New law reforms regulation of financial market infrastructures

MR No. 2021 – 19

New laws to regulate and supervise payment and settlement systems have been passed by Parliament following the third reading of the Financial Market Infrastructures Bill (the Bill) yesterday.

FMIs are critical systems that support day-to-day payments and financial transactions in the economy. They include electronic payment systems, and systems to settle trades in a range of financial products, such as equities and bonds. These systems are mostly used by banks and other financial institutions, but payment systems are also used by individuals, retailers, and other businesses.

Under the Bill the Reserve Bank of New Zealand – Te Pūtea Matua (the Reserve Bank) and the Financial Markets Authority – Te Mana Tātai Hokohoko (FMA) will be joint regulators of most FMIs, including central securities depositories, securities settlement systems, central counterparties, and trade repositories. The Reserve Bank will be the sole regulator of payments systems under the new regime.

The Bill provides the regulators with comprehensive regulatory, supervisory, enforcement, and crisis management powers in respect of important FMIs.

“Disruption to essential services provided by FMIs can slow or stop the flow of payments, or the buying and selling of financial products, which in turn can lead to more significant damage to the financial system and the wider economy,” Deputy Reserve Bank Governor Geoff Bascand says.

“The passing of the Bill establishes a flexible and robust framework for regulating FMIs that helps ensure they are well-operated. The legislation will also bring regulation of the sector into line with international best practice.”

Rob Everett, Chief Executive of the FMA said: “We look forward to continuing our work with the Reserve Bank in implementing the new regulatory framework for FMIs. This framework will help us in our goal to promote fair, efficient and transparent financial markets, given the important role FMIs play in the financial system”.

There will be a transitional phase of about 18 months under the new regulatory framework. Public consultation will also occur during this period on important implementation matters such as the design of standards to be made under the new regime.

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