ON THE - Home | TCA · ON THE Consultation ... the Trustee Companies Act 1967, is an associate...

Submission

TO

The Reserve Bank of New Zealand

ON THE

Consultation Document: Review of the Prudential Regime for Non – bank Deposit Takers

17 May 2013

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Introduction

1. This Submission is from Trustee Corporations Association of New Zealand Inc ("TCA”, or “the

Association") in response to the Reserve Bank of New Zealand ("Reserve Bank" or "RBNZ")

Consultation Document: Review of the Prudential Regime for Non-bank Deposit Takers dated April

2013. We are available to meet with the Reserve Bank to discuss our Submission. We can be

contacted at:

Trustee Corporations Association of New Zealand Inc

Level 12

City Chambers

Cnr Johnston & Featherston Streets

PO Box 2382

WELLINGTON 6140

Attention: David Brown Douglas

Ph: 04 499 6791

Email: [email protected]

2. TCA is a long established association to which all Trustee Corporations currently belong. The

members of the TCA are Public Trust and each of the Trustee Corporations authorised under the

Trustee Companies Act 1967 to act as Corporate Trustee for financial products – being Trustees

Executors Limited, The New Zealand Guardian Trust Company Limited, New Zealand Permanent

Trustees Limited (wholly owned by Public Trust) and Perpetual Trust Limited. The Māori Trustee

joined TCA on 1 June 2011. Covenant Trustee Company Limited, although not authorised under

the Trustee Companies Act 1967, is an associate member of TCA.

3. TCA maintains relationships with government ministries, regulatory bodies and financial sector

groups. TCA sets minimum standards as practice guidelines for the performance of Corporate

Trustees – standards for integrity, competence, financial capacity, internal controls, powers and

duties, standards for conflict of interest management and for reports from scheme operators.

4. Trustee Corporations are most often associated with drawing up wills and trusts, putting in place

enduring powers of attorney and handling estates, a service known as Personal Trusts. TCA

contends that its members are uniquely qualified to fill this important role which requires

independence, experience, professionalism and above all a focus on investor and beneficiary

protection.

5. TCA Members also provide prudential supervision of a wide range of investment products and

financial arrangements in a number of ways and at various levels. In certain instances, issuers and

fund managers must appoint a Corporate Trustee to meet regulatory requirements before they can

offer a financial product to the market.

6. TCA members, with the exception of the Māori Trustee, are also licensed under section 16 (1) of

the Securities Trustee and Statutory Supervisors Act 2011 to provide prudential supervision of a

wide range of investment products and financial arrangements. Not all license holders are

members of TCA.

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7. As at 30 June 2012, total Personal Trusts (excluding agencies and administrations) under

supervision exceeded 26,500 with a value in excess of $6.7 billion and Corporate Trust funds

under supervision exceeded $186 billion.

8. TCA appreciates this opportunity to comment on the Consultation Document.

Comments on the Consultation Document

9. Attached below are our responses to the specific questions. However, we preface this with some

general comments which provide the context within which our specific answers are given.

General Comments

Core Issue – Effective supervision

10. The core issue is: what is the most effective supervision for this sector and who can provide this?

This is a sector that Trustees can properly supervise.

it is made up of much smaller, quite disparate entities, so a one size fits all approach is

not appropriate;

the entities are generally not big enough to have teams dedicated to regulatory

compliance, so specific supervision is needed and that is what licensed supervisors are

experts at; and

prudential regulation and individual supervision should ideally be carried out separately,

so that one can concentrate on systemic risk, and the other can concentrate on investor

protection with an entity focus.

Costs

11. The costs are obviously relevant but, in TCA's view, not a decisive factor. TCA believes the costs

of supervision are unlikely to differ significantly in either model. Trustee costs are in fact quite

modest and there will be an additional cost, inherent or explicit, in supervision by the Reserve Bank

alone. So the discussion should be based on the merits of the supervision.

