How we oversee FMI

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How we regulate and supervise FMI

The Financial Market Infrastructure Act 2021 sets out how we regulate and oversee financial market infrastructures.

Published:

About the FMI

In May 2021, the Financial Market Infrastructures Act (the FMI Act) was passed into law. The Act established a framework for the regulation and oversight of FMI and is designed to avoid significant damage to the New Zealand financial system that could result from problems with an FMI.

The Act aims to:

keep the financial system strong and efficient

help businesses, investors, and consumers feel confident and informed when using financial services.

One of the ways that these purposes are achieved is by creating a system where certain FMI can be recognised or designated by the Minister. Designated FMI receive legal protections and must comply with the regulatory framework established by the Act.

Features of the new regulatory framework

Key features of the new framework include providing the regulators with:

the power to set legally binding standards for designated FMI or powers to oversee the rules and contingency plans of designated FMI.

supervision and enforcement tools.

in the event of a designated FMI in distress, powers to issue directions to the operator of and/or direct participants to comply with the rules of the FMI, appoint, replace or remove directors of an FMI’ operator and recommend the FMI’ operator be placed into statutory management.

Why we supervise FMI

We supervise FMI because they play an important part in keeping our financial system and wider economy running smoothly.

FMI provide much of the underlying infrastructure that enables electronic payments and the settlement of financial market transactions. Given the key role they play, the disruption or failure of important FMI could have significant negative impacts on the financial system, businesses, and consumers.

Our financial stability objective

Our financial stability objective is to make sure New Zealand’s financial system is strong and resilient, and reduce the damage that could happen if an FMI or another part of the financial system fails.

We want FMI we regulate to be:

efficient, open and flexible

trustworthy and reliable

able to handle financial crises

Who is the regulator?

We, the Reserve Bank of New Zealand solely regulate designated pure payment systems.

The Reserve Bank and the Financial Markets Authority (FMA) are jointly referred to as ‘the regulator’ for all other designated FMI including:

central securities depositories | BIS website

securities settlement systems | BIS website

central counterparties | BIS website
.

We have established a joint supervision approach with the FMA. In this approach, we work together to oversee FMI and supervise designated FMI, except pure payments systems.

We also operate 2 systemically important FMI. Together with the FMA, we work closely with international regulators of designated FMI.

Who else we work with

A 4-way Memorandum of Understanding (MoU) between us, FMA, Reserve Bank of Australia (RBA) and Australian Securities and Investments Commission sets out how we work together to supervise and regulate designated FMI that operate in New Zealand but are based in Australia.

See all our MoUs