Will New Zealand Follow Cyprus? Government Policy May Alienate FX Companies and Investors

Legal precedents which arise as a result of government action can on occasion lead to sudden implementation of such action on a global scale.

The recent proposals in Cyprus to impose a “haircut”, a move whereby the government taxes bank deposits, on all accounts in the nation has generated widespread discussion internationally.

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As the future of Cyprus’ forex industry still hangs in the balance following the Cypriot Parliament’s decision yesterday to veto the haircut, other jurisdictions are looking at going down the route of dipping into private bank deposits.

Potential Unlimited Bank Tax in New Zealand

The New Zealand government is now understood to be pursuing a policy whereby a depositor haircut can be imposed for all future bank failures. Discussions on this were initially opened by The Reserve Bank which consulted with registered banks on pre-positioning banks’ systems to ensure compatibility with the Open Bank Resolution (OBR) policy back in March 2011.

There is now speculation that the government is reopening these talks which would represent an important step in a government-wide process to fully implement the OBR policy.

The plan would not limit the haircuts to any percentage, but would simply set in place a law allowing the banks and the government to steal whatever is necessary from depositors to prop up the failing bank institution. Under such a law, depositors will overnight have their savings shaved by the amount needed to keep the bank afloat.

New Zealand, a country far from the troubled European Union, has begun looking at imposing a levy on deposits, adding weight to the idea that banks and governments are keen to administer an across-the-board “haircut” to anyone foolish enough to trust the banks. Yesterday, Jorge Kraemer at Germany’s Commerzbank urged a 15% haircut for Italy. Now bankers in New Zealand are suggesting “haircuts” on all account holders to bail out banks and other financial concerns.

This could not come at a worse time, as New Zealand’s regulator, the Financial Markets Authority (FMA) and register of Financial Services Providers (FSP) have been engaging in establishing stricter operating practices for online trading companies registered in New Zealand. Just recently, the New Zealand FSP issued registered firms with a notice explaining that they must have a physical office in New Zealand, with compliance and banking in the country.

All registered entities which did not do this had their registration terminated. Furthermore, the authorities terminated 250 firms’ licenses over the last few months as part of the implementation of the new regulatory framework.

Australia and New Zealand have been held in high esteem in recent times as regions in which a broker can establish its operations, enjoy close proximity to the Asia Pacific region and its potential as a region which is home to many forex traders, and offer clients the security that the company is operating from a country with a good economy, untroubled by the financial disasters elsewhere in the world.

Now that there are discussions about the powers that be dipping their hand into private bank accounts in New Zealand, it may, along with the regulatory purges, become a far less attractive territory for forex companies to establish their operations, and could lead to divestment from New Zealand by existing forex brokers and their clients.