Not homogeneous

12. The NBDT sector is, unlike the registered bank sector and indeed unlike the insurance sector, not

homogeneous. Its participants – finance companies, building societies and credit unions – differ

considerably in the nature and scope of their activities, their size, and indeed culture. A "one size

fits all" supervision model is not appropriate in this more diversified sector.

Objectives

13. In relation to the current objectives set out in paragraph 20 of the Consultation Document

(maintenance of a sound and efficient financial system and avoiding significant damage to the

financial system that could result from the failure of an NBDT), some participants in the NBDT

sector are clearly riskier than others. In particular, finance companies - which don’t offer cheque

accounts or ATM facilities - are less relevant to these concerns. Moreover, their operations are in

reality indistinguishable from any other issuer under the Securities Act 1978. The building society –

credit union activity is more akin to a registered bank than the finance companies but due to their

small size and lean governance structures (there are no teams or persons dedicated to regulatory

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compliance) and culture are still better supervised by Trustees. This type of supervision is what

Trustees are expert at. TCA questions whether those entities that do not have account – ATM

activities would be a threat to the macro objectives. If that is so, then the objective of supervision

for these entities is simpler: to ensure they remain financially sound and the risk of lending to them

is correctly disclosed – as with any other issuer under the Securities Act. Prudential regulation and

individual supervision should ideally be carried out separately so that one concentrates on systemic

risk and the other, subject to its statutory reporting obligations, concentrates on investor protection

in each entity.

Trustee model appropriate

14. It follows from the above that the Trustee supervisory model of "hands-on", micro supervision –

which involves regular liaison with issuer, management and directors, site visits and tailor-made

trust deeds having regard to the size structure and activity - is a necessary and appropriate part of

effective supervision of this sector.

Timing

15. The review is being conducted too soon, notwithstanding that the original statutory five year period

envisaged under the Reserve Bank Act is now coming to a close. The reality is that since 2008

when the NBDT regulations were drafted , fundamental and far reaching changes have (more

recently) been made to supervision of this sector – and indeed that change process has not

finished. Trustee companies are now required to be licensed. They undergo and have undergone

a rigorous and expensive vetting process by the FMA. They are governed by new legislation the

Securities Trustees and Statutory Supervisors Act 2011 under which they are subject to close

scrutiny and reporting obligations to the FMA in addition to their other statutory reporting

obligations, including the Reserve Bank. It is early days for this new regulatory regime.

16. In TCA's view, it is clear the supervisory regime is working very well. Moreover, it can only get

better with further impending changes. NBDTs will themselves be required to be licensed and then

probably the most fundamental change to the sector will occur when the Financial Markets Conduct

Bill (FMC) becomes law. This is a fundamental change in the overarching rules of this sector. It

would, in TCA's view, be premature to further legislate on this matter until the imminent and

substantive changes have been enacted and some experience of how they are working is able to

be assessed. Only then will an informed view, based on relevant experience, be able to be

reached.

Sector in flux

17. The timing is inappropriate in another sense: the sector is changing fast. When the licensing and

FMC regime is put into place, it is likely that the NBDT sector will change even more. It's

conceivable the sector will continue to contract as the regulatory requirements are found to be too

onerous for many current participants. It would be appropriate to defer making any fundamental

changes to the supervisory model until it has settled down after licensing and FMC - there may not

be much left to supervise.

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RB only

18. The option of Reserve Bank supervision alone is, if one regards finance companies as

indistinguishable from other Securities Act issuers, fundamentally inconsistent and in fact would

represent a dramatic u-turn on all other relevant current policy initiatives relating to supervision,

being the licensing of Trustee companies, their supervision by the FMA and the acceptance of a

role for Trustees in the new regime in the FMC Bill. This is evidenced by the table attachment

"Building Investor Confidence in Financial Markets" prepared by the Ministry of Economic

Development which clearly envisages Trustees being involved in the supervision of the financial

markets and highlights the boundaries between the various constituents of supervision of the

market, including RBNZ. TCA is concerned that the first option of Reserve Bank only supervision

would be a glaring inconsistency with the above direction. The NBDT supervisory regime should

reflect current thinking on the above policy settings. The experience of this record of supervision in

the last 5 years has been very positive.

