hacked, are our funds insured and will the provider return the money lost through a cyber attack? A: KiwiSaver money is not insured. Still, while it's possible you could lose your money this way, it's unlikely, the FMA says. 'KiwiSaver providers are required to maintain robust business continuity planning and technology systems to mitigate risks such as cyber attacks,' it says, adding that this has been a standard license condition since July 1, 2024. 'Regulatory settings, supervision arrangements and insurance reduce risks to investors.' So, there we have it. In all these scenarios, KiwiSaver members could lose money – although it's unlikely. How does the FMA advise people to reduce this risk? 'The FMA encourages all members of KiwiSaver to remain engaged with their provider and financial adviser (if any) and to stay informed and exercise caution to protect themselves against scams and fraudulent activity. 'Many KiwiSaver providers provide useful information to raise investor awareness on safeguarding personal information and detecting fraud/scams. Good personal cyber security practices and vigilance are important complements to the broader regulatory protections in place.' Footnote: I hope you and other readers are comforted – rather than alarmed – by all this. I would hate to see people staying out of KiwiSaver for fear of something highly unlikely happening. If you're that much of a worrier, you probably shouldn't be in a car, train or bus either. The risk of harm while commuting or travelling is almost certainly higher. Surprisingly negative Q: I have just read the first Q&A in last week's column, 'Juggling finances', and your response was quite negative, which I find surprising as most if not all the time you come across as quite positive in your responses. At the end of the day, the things you pointed out – like the house falling down a cliff – never happened to the writer. If we all go about thinking like that then no one would ever take any risk on anything in life, let alone finance. After coming back from spending a few years in Australia, I finally get why us Kiwis are so negative about things. Maybe it's time you had a holiday. A: Thanks for your concern about my welfare! I do try to be positive about most things. But I'm not keen on someone saying how well they have done with their investments if it might lead to others copying their tactics but not their success. If positivity means encouraging people to take unnecessary risks they don't really understand – such as trying to time markets – count me out. As for the Aussies, I spent two years in Sydney a long time ago and enjoyed it. But they have their fair share of whingers. I'm happy to be back here. PS: this column has turned out to be rather gloomy. Will try for brightness next week! Keep account open Q: I know it's not ideal but I will soon need to withdraw most of my KiwiSaver balance. I am over 65 so this is possible and I have committed expenses. At this uncertain time, the current balance is fluctuating or falling. It has already fallen about $1000. I don't want to close the account as I hope to be able to add funds again in a few months. If I left say $500 in the account and it then fell again, will the account stay active until it recovers or I add more funds? A: By the time you read this – a couple of weeks after you wrote to me – your balance may have recovered. More importantly, over the years you've probably done pretty well. Most KiwiSaver members have. That aside, I agree that it's better to keep your account open. KiwiSaver is a good place for retirement money. And even if you leave just a few dollars in there in the meantime, your balance shouldn't go to zero unless all the fund's investments fail, which is hard to imagine. So yes, the account should stay active. * Mary Holm, ONZM, is a freelance journalist, a seminar presenter and a bestselling author on personal finance. She is a director of Financial Services Complaints Ltd (FSCL) and a former director of the Financial Markets Authority. Her opinions do not reflect the position of any organisation in which she holds office. Mary's advice is of a general nature and she is not responsible for any loss that any reader may suffer from following it. Send questions to mary@ Letters should not exceed 200 words. We won't publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.
