The Reserve Bank has today published an exposure draft of the Financial Market Infrastructures Bill (FMI Bill), and is asking for feedback from stakeholders over the next eight weeks.
The FMI Bill covers vitally important financial systems for New Zealanders, including the infrastructure that supports our day-to-day transactions.
“This draft Bill comes as a result of three rounds of public consultation – the first two on the proposed framework as a whole, and the third was specifically on crisis management powers. As a result we now have a draft Bill that we think hits the mark in terms of powers and coverage, and we’re keen to hear if others agree,” says Geoff Bascand, Deputy Governor and GM Financial Stability.
Financial Market Infrastructures (FMIs) are multilateral systems among participating institutions, including the operators and users of the systems, used for payment, clearing, settling or recording of financial transactions. The participants of FMIs are usually banks and other types of financial institution, but in respect of payment systems can also include individuals, retailers, and other types of businesses.
A robust framework for the regulation and supervision of financial market infrastructures is essential to the promotion of a stable and efficient financial system, yet the existing regulatory regime for FMIs is limited.
Bascand continues, “FMIs can be subject to market failures resulting in, amongst other things, an insufficient focus on risk management or inadequate investment in underlying infrastructure. The existing legislative regime has significant deficiencies and is not consistent with international best practice, and so it’s right that we work to strengthen it.”
The draft Bill establishes a standalone Act that will replace the current regime, which is contained in Parts 5B and 5C of the Reserve Bank of New Zealand Act 1989.
The purposes of the new regulatory regime will be to:
- promote the maintenance of a sound and efficient financial system
- avoid significant damage to the financial system that could result from problems with an FMI, an operator of an FMI, or a participant of an FMI
- promote the confident and informed participation of businesses, investors, and consumers in the financial markets; and
- promote and facilitate the development of fair, efficient, and transparent financial markets.
Under the regime, the regulators will have information gathering and investigative powers in respect of all FMIs, to enable monitoring of the entire sector.
Designated FMIs will also be subject to enhanced regulation, in particular:
- Legally binding standards issued by the regulators
- A requirement to have contingency plans for dealing with financial or operational failure
- Enhanced oversight of their rules by the regulators; and
- Crisis management powers (i.e. direction powers and a tailored statutory management regime).
The regime also provides for a graduated range of investigative and enforcement tools. These include some new tools that are not currently provided for under existing prudential regimes for banks and insurers, such as the power to enter into enforceable undertakings.
It is anticipated that the FMI Bill will be introduced into Parliament later this year.
Submissions are invited before the close of consultation at 5 pm on 26 September 2019.