Australian example

19. The paper refers to international experience. The Australian example suggests a distinction in

supervisory treatment between building societies and credit unions (supervised by APRA) and

finance companies (supervised by ASIC) may be appropriate. This implies that the underlying

assumption of this review, namely that one model should apply to the entire sector – is incorrect.

Big Technical Challenges

20. The Reserve Bank alone option would have some significant technical challenges. Not all

participants in the NBDT sector can raise funds on a negative pledge, unsecured basis. For

example, finance companies need to give charges – security interests to support their borrowings.

As a matter of law, that charge needs to be held by a representative of the entity's creditors.

Moreover, in any enforcement situation, the entity's creditors would need their own appointee to act

in their interests if, as would be the case, the paramount interests of the Reserve Bank were

national macro objectives. Experience shows that this duty could not be discharged by the

Reserve Bank alone, absent unacceptable conflicts of interest on its part. If this issue was not

resolved, clear disclosure of the risk NBDT creditors take would have to be made. A Trustee for

the creditors can speak for them, act in the protection of their interests, and where appropriate

involve the investors in the decision making process, and (again, where appropriate) act in concert

with the Reserve Bank.

To summarise:

21. This is a sector that Trustees can properly supervise.

22. The review – which in principle TCA supports is premature. It should be deferred until some

experience of the still evolving FMC legislation has been gained. Reform of the supervision of the

sector, begun effectively in October 2010, is continuing with NBDT licensing and the FMC Bill still

to come. What evidence there is of the new regime suggests it is working well.

23. The NBDT sector is changing fast, a trend likely to be intensified by NBDT licensing and the FMC

Bill, making it premature to make any further fundamental change in "mid stream".

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24. The diversified NBDT sector is not an obvious candidate for micro supervision by the RBNZ alone.

Many of its entities are small or otherwise not relevant to RBNZ with its statutory "macro"

objectives.

25. The types of entities in the NBDT sector lend themselves to the involvement of Trustee

supervision.

26. Reflecting its diversity, this sector needs flexible funding instruments (security interests,

subordinated debt) that, as a matter of law and practice, require a Trustee.

Trustee Corporations Association of New Zealand Inc

17 May 2013

WGTN_DOCS\1147948\3 7

Consultation Document: Review of the Prudential Regime for Non-bank Deposit Takers

Submission by Trustee Corporations Association of New Zealand Inc

Section two: Objectives of the prudential regime

No Questions Submission

1. Do you agree with the issues identified with the objectives of the regime?

Are there other issues that we should be considering?

The statement of the objectives of the Reserve Bank regime is for the most part not

relevant to the NBDT sector. Currently only UDC would come close to being relevant

to the objectives based on the financial system as the criterion. As a minimum, the

objectives should include the interests of the NBDT sector and, to the extent

permissible, the financial soundness of the NBDT and its creditors and other holders

of securities (some NBDTs will not affect the NBDT sector itself let alone the New

Zealand financial system). The objectives should include the interests of the

creditors or investors (such as the members of a building society) as a discrete

group.

2. Which of the three options for the objectives of the NBDT regime that we

have identified do you think is preferable? Are there other potential

objectives for the NBDT regime that you think we should be considering?

Option 3, but with a rider that, to the extent not inconsistent with the interests of the

financial system and the NBDT sector, make the interests of creditors and other

security holders of the NBDT itself an objective – see above comments on Q1.

NBDTs are inherently more risky than registered banks and the sector is not

homogeneous (a finance company bears no relationship to a building society or credit

union) and the objectives need to reflect this. The Trustee is the most obvious

representative of the interests of the NBDT creditors/investor members.