NZ Herald
09-05-2025
- Business
- NZ Herald
Deposit scheme reduces risk, boosts trust
On July 1, New Zealand launches its Depositor Compensation Scheme (DCS), a transformative policy aimed at protecting savers and rebalancing the financial sector. Designed to safeguard up to $100,000 per depositor, per licensed institution, in the event of a bank or deposit-taking institution's failure, the DCS brings New Zealand in line with international standards, particularly those of OECD nations. Brent King, managing director of General Finance, calls this 'a very positive development' for investors and deposit-takers alike. Together with greater access to the Exchange Settlement Account System (ESAS), which enables licensed non-bank deposit takers to settle directly with the Reserve Bank, the DCS reshapes the landscape for smaller financial institutions. Mandated under the Deposit Takers Act 2023, the DCS ensures that if a licensed deposit taker – such as a bank, credit union, building society, or finance company that accepts retail deposits – fails, eligible depositors receive up to $100,000 of their savings quickly. This coverage is per depositor, per licensed deposit taker, and applies to accounts like savings, transaction and term deposits, covering individuals, companies and trusts. Unlike investments such as shares, the scheme focuses solely on deposits, offering automatic protection without requiring registration. 'In simple terms, DCS protects investors, making deposits in companies offering returns more attractive because risk is reduced,' explains King. 'But this only covers the first $100,000, so some investors might spread their money across multiple companies to protect more of their investment.' Funded by levies paid by deposit takers, the DCS builds a reserve over time, with the Reserve Bank of New Zealand (RBNZ) overseeing its management. Should the fund fall short during a crisis, the Government steps in as a backstop – though the long-term goal is industry self-sufficiency. King emphasises its practicality: 'The idea is that protecting a portion of a DCS qualifying investment gives people enough to get through the next stage in the event of a company failure. It's not about making you whole, but ensuring you can pay groceries, rent, or power bills.' Finance company failures are rare but not unheard of. Echoes of Hanover Finance still linger. Lacking the capital access of the 'big four' banks (ANZ, ASB, BNZ and Westpac), smaller or innovative players in the financial sector face greater risk. King describes the DCS as overdue, addressing a long-standing gap in New Zealand's financial system. Previously, the country relied on mechanisms like the Open Bank Resolution (OBR) policy, which could freeze accounts during a bank failure, leaving depositors stranded. 'For example, if your pay was going into a frozen account, things would quickly become very difficult,' King notes. The DCS prevents such scenarios, ensuring liquidity while authorities assess broader solutions. The absence of such a scheme created an implicit assumption that the Government would bail out major banks, tilting the market heavily toward the 'big four'. Smaller players, including General Finance, faced a trust deficit despite offering competitive rates. The DCS changes this dynamic. 'It may not entirely level the playing field, but it tilts it toward smaller finance companies seeking to innovate and compete,' King says. 'Investors can now place money with downside risk of basically zero for the protected amount.' Bank failures are erratic, often tied to rare events like the Global Financial Crisis, occurring roughly every 15–17 years. The RBNZ is still refining the levy system, which deposit takers like General Finance will fund to build the DCS reserve. The DCS dovetails with other RBNZ developments, adds King, including ESAS, which enables direct settlements with the Reserve Bank for non-bank deposit takers. This aids capital management, reducing overheads for more market players and further stimulating competition in the financial services sector. As the DCS prepares to launch on July 1, its rollout reflects careful planning. Delayed from earlier targets to ensure readiness, the scheme promises to bolster confidence without destabilising the market. King, with a touch of humour, remains optimistic: 'The Government is doing the right things with DCS and ESAS. We all like to complain about various goings-on, but there's good news here for the sector as a whole.' Investors should look for the official RBNZ DCS logo to identify financial institutions that are included in the scheme or contact the RBNZ if in doubt. Effective 1 July 2025, General Finance's secured term deposits are covered by the DCS, up to $100,000 per depositor.
