Raising capital by non-bank lenders just became harder

A number of small, non-bank deposittakers have told Parliament’s Finance and Expenditure Committee they are worried the Deposit Takers Bill will mean a disproportionate and highly onerous level of regulation, which could lead to them going out of business.

In addition, the committee heard that the mere possibility of this level of regulation is already causing difficulties, by making it harder to raise capital to grow and provide financial services.

The Bill modernises the Reserve Bank’s framework for regulation and supervision of the deposit-taking sector and introduces an insurance scheme for depositors.

The insurance scheme will be funded by levies collected from deposit-takers, to be used to compensate depositors in the event of their deposit-taker collapsing.

Compensation will be capped at $100,000 per depositor, per institution.

Secondary legislation will be needed to get insurance scheme up and running by late 2024.

The Bill also includes modernising the licensing process, enabling a range of prudential standards to be applied to particular deposit-takers, or classes of deposit takers, and expanding the Reserve Bank’s supervisory and enforcement tools.

The committee has recommended a number of changes be made by the Government to the Bill, which brings banks and non-bank deposittakers (NBDTs) under a single regulatory regime.

A number of the changes are in response to concerns 13 non-bank NBDTs raised in a submission in November around the regime being too heavy-handed.

The committee says these concerns are in part a result of the approach taken to the design of the bill.

As originally introduced, the Bill would grant the Reserve Bank a significant degree of flexibility in how it discharges its prudential regulatory function, guided primarily by the objective of ensuring the financial system is stable.

“We appreciate the Reserve Bank needs flexibility to determine how best to achieve the overall objectives set for it, not least so that the prudential regulation regime continues to be fit for purpose, in the face of future developments that cannot necessarily be foreseen now,” the committee says.

“Nonetheless, we consider improvements can be made to the Bill that would balance the need for flexibility with our desire to maintain diversity.