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Law Covering Regulation Of Finance Companies Passed

Contributor:
Fuseworks Media
Fuseworks Media

Finance companies, building societies, credit unions and other deposit takers will be required to obtain credit ratings and meet tougher prudential requirements as a result of legislation enacted today, Finance Minister Michael Cullen says.

The Reserve Bank Amendment Bill (No 3), extending the Reserve Bank's responsibilities to become the regulator of non-bank deposit takers passed into law as Parliament sat under urgency.

Dr Cullen said the law applying to non-bank deposit-takers, was a result of a two-year review of regulation and the legislation would take time to implement.

The law passes as many investors struggle with the collapse of finance companies involving millions of dollars and thousands of people.

"This is not intended to be a quick fix response to current challenges facing the non-bank sector. The new legislation is intended to raise standards across the industry and to improve the future resilience of the sector," Dr Cullen said.

Reserve Bank governor Alan Bollard said the law was a significant step forward to improve the resilience of the non-bank sector.

"Trustees will continue to be front-line supervisors of deposit takers, and we look forward to working proactively with trustees as they work towards a more enduring role in the sector," Dr Bollard said.

The Reserve Bank will develop regulations for the sector over the next two years that will introduce consistent standards in key areas.

Dr Cullen said the requirements of the law passed today include:

* A credit rating from a rating agency approved by the Reserve Bank;

* Maintaining a minimum amount of capital and a minimum capital ratio;

* Maintaining an adequate level of liquid assets;

* Restrictions on lending to persons that are related to the deposit-takers;

* New governance requirements, including at least two independent directors; and

* All deposit-takers are required to obtain a credit rating by March 2010.

"But there is nothing to prevent deposit-takers obtaining a credit rating now, which may well be a desirable course of action," Dr Cullen said.

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