BS7A - Disclosure regime - explanatory information on Orders in Council

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BS7A
Registered Bank
Disclosure Regime
Banking Prudential Guidance March 2022
Purpose of document
This guidance document provides explanatory information on the disclosure requirements for registered banks, set by means of Orders in Council.

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Contents
1 Introduction _____________________________________________________________________________ 2 2 Form of disclosure statements __________________________________________________________ 2 3 Content of disclosure statements_______________________________________________________ 2 4 Publication of disclosure statements ___________________________________________________ 3 5 Availability of disclosure statements ___________________________________________________ 4 6 Compliance issues_______________________________________________________________________ 4 7 Comparative information _______________________________________________________________ 5 8 Materiality _______________________________________________________________________________ 5 9 Disclosure of guarantees________________________________________________________________ 6 10 Credit rating disclosure _________________________________________________________________ 6 11 Exposure concentration disclosure _____________________________________________________ 6 12 Disclosure statement for an overseas bank’s financial statements ____________________ 7 13 Director and chief executive responsibility for signing disclosure statements ________ 7 14 Director and chief executive attestations_______________________________________________ 8 15 Reserve Bank roles in relation to disclosure statements _______________________________ 9

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1 Introduction

1. This document provides guidance on some general aspects of the Reserve Bank’s disclosure
   requirements, to assist banks in preparing and publishing their disclosure statements. This document only deals with disclosure statements specified by Orders in Council (the “Orders”) made under section 81 of the Reserve Bank of New Zealand Act 1989 (the “Reserve Bank Act”). It does not provide guidance on the quarterly Bank Financial Strength Dashboard, which the Reserve Bank publishes itself, using data submitted by banks on standardised returns.
2. It is important to note that responsibility for complying with the requirements of the disclosure
   Orders and other related legal requirements rests with each bank and each of its directors and, for a bank incorporated overseas, also with the New Zealand chief executive officer. It is therefore incumbent on them to satisfy themselves that the bank has complied fully with the disclosure requirements, having regard to any legal, accounting or other professional advice they may have received. This document should be read in that context.
3. In this document, unless the context indicates otherwise, references to the premises of a
   registered bank should be interpreted as including:
    traditional bank branches and agencies; and
    any other staffed premises of the registered bank or of an agency of the registered bank (that is, an agency primarily engaged in the business of the registered bank) to which the registered bank’s customers or potential customers have access in order to conduct banking business.
4. For example, branches or agencies may include supermarket or shopping centre kiosks, or
   bank franchises.
   2 Form of disclosure statements
5. All registered banks are required to publish a disclosure statement twice a year. The content of
   the disclosure statement required by the Order applicable to each bank varies according to whether it covers the full year accounting period or the half year accounting period.
6. For an overseas incorporated bank, these full year and half year disclosure statements are, for
   the most part, restricted to the activities of the bank’s New Zealand branch, and of its New Zealand financial reporting group. However, overseas incorporated banks are also required to publish a disclosure statement that makes readily available the most recent published financial statements of the overseas bank and the overseas banking group. This requirement provides a mechanism to ensure that interested parties in New Zealand have timely and easy access to the financial statements of the wider bank and banking group which the New Zealand bank is a part of. The guidance in the following paragraphs 7-34 that relates to the content of disclosure statements does not apply to these disclosure statements for overseas banks’ financial statements: their content is governed by financial reporting requirements in the bank’s home country. Paragraphs 35-38 below provide further guidance on the processes around overseas banks’ financial statements. 3 Content of disclosure statements
7. Disclosure statements are aimed at readers who wish to obtain corporate, financial and risk￾related information on a bank and its banking group.

