Last week on 27 July, the Reserve Bank of New Zealand (RBNZ) and Financial Markets Authority (FMA) issued the standards for designated Financial Market Infrastructures (FMI Standards) under section 31 of the Financial Market Infrastructures Act 2021 (FMI Act) and an accompanying guidance document.
A link to the FMA’s media release can be found here.
The FMI Standards and the guidance can be found here and here.
Who should read this? Why?
All operators of designated Financial Market Infrastructures (FMIs) and any entities who plan to apply for designation status should read the FMI Standards.
FMIs are multilateral systems that provide clearing, settlement and reporting services in relation to payments, securities, derivatives, and other financial transactions. The types of FMIs include:
- Payment systems;
- Central securities depositories;
- Securities settlement systems;
- Central counterparties; and
- Trade repositories.
The FMI Standards may also have relevance for other financial institutions and businesses operating in the financial system in New Zealand, particularly those who anticipate a determination by the FMA and RBNZ that they are systematically important (and therefore a designated FMI).
What does it cover?
The FMI Standards include 28 standards that create legally binding obligations on a range of topics such as governance, money settlements, various risks such as liquidity and operational risk, cyber resilience, tiered participation arrangements and various disclosures.
The FMI Standards and the accompanying guidance are based on the international Principles for Financial Market Infrastructures issued by the Committee on Payments and Market Infrastructure and the International Organization of Securities Commissions. However, the FMI Standards are tailored to suit the New Zealand operating environment. This approach follows feedback that was supportive of following international practice and suggestions that addressed unique New Zealand characteristics.
The RBNZ and the FMA issued the FMI Standards as joint regulators of FMIs. The joint regulation approach is applied to all of the FMI Act provisions, except in relation to pure payment systems (where the RBNZ is sole regulator), and in circumstances where the RBNZ and FMA agree that one will act as sole regulator.
Our view
We are pleased to know that the RBNZ and FMA took on the feedback received during the two rounds of public consultation to align with the international standards.
Though they generally fly under the radar from a consumer perspective, FMIs play a fundamental role in keeping the wheels of the New Zealand financial system turning. The FMI Standards are an important piece of secondary legislation that will ensure that these FMIs are properly regulated and able to continue to perform daily functions that we heavily rely on, such as the inter-bank payment system operated by the Reserve Bank.
What next?
The FMI Standards come into effect from 1 March 2024.
There are currently five FMIs designated under the Banking (Prudential Supervision) Act 1989 that will be redesignated under the FMI Act by 1 March 2024.
The RBNZ and FMA will continue to undertake systematic importance assessments for FMI designation, the process of which is discussed in the RBNZ and FMA’s Framework. Alternatively, operators of FMIs may wish to apply to be designated to access certain legal protections around settlement finality under the FMI Act.
If you have any questions about the FMI Standards and how they apply to you, or about the FMI regime generally, please contact one of our experts.
This article was co-authored by Hannah Cross, a law clerk in our Banking and Financial Services team.
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