Doing business in New Zealand - Grant Thornton

Finance and banking
Banking system
New Zealand’s central bank is the
Reserve Bank of New Zealand. Its
prime function is to use monetary
policy to control inflation and keep it
within a specific target band, currently
1 to 3%. The Reserve Bank implements
monetary policy by setting the Official
Cash Rate (OCR), which is reviewed
eight times a year. The Reserve Bank
also has other important functions
including the issuing of notes and
coins, managing New Zealand’s foreign
exchange reserves, and the registration
and prudential supervision of banks.
New Zealand’s banking industry
is substantially deregulated. This has
created a very competitive banking
environment; however, it has also led
to the situation where about 90% of
banking assets are now controlled
by Australian-owned banks. There
are presently 21 registered banks, the
largest include ANZ National Bank,
the Bank of New Zealand, ASB Bank,
Westpac, TSB Bank and Kiwibank.
Banks offer the usual full range
of lending, cash management and
investment services. Foreign currency
accounts may be operated in New
Zealand.
Money laundering rules are strictly
enforced and banks require evidence
of identity to open an account. No
tax identification number is needed,
although failure to provide a tax
number will result in a higher rate of
withholding tax being imposed on
interest earned.
Capital markets
Finance can be raised through New
Zealand’s capital markets. New Zealand
has one authorised stock exchange, the
NZX, which operates three securities
markets, namely the New Zealand
Stock Market (NZSX), the Alternative
Market (NZAX), and the Debt Market
(NZDX).
The NZSX and NZAX are New
Zealand’s equities markets. The NZSX
is the premier market with 167 listed
securities and total market capitalisation
of around $58 billion, while the NZAX
is a lower cost market designed for
small to medium sized, high-growth
companies and non-traditional entities
such as co-operatives.
The NZDX is the market for the
trading of debt securities, including
corporate and government bonds and
fixed income securities.
The NZX also launched a derivatives
market in 2010, which supports the
trading of dairy product futures and
options.
Other sources of finance
Debt and equity can also be raised
through the issue of securities directly
to the public. Such public offerings
are regulated by the Securities Act
1978 and other securities legislation
and generally require the issue of a
prospectus and investment statement.
This Act is about to be replaced by
another more comprehensive piece of
legislation which is currently known as
the Financial Markets Conduct Bill.
Raising capital from private equity
firms is a further option, although
the venture and seed capital markets
in New Zealand are very limited by
international standards.
Aside from trading banks, a range
of other financial institutions also exist
including finance companies, merchant
banks, building societies, credit unions,
friendly societies, and insurance
companies. They generally provide
deposit-taking and lending services but
usually to particular niche markets.
Financial Markets Authority
The Financial Markets Authority
(FMA) is a new Crown entity
established in 2011 to promote the
development of fair, efficient and
transparent financial markets, with
the objective of restoring investor
confidence in the markets. It took
over the functions of the Securities
Commission and Government Actuary,
and consolidated other regulatory
functions from the Ministry of
Economic Development.
The FMA is responsible for
overseeing and enforcing securities,
financial reporting, and company law
as they apply to financial services and
securities markets. It also regulates
securities exchanges, financial advisers,
financial service providers, trustees and
auditors.
Doing business in New Zealand 8