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8. Disclosure for the full year is generally required in respect of the registered bank and the New
Zealand banking group, although for some information disclosure is required only in respect of the banking group. At the half year, financial information focuses on the banking group only.
9. Where disclosures are required in respect of the New Zealand banking group, the group in
question is the group used for reporting for the purposes of the Financial Reporting Act 2013 and the Financial Markets Conduct Act 2013, except where the Reserve Bank has specified (by notice in writing to the bank) a different group. The banking group for disclosure purposes will be the same as the banking group used for other banking supervision purposes – such as in respect of a bank’s conditions of registration.
10. The disclosure statement must contain all of the required disclosures, but can also contain
whatever additional disclosures the registered bank wishes to make (except that banks are not permitted to include in the disclosure statement information relating to the offer of financial products to the public). For instance the disclosure statement may be combined with another document published by the bank, such as the bank’s annual report. Banks also have some discretion to decide how to present the information required in the Orders. The layouts used in the schedules convey the information required to be disclosed and can generally be treated as indicative.
11. In all cases the overriding requirement is that a disclosure statement must not be false or
misleading.
4 Publication of disclosure statements
12. Full year. The disclosure statements in respect of a bank’s end of year must be published not
later than three months after the bank’s balance date. A disclosure statement is published when it is published on the registered bank’s website for New Zealand.
13. Half year. In general, the disclosure statement in respect of a bank’s half year must be
published not later than two months after the bank’s half year reporting date. However, if the Reserve Bank is satisfied that a bank has reasonable grounds for not being able to comply with the two month deadline, the deadline is extended to three months. This might be the case if a registered bank elects to obtain a full audit rather than a limited scope review of the financial information contained in the half year disclosure statement.
14. Financial statements of overseas incorporated banks. The disclosure of these statements is
discussed in paragraphs 35 to 38.
15. Delivery to Reserve Bank. Every disclosure statement must be sent to the Prudential
Supervision Department of the Reserve Bank on the day it is published, in the form or format specified by the Reserve Bank (if any). No form or format is specified at present. This is intended to provide flexibility for banks to meet their legal requirements by using traditional paper-based methods or electronic methods enabled under subpart 3 of Part 4 of the Contract and Commercial Law Act 2017, or a combination of these. Where consent is required from the Reserve Bank under the Contract and Commercial Law Act (for example, for electronic delivery of disclosure statements), a registered bank must obtain this via its appointed prudential supervisor.

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5 Availability of disclosure statements
16. A registered bank must make each disclosure statement readily accessible on its internet
website, and the Orders specify that there must be a link on the home page of the website labelled “disclosure statements” that gives access to the bank’s disclosure statements. Each disclosure statement must remain available on the website for at least five years after its original publication deadline.
17. The Reserve Bank takes the view that many of those who are interested to look at an individual
bank’s disclosure statement would also benefit from visiting the Bank Financial Strength Dashboard. The Dashboard provides quarterly financial and prudential information on New Zealand incorporated banks. The Reserve Bank therefore encourages these banks to provide a link to the Dashboard webpage [https://bankdashboard.rbnz.govt.nz/summary], from the page on their own website where they publish their disclosure statements.
18. The Orders set out requirements that apply when a person makes a request to the registered
bank for any copies of its disclosure statements. The Reserve Bank expects that users of disclosure statements will commonly access them electronically, and that the requirements addressing availability will avoid the need for a bank to keep stocks of printed copies of disclosure statements on hand.
19. A registered bank may in all cases refer a person who requests copies of its disclosure
statements to its website. However, if a person does request that the bank provides them with copies of disclosure statements other than by download from its website, whether on paper or in some other form, the bank has an additional two working days to respond. This is intended to give the bank adequate time to process the request and print off copies of the documents in question, or send them out by other means. A bank must provide a copy of any of its disclosure statements free of charge to any person requesting it.
20. If a person requests a copy of a registered bank’s most recent disclosure statement, the bank
must offer that person a copy of its most recent full year disclosure statement and any subsequent half year disclosure statement. The purpose of requiring these particular periods is to ensure that a person seeking the latest information on the bank will be given the most recent full year disclosure statement containing all the background information on the bank, together with any more recent disclosure statements to provide the most up-to-date published picture of the bank’s financial situation.
21. The Orders distinguish between a request for the most recent disclosure statement made in
person at any of the bank’s premises, and a request made by other means or for older disclosure statements. In the first case the bank must offer to provide printed copies of the relevant disclosure statements, while in the second case the bank must offer to provide copies “by suitable means”. A request might be received by a variety of means including, for example, phone, mail, and e-mail, and the means suitable to responding to the request may depend to some extent on how it has been received, as well as the means by which a response is requested. 6 Compliance issues
22. No power to exempt. The Reserve Bank Act does not provide the Reserve Bank with a power
to exempt banks from compliance with particular aspects of the disclosure requirements. Instead, clause 15 of the Order applicable to locally-incorporated banks, and clause 16 of the Order applicable to overseas-incorporated banks enable a bank to make alternative