Section three: Definition of NBDT


3. Do you consider that the current definition of NBDT accurately describes

who should be covered in the regime?

The current definition lends itself to regulatory arbitrage which is undesirable, it

doesn't include collective investment schemes and participatory securities, being

based on the Securities Act. They could be included in the definition of NBDT.

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4. Are there any parts of the current definition of NBDT that you consider are

unnecessary or problematic.

Conduits are problematic and should be excluded and supervised under the FMA

regime.

5. How effectively do you consider the Bank has been managing boundary

issues relating to the definition of NBDT?

.More engagement is required from the RBNZ with individual Trustees to set

boundaries. Ongoing communication is the key.

6. What has your experience (if any) been of the process of applying for

exemptions under the current regime?

Mixed experiences. Initially helpful, but less so as the regime matured. This was

affected by quite high staff turnover.

7. Do you agree that the current definition results in an unnecessary number

of entities needing to be carved out of the definition?

Yes, but much better to have the carve outs than their inclusion on a purely technical

or capricious basis.

8. Do you consider that relying on securities law concepts in the definition of

NBDT is appropriate?

It has mixed results but for the most part TCA sees securities law as the best basis

for the definition. The essence of the definition should be an entity that is "bank like",

i.e. has cheque account and ATM facilities and as a minimum is lending to the

general public (viz systemic risk). In this regard, the Table attachment is a useful

guide to those "bank like entities" and the rest.

9. Do you agree that the types of offers we have identified as raising

prudential risks, despite being exempt under securities law, should be

covered by definition?

Yes, prudential risk could arise from entities that are exempt under securities law.

10. Do you agree that we have correctly identified the high level options for

the definition of NBDT? Are there any other options you consider we

should be looking at?

The thrust of the definition should be to distinguish between entities that are "bank

like" in that they provide transaction based services and those that are debt issuers

but whose business is in lending. It should be noted these latter entities are more

similar to issuers of debt securities that are not lenders..

11. Do you agree with our assessment of the costs and benefits of the status

quo? Are there other costs and benefits of the status quo that we should

be considering.

The assessment of costs and benefits seems reasonable. We note that the APRA

and ASIC structure imposed a higher cost to the end user.

12. Do you agree with our assessment of the costs and benefits of this

option? Are there other costs and benefits of this option that we should be

Yes, but statutory carve outs may also require statutory "carve ins" – borrowing and

lending activity in paragraph 75 of the Consultation Document may exempt credit

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considering? unions and building societies which is not intended.

13. Do you agree with the statutory carve outs we are proposing as part of

this option? Are there other statutory carve outs that we should be

considering?

Statutory carve outs may require statutory "carve ins" – buying and lending activity

with transacting shareholders paragraph may exempt credit unions and building

societies which is not intended.

14. Do you agree with our assessment of the costs and benefits of this

option? Are there other costs and benefits of this option that we should be

considering?

This would allow the criterion of the entity being bank-like in its activities and dealing

with the general public as well as clarifying what is meant by lending.

15. Do you agree with the statutory carve outs we are promising as part of this

option? Are there other statutory carve outs that we should be

considering?

No comment.

16. Which of the three options proposed for the definition of NBDT do you

prefer? Are there other options we should be considering.

On balance, given familiarity of securities law, Option 2 but with proviso that entity

must be conducting "bank like" activities with the public; arguably a similar result

could be achieved under Option 3, similarly modified to take into account "the public".

Section four: Supervisory arrangements for NBDTs


17. Do you agree with these intended benefits of having Trustees act as

frontline supervisors under the regime? To what extent do you consider

that these benefits of using Trustees as frontline supervisors have

eventuated?

