Developing the legislative framework for financial market infrastructures
This page gives an overview of the regulatory development of a new framework for financial market infrastructures, which we began in 2013.
The new Act
In May 2021, the Financial Market Infrastructures Act 2021 (the FMI Act) was passed into law. The FMI Act establishes an enhanced regulatory framework for financial market infrastructures (FMIs).
On 26 July 2021, we announced our joint plans with the Financial Markets Authority (FMA) to implement the FMI Act over an approximately 18-month transition period. We invited stakeholders to provide feedback on key aspects of the new regulatory regime, such as how systemically important FMIs are identified and the approach to developing legally binding standards for designated FMIs.
Features of new framework
Key features of the new framework include providing the regulators with:
- the power to set legally binding standards for FMIs designated under the FMI Act or powers to oversee the rules and contingency plans of designated FMIs
- an updated set of supervisory and enforcement tools
- in the event of a designated FMI failing, powers to:
- issue directions to the operator of a distressed FMI and/or direct participants to comply with the rules of the FMI
- appoint, replace or remove directors of an FMI’s operator
- recommend the FMI’s operator be placed into a statutory management regime established by the Act.
Why we needed a new Act
A new Act was needed because the previous regime (as contained in Parts 5B and 5C of the Reserve Bank of New Zealand Act 1989) was considered insufficient to guard against market failures. These are failures that might have resulted in FMIs not putting enough focus on risk management or making inadequate investment into underlying infrastructure.
FMIs 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.
The new regulatory framework is consistent with international best practice.
The new legislative framework arose out of a detailed review of FMI regulation we began in 2013. This culminated in the passing of the Act in May 2021.
2022 — Consultation on exposure draft FMI Standards
We are inviting feedback on the exposure drafts of the FMI Standards and Guidance, and a draft equivalence framework for overseas FMIs. The proposed FMI Standards and Guidance establish detailed requirements for FMIs that are designated under the FMI Act.
The exposure drafts of the FMI Standards and Guidance, and the draft equivalence framework, were developed in line with the approach we consulted on in 2021. This approach includes the translation of the Principles for Financial Market Infrastructures (PFMI) into standards appropriate for New Zealand.
2021 — Consultation on new regime
We have done further regulatory development to support implementation of the new framework. This involved a series of consultations.
The first of these joint consultations with the FMA opened in July 2021 and was on the approach to implementing the FMI Act. Stakeholders were invited to provide feedback on key aspects of the new regulatory regime such as how systemically important FMIs are identified and the approach to developing legally binding standards for designated FMIs.
2019 — We consulted on exposure draft
In 2019, we consulted on an exposure draft for the new Bill setting out the enhanced regulatory framework in 2019.
We received 16 submissions from a range of stakeholders including domestic and overseas-based FMIs, law firms and industry associations. We have published the submissions (see below) except where the submitter sought confidentiality.
The feedback from stakeholders resulted in a number of technical drafting changes to the FMI Bill, which we have detailed in the summary of submissions.
2018 — Cabinet made supplementary decisions
In December 2018, Cabinet made a number of supplementary decisions on aspects of the proposed new oversight regime for FMIs. These decisions included that:
- the joint regulators should set regulatory requirements for designated FMIs using standards rather than conditions of designation
- the Bill should include a stay on the exercise of contractual termination rights against the operator of a designated FMI, when those rights may be exercised solely because the operator is subject to statutory management
- certain aspects of the Bill (including the requirement for Ministerial consent before directions may be issued, and the statutory management regime) be retained on an interim basis and reviewed following the completion of phase 2 of the Review of the Reserve Bank of New Zealand Act 1989.
2017 — Cabinet agreed to new regime
Cabinet agreed to adopt an enhanced legislative framework for the regulation of FMIs.
2016 — We consulted on crisis management powers for SIFMIs
In 2016, we further consulted on new crisis management powers for systemically important FMIS (SIFMIs), as the final part of the proposed new regime. The proposed crisis management regime would have two parts:
- SIFMIs would be required to maintain business continuity plans, and recovery and orderly wind-down plans.
- The Reserve Bank and the FMA (joint regulators) could call on proposed new statutory powers when these plans were inadequate to manage a crisis.
2015 — We consulted on changes to the proposed new regime
In 2015, we consulted on changes to the proposed new regime to better support our risk-based supervisory approach. In particular, we proposed that:
- there be mandatory designation of FMIs that are considered systemically important
- the joint regulators have crisis management powers for designated FMIs
- the joint regulators have a more graduated set of business-as-usual oversight powers, including enforcement and investigation powers for designated FMIs.
2013 — We first consulted on a new regime
Our March 2013 consultation proposed establishing a new legislative framework for the oversight of systemically important payment and settlement systems, which included:
- formally recognising systems that were systemically important
- giving us formal powers to oversee the recognised systems, such as powers to impose conditions and to direct
- setting up a tailored statutory management regime for recognised systems.
The consultation paper also proposed that the new recognition regime be run parallel to the existing designation regime under Part 5C of the Reserve Bank of New Zealand Act 1989, under a similar co-regulatory arrangement with the FMA.