BS7A March 2022 5 disclosures where system limitations or circumstances beyond its control prevent the bank from making the required disclosure. In invoking these clauses, the bank must state the fact that the required disclosures cannot be made, indicate the reason(s) and disclose information which is the closest available alternative to that required to be disclosed.
23. Clauses 15 or 16 should not be used with excessive frequency. The Reserve Bank would expect
that these clauses (15 or 16 in the respective Orders) would be used relatively sparingly. These are designed to be used in exceptional circumstances and generally for relatively brief periods – essentially in circumstances where a bank’s accounting systems are unable to provide the required information and pending the implementation of changes to those accounting systems. The Reserve Bank would raise concerns with a bank if it considered that clause 15 or 16 in the respective Order was being invoked with excessive frequency or for long periods in respect of the same disclosure requirement. An exception to this is in the case of disclosures of historical information: in this respect it may be necessary for a bank to invoke clause 15 or 16 (as applicable) for a lengthy period, given the five year span of historical information required to be disclosed (by Schedule 2, clause 15 in the Order for locally-incorporated banks, and by
Schedule 2, clause 17 in the Order for overseas-incorporated banks).
7 Comparative information
24. Comparative information required at full year. The Orders provide for the disclosure of
comparative information in respect of most of the disclosures required in the full year disclosure statement by the Schedules to the Orders. The required comparatives are for the same period one year earlier. (For example, if the current period is for the six months ending 31 March 2013, the comparative period is for the six months ending 31 March 2012.) In line with the requirements of Generally Accepted Accounting Practice as they apply to financial statement information, the Orders require registered banks to restate prior period comparative information so that it corresponds with information presented for the current period, and to disclose the nature of, and the reason for, any restatements of prior period amounts. For the half year reporting period, the Orders only require comparative information to be disclosed in respect of a small number of items: a prior period comparative figure is not required except where the Orders explicitly state that it is, or where it needs to be provided to satisfy applicable financial reporting standards.
25. Flexibility where comparatives are not available. It is recognised that, in some cases, registered
banks may have difficulty extracting comparative information (for example, newly registered banks for the first 12 months under the disclosure regime). In recognition of this possibility, the Orders do not require the disclosure of comparative information where that information is not readily obtainable by the bank, except that the Orders deem comparative information to be available 12 months after the date on which the particular information was first required by the Orders to be published. 8 Materiality
26. Supplementary information must be published whether or not it is material. The Orders
require banks to publish supplementary prudential information in their disclosure statements regardless of its materiality. However, where applicable, banks may round quantitative information in line with normal rounding conventions.

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9 Disclosure of guarantees
27. The Orders require the disclosure of the nature and amount of the following guarantee
arrangements in disclosure statements:
 guarantees of any material obligations of the registered bank; and  material cross-guaranteeing contracts involving the registered bank.
28. These guarantee arrangements are required to be disclosed regardless of whether the
guarantor is a member of the banking group or lies outside the group.
29. A bank’s full year disclosure statement must give detailed information on any guarantee
arrangements. Disclosure statements for the half year only have to provide summary information on guarantees, but must state that further information about them is available in the bank’s most recent full year disclosure statement, and must give information on how to obtain that disclosure statement. 10 Credit rating disclosure
30. Disclosure of credit rating steps. In disclosing in the full year disclosure statement the
descriptions or explanations of the steps in a rating agency’s rating scales, banks should disclose all rating steps in the scale applicable (i.e. from the highest to the lowest rating step in all bands), regardless of what a bank’s particular rating is. The rating step descriptions should follow as closely as possible the descriptions given by the rating agency in question.
31. Alternative credit rating disclosures. Some banks may have alternative credit ratings as well as
the required ratings applicable to their senior unsecured liabilities payable in New Zealand dollars in New Zealand required pursuant to section 80 of the Reserve Bank Act. If such other ratings exist, a bank may disclose them in the disclosure statement.
32. Disclosure of credit ratings and qualifications to ratings. A bank will always need to disclose the
general rating category and any associated modifier that applies to its credit rating. A bank’s disclosure should use the standard systems of symbols and short-hand expression used by the rating agencies to express their rating opinions, for example, AA- or Aa3.
33. Any rating agency qualifiers, rating outlooks, watches or other qualifications that apply to a
bank’s credit rating should also be disclosed as a matter of course. A bank’s disclosure may use the short-hand expressions of these qualifications commonly used by rating agencies. However, where symbols may not be widely understood or self-explanatory, the bank should include appropriate explanations. For example, an outlook expressed as “positive”, “negative” or “stable” would be considered self-explanatory but the symbols “POS”, “NEG”, or “STA” would require a brief explanation. 11 Exposure concentration disclosure
34. The Orders make it clear that, for the purposes of disclosing exposure concentration, banks
may disclose either limits or actual exposures, but must disclose which of the two bases for measurement are being used. Where a bank’s actual exposure to a counterparty materially exceeds the limit applicable to that counterparty over the accounting period in question, the Orders require disclosure on the basis of the actual exposure.