The summary of benefits of having Trustees is in itself accurate, but does not go far

enough or strike the right emphasis. Subject to statutory obligations only, the role of

Trustee is to protect investors’ interests. Ultimately the only job of a Trustee is to act

for the investors and other benefits/obligations perceived in this section are

subordinate to that. In this sense, the benefit of the Trustee is that its job is simpler

and is the "pure" representative of investors and clearer in a conflict sense. In this

sense, it’s job is simpler and clearer than that of the RBNZ as the regulator.

The summary is simplistic. Trustee responsibilities extend well beyond monthly

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reporting to the RBNZ. They include:

(1) negotiating Trust Deed terms to recognise the unique characteristics of

individual issuers where the vanilla statutory provisions may not be adequate

to maximise investor protection. This often entails provisions which are more

stringent or specific than the statutory minimums;

(2) undertaking a detailed due diligence before accepting appointments – acting

as a gate keeper;

(3) holding security interests where the issuer has given securities or (for

unsecured debt) holding benefit of covenants and promise to pay on behalf of

specified creditors;

(4) if required (and not limited to secured instruments) taking enforcement action

on behalf of creditors;

(5) being Trustee for a variety of instruments, e.g. security/subordinated offers,

(necessarily involving Trustees) thereby allowing more sophisticated and

flexible funding options in the market;

(6) holding moneys and assets on trust if an NBDT goes off-market – which

happens often;

(7) regular visits;

(8) review of public issue documentation prior to release;

(9) statutory monitoring responsibilities including the FMA and RBNZ;

(10) an ongoing relationship with auditors as part of the monitoring of the issuer;

(11) extensive reporting from finance companies including all papers and weekly

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liquidity reporting;

(12) acting as sounding board for the issuer on what is permissible and what is not;

(13) giving the issuer and other regulators the benefit of the Trustee's views based

on its involvement in the market generally and knowing what has worked with

other issuers.

(14) Other specific functions:

six monthly audited accounts and meetings with auditors;

auditor’s letter to Trustee (each audit);

management accounts to Trustee beyond RBNZ requirements (monthly);

receiving and considering directors certificates – monthly and quarterly;

monthly reviews of capital adequacy, asset quality;

oversight of risk management programme;

ensuring issuers have an AML programme;

exercising discretion on issuer request to consents in a number of

circumstances;

meetings of investors be called by the Trustee where appropriate.

18. How effective do you consider that Trustees have been as frontline

supervisors of NBDTs?

The added powers have confirmed the status of Trustees as government mandated

frontline supervisors.

19. How effective do you consider the Bank has been in its broader role in

monitoring the sector?

No comment.

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20. Are there other powers that you consider Trustees may require in carrying

out their role?

No, when one considers the current powers under the Securities Act, those

envisaged in the FMC Bill, the Statutory Supervisors Legislation and powers under

the Trustee Act.

21. What fees are currently charged by Trustees for their supervision of

NBDTs?

TCA's belief is that the fees are competitive and not unreasonable.

22. What information is sought by Trustees from NBDTs? Refer to the answers to Q17 relating to information. Trust Deed gives Trustees

extensive powers to require further information on an as needed basis which is

invoked frequently where an NBDT is showing signs of financial stress.

23. What is the nature and frequency of Trustees' interactions with NBDTs? Again, refer to the answers to Q17: the interaction with NBDTs is reasonably regular

given that the trust deed is a living document and as an ongoing matter at regular

intervals needs to be updated or amended to comply with legislation. The Trustees

and NBDTs are in close personal contact in addition to the regular scheduled visits,

regular reports and chase ups under the trust deed, and liaising with management in

relation to this. The Trustee is pro active in its dealings with the issuer, the Trustee

being the entity that has professional obligations and expertise in regulatory

compliance, frequently taking the initiative (and equally frequently by law being

entrusted to do so) to ensure amendments are made on a timely basis and ensure

the deed complies with changes in law. The Trustee can also act as an important

sounding board (with its industry wide experience) where an issuer has a problem

under the deed or securities law. This contributes to promoting best practice.

