Reserve Bank and FMA finalise FMI regulatory framework

The Reserve Bank of New Zealand – Te Pūtea Matua and the Financial Markets Authority (FMA) – Te Mana Tātai Hokohoko have released their finalised framework for assessing the systemic importance of Financial Market Infrastructures (FMIs) following consultation with industry and stakeholders.

FMIs are a set of critical systems that are sometimes referred to as the plumbing of the financial system which allow electronic payments and financial market transactions to occur. The Reserve Bank and the FMA are the joint regulator of FMIs under the Financial Market Infrastructure Act.

The systemic importance framework provides guidance on the factors that will be considered when determining whether an FMI is deemed of systemic importance, Deputy Governor and General Manager of Financial Stability Christian Hawkesby says.

“The finalised framework balances the need for flexibility in accounting for the specific circumstances of individual FMIs; and the importance of ensuring transparency in regulatory decision-making.”

FMA Acting Director of Capital Markets Paul Gregory says industry and stakeholder submissions were considered carefully and helped to improve the final framework.

“We appreciate the constructive feedback we received from stakeholders and have adjusted the regulatory approach to take this feedback into account. Changes include the treatment of critical service providers and discretion regarding the publication of material breaches.”

We have also published our responses to the feedback received on our proposed approach to developing standards for FMIs, including the incorporation of the internationally-recognised Principles for Financial Market Infrastructures into standards appropriate for New Zealand. We will next be consulting on an exposure draft of the standards.

Given the key role that FMIs play in the financial system, the disruption or failure of a systemically important FMI has the potential to cause significant adverse impacts on financial markets, businesses, and consumers, potentially threatening the stability of the financial system, Mr Hawkesby says.

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