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12 Disclosure statement for an overseas bank’s financial statements
35. All banks operating in New Zealand as branches of overseas banks are required to disclose the
most recent publicly available financial statements of the overseas bank and overseas banking group of which the branch is part. The bank must make these financial statements available on their website for New Zealand by the end of the first working day following the day on which they enter the public domain in the bank’s country of domicile.
36. Because this requirement is imposed by deeming the overseas financial statements to be a
disclosure statement under section 81 of the Reserve Bank Act, the requirement in section 82 also applies, namely that disclosure statements must be signed by the New Zealand chief executive officer or their agent. To satisfy this requirement, the branch must keep a record that:
is signed by the person authorised to sign disclosure statements and dated within two days of the date of publication in New Zealand; authorises the New Zealand publication of the overseas financial statements; and confirms that they are the most recent publicly available financial statements of the overseas bank.
37. This disclosure requirement does not require the registered bank to translate financial
information on the overseas bank into New Zealand dollars – the disclosures need only be in the form which is publicly available in the overseas bank’s country of incorporation. However, the Order requires banks to disclose the currency used where financial statements, or information drawn from financial statements, are disclosed in a currency other than New Zealand dollars. The bank must respond to requests for copies of the overseas financial statements in the same way as for other disclosure statements for the branch.
38. The bank must state in its other branch disclosure statement how to access the most recently
publicly available financial statements of the overseas bank and overseas banking group. 13 Director and chief executive responsibility for signing disclosure statements
39. Disclosure statement must be signed by every director. Section 82 of the Reserve Bank Act
requires a registered bank’s disclosure statement to be signed by every director of the registered bank (except that a director can authorise someone to sign on his or her behalf).
40. New Zealand chief executive officer of an overseas incorporated bank must also sign.
Disclosure statements for an overseas incorporated bank must be signed by the bank’s New Zealand chief executive officer (except that the New Zealand chief executive officer can authorise someone to sign on his or her behalf) as well as by the bank’s directors.
41. Directors and New Zealand chief executive officers can authorise someone else to sign.
Section 82 of the Reserve Bank Act provides for a director or New Zealand chief executive
officer (where applicable) of a registered bank to authorise (in writing) a person to sign the disclosure statement on his or her behalf. Directors and (where applicable) the New Zealand chief executive officer may authorise the same person or may each authorise a different person, as they see fit. The authorisation need not be made every time the bank publishes a disclosure statement; once is sufficient. In authorising someone to sign the disclosure statement on his or her behalf, however, the director or New Zealand chief executive officer is not relieved from liability under the Act; they can “delegate” the signing of the disclosure statements, but cannot delegate their liability and responsibilities.

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42. “Director” means the person holding office as director. Section 82 of the Reserve Bank Act
makes it clear that the directors with responsibility for signing the disclosure statements (and therefore the directors who face potential liability under the Act) are the persons who hold office as directors – i.e. those actually appointed to the board of directors of the registered bank.
43. Liability for non-compliance. Sections 89, 89A, 89B, 89C and 90 of the Reserve Bank Act
provide for criminal and civil sanctions against a registered bank, the New Zealand chief executive officer (for banks incorporated overseas) and the directors where there is non￾compliance with disclosure requirements. If non-compliance occurs directors and, in the case of an overseas incorporated bank, the New Zealand chief executive officer, may face a term of imprisonment of up to 18 months or a fine of up to $200,000 while the registered bank may be subject to a fine not exceeding $2,000,000. Section 90 provides for the directors of the bank, the New Zealand chief executive officer (if the bank is incorporated overseas) and the bank itself to be liable for losses sustained by reason of subscribing to debt securities issued by a bank in reliance on false or misleading information contained in a disclosure statement.
44. Defences to the statutory offences. Sections 89A and 91 of the Reserve Bank Act provide
defences to the offence provisions contained in sections 89A and 90 respectively. In essence, these defences are as follows:
 It is a defence to a prosecution under section 89A if a director of a registered bank or the New Zealand chief executive officer of an overseas incorporated bank proves that he or she had reasonable grounds to believe and did believe, up to the publication of the disclosure statement, that the information contained in the disclosure statement was true.  A director or New Zealand chief executive officer (where applicable) is not liable under
section 90 (for losses sustained by reason of subscribing for a debt security issued by a
registered bank in reliance on false or misleading information) if the director proves that:

