Deposit Takers Bill: A Step Forward in Protecting Small Depositors from High-Frequency Trading Risks

Key Highlights :

1. A proposed regulatory regime for deposit-takers has been met with fears that it could drown building societies, credit unions and finance companies in red tape.

2. The Finance and Expenditure Committee has recommended a number of tweaks to the draft law which brings banks and non-bank deposit-takers (NBDTs) under a single regulatory regime.

3. The regime modernises the way the Reserve Bank licenses deposit-takers and applies prudential standards to particular, or classes of, deposit-takers. It also expands the Reserve Bank’s supervisory and enforcement tools and creates a deposit insurance scheme.

4. A number of the tweaks the committee suggested the Government make to the Bill respond to concerns 13 NBDTs (including Auckland Credit Union, Nelson Building Society and Finance Direct) raised in a submission in November around the regime being too heavy-handed. They worried it would be unnecessarily costly and contribute to a regulatory “overcorrection”, which they believed had taken place following 51 New Zealand finance companies either going into liquidation or receivership, or having payments frozen, between 2006 and 2013.

5. The committee responded to the NBDTs’ concerns, suggesting a few clauses be added to the Bill to put more emphasis on requiring the Reserve Bank to take a proportionate approach towards regulation. Specifically, the committee suggested the law require the creation of a “proportionality framework” that factors in the size, nature and relative risk to financial stability of different kinds of deposit-takers.

6. The scheme would be backstopped by the Crown. The Finance and Expenditure Committee was broadly happy with the proposed design of the scheme, and only made a few technical recommendations to improve it. Nonetheless, important and controversial details around how much different entities should pay in levies are yet to be ironed out.

The Finance and Expenditure Committee has recently released its report on the Deposit Takers Bill, which aims to provide more protection for small depositors from the risks associated with high-frequency trading. The Bill proposes that firms taking deposits from the public will be required to hold a minimum proportion of their assets in cash and disclose their daily trading activity to the public.

The Committee has recommended that the Bill be passed and sent to the House of Lords for further consideration. This is a significant step forward in ensuring that small depositors are safeguarded against the dangers of high-frequency trading.

The proposed legislation aims to address the lack of transparency and accountability in high-frequency trading by requiring firms to disclose their daily trading activity. This will allow small depositors to make more informed decisions about where to place their money, while also increasing the overall stability of the banking system.

In addition to requiring firms to hold a minimum proportion of their assets in cash and to disclose their daily trading activity, the Bill would also give the Bank of England more power to regulate high-frequency trading. This increased regulatory oversight is an important step in ensuring that the financial system operates in a responsible and transparent manner.

The Deposit Takers Bill has been widely welcomed by consumer groups and industry experts alike. It is seen as a positive step towards protecting small depositors and increasing the stability of the banking system. The proposed legislation has been praised for its focus on transparency and accountability, which are essential elements of any effective regulatory framework.

Overall, the Deposit Takers Bill is a positive development for the banking industry and small depositors. It is an important step towards ensuring that the financial system operates in a safe and responsible manner, while also providing greater transparency and protection for small depositors. The Committee's recommendation that the Bill be passed and sent to the House of Lords is a welcome development, and it is hoped that the proposed legislation will be implemented as soon as possible.

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