The Reserve Bank has softened the policies it's looking at imposing for banks that outsource some of their services after lenders warned the cost was too high.

The central bank is now seeking more feedback on its new proposals to more tightly define what functions should be covered by the outsourcing policy and when that policy kicks in. The RBNZ said submitters were generally comfortable with the objectives of the proposal, but banks were critical of the low threshold of the policy, the prohibition on certain functions being outsourced, a new materiality threshold, and the short timeframe to transition.

"A number of banks provided cost estimates and some have indicated that the cost implication of the proposals was too high," the RBNZ said in a new consultation document. "The cost estimates ranged from $10 million to $400 million."

The Reserve Bank called for submissions in August last year with the consultation closing in November.


Among the more contentious proposals was aligning the threshold to meet the outsourcing policy, which is holding $10 billion in New Zealand liabilities, to the $1 billion retail deposit level triggering the need to meet open bank resolution rules.

The Reserve Bank has now opted to keep the threshold while introducing a new requirement for all banks to be prepared for continuity of service.

The central bank also stepped back from prohibiting certain activities from being outsourced to a parent or related party, and will instead require backup systems be in place. Other changes include extending a 'white list' of activities that wouldn't be captured by the outsourcing policy, and increasing the transition path to five years from the proposed two-and-a-half years.

Submissions on the revised options close on August 12 and the Reserve Bank intends to have a final version of the policy released by the end of the year.