• the disclosure statement was published without his or her consent, and that on
  becoming aware of the publication of the disclosure statement, he or she gave notice to the Reserve Bank and gave public notice that the disclosure statement was published without consent; or
• the director or New Zealand chief executive officer (where applicable) became aware of
  the false or misleading information after publication of the disclosure statement, and withdrew his or her consent to the disclosure statement, and gave notice to the Reserve Bank and gave public notice of the withdrawal of that consent; or
• the director or New Zealand chief executive officer had reasonable grounds to believe
  and did believe, up to the time of subscription for securities issued by the registered bank, that the disclosure statement was true. 14 Director and chief executive attestations

45. Flexibility to add explanatory statements to attestations. Bank directors and, where applicable,
    New Zealand chief executive officers are not permitted to qualify their attestations. However, there is nothing to prevent additional explanatory statements relating to the matters covered in attestations. For example, it would be permissible to include additional information about internal controls, such as a statement that no system of internal controls can facilitate the

BS7A March 2022 9 perfect management of banking risks, provided that neither the meaning nor the wording of the attestations is changed from that contained in the Orders. 15 Reserve Bank roles in relation to disclosure statements
46. Reserve Bank does not approve draft disclosure statements, but may provide assistance in
interpreting the disclosure requirements. The Reserve Bank does not have the power to approve draft disclosure statements prior to their publication. Banks must rely primarily on their own judgement and that of their auditors, legal counsel or other advisers in preparing disclosure statements. Nonetheless, the Reserve Bank recognises that banks may wish to seek clarification from it in respect of some aspects of the disclosure requirements as they prepare their disclosure statements. Accordingly, where appropriate, the Reserve Bank is prepared to respond to questions put to it in order to assist banks to comply with the provisions of the Orders. However, it is important to note that the Reserve Bank’s view on how the Orders should be interpreted is not legally binding and is not a substitute for banks seeking their own professional advice on this matter.
47. Reserve Bank’s roles in relation to disclosure statements. The principal roles of the Reserve
Bank in relation to the disclosure regime are as follows:
 As set out in Part 13 above, liability for non-compliance with disclosure requirements sits with the registered bank, the New Zealand Chief Executive Officer (for banks incorporated overseas) and the directors. However, the Reserve Bank reviews the key information in banks’ published disclosure statements to obtain a broad level of comfort that banks are complying with the disclosure requirements. Where the Reserve Bank has concerns that a bank may not be complying with the requirements, it will raise those concerns with the bank in question. In cases where the Reserve Bank is satisfied that a bank’s disclosure statement is false or misleading, or a disclosure requirement has not been complied with, the Reserve Bank may use its power under section 83 of the Reserve Bank Act to require a bank to issue a correction to its disclosure statement or issue a new disclosure statement. Separately, every registered bank is subject to a legal obligation (see sample section 93 Notice) to submit information to the Reserve Bank about any instance where it has become aware that it has failed, may have failed, or is likely to fail to meet a disclosure requirement.  As some of the information in disclosure statements is relevant to compliance with a bank’s conditions of registration the Reserve Bank may identify a potential breach of a condition through its review of a disclosure statement. Where the Reserve Bank has reason to doubt that a condition is being complied with, it will raise that concern with the bank. If the breach of condition is confirmed, the Reserve Bank would require the bank to take corrective action so that the relevant condition of registration is complied with. Depending on the severity of the breach, the Reserve Bank may take further actions as permitted by the Reserve Bank Act. Every registered bank is also subject to a legal obligation (see sample section 93 Notice) to submit information to the Reserve Bank about any instance where it has become aware that it has breached, may have breached, or is likely to breach any of its conditions of registration.  The Reserve Bank’s principal sources of information for monitoring a bank’s financial condition are the standard prudential and statistical reporting returns that banks submit directly to the Reserve Bank, and additional bank-specific financial information that the Reserve Bank may request from the bank. Nevertheless, a bank’s disclosure statements include additional information that is valuable for the Reserve Bank, and have the added

BS7A March 2022 10 benefit that most of the information they include is subject to an audit or review opinion from an auditor.  The Reserve Bank keeps the Orders under review and prepares recommendations for the Government where changes to the disclosure requirements appear to be necessary. In accordance with the Reserve Bank’s obligations under the Act, the Reserve Bank consults banks and other interested parties and has careful regard to their views before recommending changes to the Orders.