24. Do you agree with the three potential options we have identified? Are

there other options you think we should be considering?

Yes, however there is a role for macro and micro supervision being done by separate

entities.

25. Do you agree with our assessment of the costs and benefits of the status

quo? Are there other costs or benefits of the status quo that we should be

considering?

Yes, though in TCA's view, the issue of costs on these options is unlikely to be

material as the Trustee's costs are, compared to the funds under supervision, modest

and, absent Trustee-supervision, undoubtedly there would be additional costs

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imposed by RBNZ in taking up the role.

26. Do you agree with our assessments of the costs and benefits of an

enhanced Trustee supervisory model for supervising NBDTs? Are there

other costs or benefits that we should be considering?

Yes, this seems an acceptable model. The new powers envisaged in fact mirror the

current FMA powers under the Securities Act. TCA doesn't agree with central

appointment of Trustees however: for better or for worse, that cuts across

commercial considerations. In any event, there may be more than one Trustee for an

NBDT – e.g. senior bonds and junior bonds Trustees.

27. Do you agree with our assessment of the costs and benefits of direct

supervision of NBDTs by the Bank? Are there other costs or benefits that

you think we should be considering?

Option 3. The prudential requirements ignore the fact that the NBDT sector is not

homogeneous and one size doesn't fit all. RBNZ would have to negotiate individual

terms of operation which may involve moral hazard for the Crown. This option means

NBDTs will be exempt from prospectus requirements: that means the RBNZ will

need to pre-vet offer documents. Again, a moral hazard possibility.

Direct supervision is unlikely to be more cost effective. It is difficult to assess the

costs of "micro" supervision that the RBNZ would need to implement. Undoubtedly

RBNZ would need additional resources and would likely need to charge a fee to

issuers.

The role clarity benefit is necessarily dependent on all creditors being equal: finance

companies support their borrowings by charges and security interests as against

other creditors. How would RBNZ deal with this? Would it recognise the priority of

secured lenders or apply an "across the board" moratorium parity? That would blur

the perceived role clarity and put RBNZ in exactly the same position as a Trustee.

The perceived alignment with overseas experience is not correct. In Australia ASIC

supervises finance companies but they have Trustees; APRA supervises ADIs –

offers of banks and bank-like products in credit unions and building societies. There

are international examples therefore of this NBDT sector being carved up for

regulation.

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28. Do you think that Trustees should be retained as frontline supervisors of

NBDTs, or do you consider that direct supervision of NBDTs by the Bank

is a better option?

Yes, Trustees should be retained as frontline supervisors of NBDTs except possibly

those NBDTs which conduct "bank-like" services and are systematically relevant to

New Zealand's financial system. Currently none actually fit this model and if they did,

the Reserve Bank would encourage them into the registered bank regime.

Section five: Prudential requirements for NBDTs


29. How have you found the prudential requirements have worked to date? The prudential requirements have acted as a high barrier to entry; there is a high

incentive to exit either into the registered banks status or to exit from public issuance

as is evidenced by the industry continuing to contract.

30. Do you think the prudential requirements are appropriate for the NBDT

sector?

TCA notes that the calibration of capital adequacy for NBDTs is tougher than for

registered banks. If NBDTs are to be subsumed in this sector, in principle there

should be alignment to bank ratios more closely so that investors can be better

informed of the risk compared to bank risk.

In fact, the prudential requirements have not been truly tested: what would regulators

do to a financial organisation that fell below the 8% requirement, but was otherwise

undoubtedly solvent? Distress on a non-terminal basis is yet to be tested.

The regime is still too immature in terms of a credit cycle to make a firm determination

of the success or otherwise of the regime. Other funding structures lend themselves

to a less restrictive covenant regime and recent issues suggest regulatory arbitrage is

resulting. That is an undesirable result for this sector.

31. Are there any prudential requirements that you consider should be added,

removed, or amended?

Please see above.

