BOOK EXTRACT: The Land Without a Banking Law – How to Start a Bank with a Thousand Dollars

New Zealand is generally perceived as a high-tax country and has, consequently, not been a target in the international campaign against offshore tax havens. However, in the book The Land Without a Banking Law (Opus Operis) author Michael Magnusson argues that New Zealand offers a legal framework that allows virtually anyone to start a bank without being subject to any capital or qualification requirements.

He further explores the idea that New Zealand offshore finance companies are banks, both in a legal and practical sense, but not registered banks under supervision of the Reserve Bank of New Zealand. While there are laws in New Zealand regulating financial activities, there are no regulatory entry barriers as such for the business of banking when services are offered to non-residents only (offshore).

This book aims to teach readers how to form and register a New Zealand company online and how to obtain registration as a bona fide Financial Service Provider (FSP). The regulatory framework and upcoming changes to the relevant legislation are explained. Mr Magnusson also explores what he calls "abusive behavior by government officials and embarrassing blunders by the local authorities".

Michael Magnusson was born and raised in Sweden but has lived most of his adult life in various countries throughout the world.  He retired from the offshore company formation industry in 2013 after having established more than 1000 financial entities in various jurisdictions for clients on every continent except Antarctica. Mr Magnusson focused on the formation and registration of banks, finance companies, hedge funds and trust companies as well as the development and implementation of the IT systems and clearing platforms required for such entities to become operational. 

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Excerpt from: The Land Without a Banking Law

Publisher: Opus Operis LLP - United Kingdom 

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New Zealand is a truly unique jurisdiction for international financial activities. My impression is that most New Zealanders are either completely oblivious to this fact or rather disturbed by it if they are aware. The creation of what can in many aspects be considered the least regulated offshore financial center in the world seems to have happened almost by accident. New Zealand used to have a Banking Act but it was repealed in 1995 and replaced with, well, nothing. There are obviously laws in New Zealand regulating financial activities but there are no regulatory entry barriers as such for the business of banking when services are offered to non-residents only (offshore). In the opinion of some people this calls for regulatory change. Some simply accuse anyone in the business of incorporating New Zealand Financial Companies for non-New Zealanders of aiding criminal activity such as international money laundering. The purpose of this book is to provide accurate information about the New Zealand regulatory model from an “offshore perspective”. Most parties voicing an opinion on the subject, so far, seem to have been hopelessly misinformed.

I will also describe the process of incorporating New Zealand Companies online and how to register such as Financial Service Providers (FSP’s).

New Zealand just as most other countries, has banks operating under supervision by its Central Bank, the Reserve Bank of New Zealand. These companies are referred to as Registered Banks and are subject to strict capital and regulatory requirements just like they would be in any other developed nation. What makes New Zealand unique is that the business of banking is not in any way restricted to these regulated entities. The Registered Banks do not even have a license or permit to engage in the business of banking since such licenses do not exist in New Zealand. This might seem rather controversial or even hard to believe for the uninitiated. I will quote several Reserve Bank articles and documents to clarify this point.

The Reserve Bank of New Zealand summarized the regulatory framework for the New Zealand financial sector in an article prepared in consultation with the Securities Commission and the Ministry of Economic Development:

“Unlike in many countries, where the licensing of a bank determines what the bank can do, bank registration in New Zealand does not determine the permissible activities of a bank. In most respects a Non-Bank Financial Institution can conduct banking business (including deposit-taking and lending on current account) without being a registered bank. Registration as a bank merely enables the entity to include “bank” or a derivative of that word in its name.’

(Reserve Bank Bulletin Volume 66, number 4, page 26). Reserve Bank of New Zealand:
“We do not license the business of banking per se. Financial institutions do not have to be registered banks in order to take deposits and make loans. A financial institution can conduct the business of banking without being subject to the Reserve Bank’s prudential requirements for registered banks, so long as it does not use the word “bank” in its name.” (Alan Bollard, Reserve Bank Governor, Financial System Regulation in New Zealand, Financial Sector Ombudsman Conference, 25 July 2003).

Reserve Bank of New Zealand:

“Bank registration does not involve the licensing of the business of banking or deposit taking. It is only if an institution wishes to call itself a bank that there is a requirement for it to be registered by the Reserve Bank of New Zealand. Hence non-licensed institutions are able to take deposits and conduct other aspects of the banking business in New Zealand.” (The Role of the Reserve Bank of New Zealand in Supervising the Financial System, RBNZ, March 2001).

Tyree’s Banking Law in New Zealand, Second Edition, pages 8-9:

“Banking business is not, however, restricted to registered banks. While registered banks’ business must comprise of borrowing and lending money and/or the provision of financial services, any non-[registered] bank institution may conduct business that is traditionally regarded as banking business—such as deposit taking, the provision of credit and the offer of cheque accounts and may be regarded as a “banker” for the purposes of mutual common law rights and duties of the banker-customer relationship.”

The financial sector in New Zealand has gone through various regulatory changes since these statements were made. I will get in to those changes here, but the statements remain accurate since the business of banking is still not in any way restricted to Registered Banks under Reserve Bank supervision. Nothing has changed in this regard.

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