Scoop
06-05-2025
- Business
- Scoop
Risks To The Financial System Have Increased
Press Release – The Reserve Bank of New Zealand Financial stability is critical for ensuring that New Zealanders can safely save, borrow, and manage financial risk, Mr Hawkesby says. While the global economic environment has become more volatile, our financial institutions are in a strong … 7 May 2025 Risks to the financial system have increased over the past six months, Reserve Bank Governor Christian Hawkesby says in releasing the May 2025 Financial Stability Report. 'Financial stability is critical for ensuring that New Zealanders can safely save, borrow, and manage financial risk,' Mr Hawkesby says. 'While the global economic environment has become more volatile, our financial institutions are in a strong position to support the economy.' Geopolitical risks have escalated, particularly following the US imposition of sweeping tariffs on goods imports from many countries, including New Zealand. These developments have heightened financial market volatility and pose a material risk to global economic activity. Domestically, economic activity remains subdued. Previously high interest rates, rising unemployment, and a weak housing market continue to weigh on demand. However, lower borrowing costs and high agricultural export prices are supporting debt serviceability. Banks have strong capital and liquidity buffers in place to maintain credit flows even if conditions deteriorate further. They also remain profitable, with non-performing loans expected to decline as mortgage rates reprice lower. General insurers are experiencing more stable conditions. Our recent insurance stress test highlighted improved resilience in the sector, but also the challenges of extreme seismic events for New Zealand. Progress is continuing on the implementation of the Deposit Takers Act 2023. Several strands of this work will help to promote competition and efficiency in the deposit-taking sector. 'Work on the review of key bank capital settings is well underway, with the release of the Terms of Reference today. This outlines the purpose, approach, and scope of the review, to ensure the right settings are in place to support financial stability and promote the wellbeing and prosperity of New Zealand,' Mr Hawkesby says. 'We will engage leading international experts to inform and challenge our review.' The Depositor Compensation Scheme will come into effect on 1 July 2025. This will protect depositors' funds in the event of a deposit taker failure and is a significant milestone for enhancing trust and competition in the financial system.
NZ Herald
06-05-2025
- Business
- NZ Herald
Reserve Bank warns US tariffs pose risk to NZ financial stability
'Previously high interest rates, rising unemployment, and a weak housing market continue to weigh on demand,' the report said. 'However, lower borrowing costs and high agricultural export prices are supporting debt serviceability,' it said. The Reserve Bank said the banks have strong capital and liquidity buffers in place to maintain credit flows even if conditions deteriorate further. 'They also remain profitable, with non-performing loans expected to decline as mortgage rates reprice lower.' Global equity prices have declined and corporate funding spreads, both domestically and offshore, have widened from low levels, the Reserve Bank noted. Long-term yields on US government bonds were volatile. 'Trade restrictions are a key risk to New Zealand's financial stability,' the Reserve Bank said. 'The impact of tariffs on our trading partners is expected to lower demand for our exports. 'Some agricultural industries that have limited scope to divert products from the US to alternative markets are more vulnerable to US tariffs. 'Banks are well placed to handle temporary dislocations in overseas funding markets. 'The direct impact of US tariffs on New Zealand exports could be severe for industries heavily exposed to US demand, although they are only a small part of the overall economy.' New Zealand's largest exports to the US are meat, dairy products, and wine. 'US tariffs are also expected to have indirect impacts on New Zealand, by targeting our key trading partners and reducing their growth. 'These indirect impacts of tariffs on our trading partners may carry greater risk to financial stability than direct impacts,' it said. High export prices have supported cashflow in the dairy sector. Rising global commodity prices have improved conditions in many parts of the agriculture sector. Dairy sector Dairy sector conditions have improved over the past six months as international prices rose to elevated levels. Fonterra's farmer suppliers may also benefit from a one-off payment from the cooperative's sale of its global consumer business, although the timing and size of the payment are uncertain, the bank said. Lower farm-cost inflation has also eased cashflow pressures. Improved cashflow will allow dairy farmers to continue to reduce debt and increase their resilience to future downturns. Household and business demand for credit remains weak despite lower interest rates. Many borrowers rolling off fixed rates are moving on to floating rates or shorter-term fixed rates, it noted. These borrowers are waiting for further Official Cash Rate cuts before re-fixing for longer terms. The effective (weighted average) mortgage rate across all borrowers remained close to its peak. 'We expect around 60% of mortgage lending to reprice to lower rates within the next six months, and around 80% within a year,' the bank said. Progress is continuing on the implementation of the Deposit Takers Act 2023. The Depositor Compensation Scheme will come into effect on July 1 this year. The scheme will protect depositors' funds in the event of a deposit taker failure and is a significant milestone for enhancing trust and competition in the financial system, the bank said.