32. Do you agree that it would be preferable to set capital, liquidity and related

party exposure requirements via conditions of licences or standards rather

than regulations? Are there other costs or benefits of this option that you

This would require to be negotiated with the NBDT. Inherently they should be

tailored to the issuer: too tough and they will exit the sector; too lenient and there will

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think we should be considering? be risk of failure. Regardless, one size doesn't fit all.

33. Do you think that the other prudential requirements should be set via

conditions of licences or standards, or by regulations?

No comment.

Section six: Disclosure requirements for NBDTs


34. Do you agree with the costs and benefits of this option that we have

identified? Are there other costs or benefits that we should be

considering?

Some comments on this question: information on prudential requirements can be put

on the website of the NBDT: it can be made easily accessible.

For better or for worse, the disclosure of financial data on test compliance with

prudential requirements needs to be translated in a clear and concise and effective

manner and tailored to the prudent, but not expert, investor.

TCA does not consider bank general disclosure statement publication as that user

friendly itself.

The alternative options for disclosure of NBDTs will depend on which is the preferred

supervision method: if RBNZ is sole supervisor, then all they need is a general

disclosure statement because effectively the NBDT will benefit from the RBNZ brand

or its implication of soundness. In the eyes of investors, such exclusive regulation

will be perceived as a implicit government guarantee.



considering?

The separate government agencies in fact have working memoranda of

understandings, e.g. between FMA (in process) and the RBNZ.



considering?

No comment.

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37. Do you consider that a separate disclosure regime for NBDTs would be

appropriate, or should prudential disclosures for NBDTs be integrated into

the disclosures required under securities law?

If RBNZ is sole supervisor, then FMA should drop out. However, if, as TCA believes

to be the case, NBDTs are like finance companies and perhaps other NBDT's should

be treated as any other investments, then the latter option (i.e. securities law basis) is

clearly the correct one.

Section seven: Crisis Management Powers


38. Do you agree that a tailored statutory management regime for NBDTs

should be provided for in legislation?

Even in a tailored statutory management regime, there will inevitably remain a

potential for significant conflict of interest of the RBNZ if there is no entity such as a

Trustee acting discretely in the interests of the creditors of the NBDT.

Section eight: Offences and Penalties


39. How do you think the current offence and penalty regime has worked? Criminal sanctions should be limited for egregious behaviour.

40. Do you think a hierarchy of penalties, where there is a more proportionate

response to the breach, would be more appropriate?

No comment.

41. Would the use of infringement notices be a better way of ensuring

compliance with certain lower level requirements?

No comment.

42. Would the use of civil pecuniary penalties provide for a more proportionate

response to some breaches where a conviction may outweigh the

wrongdoing?

No comment.

43. Should the level of penalties reflect whether the regime focuses on

systemic risk to the NBDT sector or systemic risk to the financial system?

No comment.

Section nine: Other Matters

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44. Do you have any views on the provisions in the Bill dealing with the issue

and cancellation of licences and the Bank's ability to impose conditions of

licences?

We suspect that these licensing requirements will be a real challenge for the RBNZ.

It will be working in a diversified sector, by activity, size and risk of operation. Making

decisions on conditions of licences in the knowledge that licence cancellation

effectively means the entity must cease trading will be very challenging. TCA is not

aware of any licence issued by the RBNZ having been cancelled, reflecting perhaps

the death sentence it implies. This sector will test that reality. We also comment that

Trustees could add value by their involvement in the licence application/cancellation

process.

45. Do you have any views on the operation of the suitability assessment

process in the Bill at present?

The suitability notice should not be set too widely: most otherwise appropriate and

suitable candidates will have a potential conflict of interest and it's not inconceivable

they'll have been involved in regulatory non-compliance by a market participant since

that includes all forms of non-compliance including that which is merely technical.

46. Do you have any views on the structure of the change of ownership

provisions in the Bill?

No comment.

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