Regulators have eased up on some breach-reporting conditions among a number of tweaks to the proposed implementation of the Financial Markets Infrastructure Act (FMI) released last week.
The joint Reserve Bank of NZ (RBNZ) and Financial Markets Authority (FMA) guidelines on the intended FMI regulatory approach back-track on earlier plans to require mandatory publication of all “material” system failures.
“Acknowledging the concerns raised by stakeholders, and the importance we place on market transparency, we have revised the proposed policy with respect to publication of material breaches,” the FMI regulatory review says. “We have decided that the Regulator should have the discretion to publish material breaches taking into account factors such as market transparency, financial stability, the public interest and any other relevant factors.
“We will not require publication of outages.”
However, all FMIs captured under the new law – passed by Parliament last May – will have to report every outage to the respective regulators.
But the just-released RBNZ/FMA framework provides further detail on which entities might fall under the FMI purview – a broad-sweeping law that grants the government important extra powers to intervene and oversee the operations of such ‘systemically important’ financial entities.
FMIs will be either self-designated or brought into the regime by the regulators based on a range of parameters outlined in the new framework.
RBNZ deputy governor, Christian Hawkesby, said in a statement that 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”.
For example, the regulators intend to assess FMI status primarily based on a provider’s influence on the local financial system.
“That is, the assessment of whether or not an overseas FMI is systemically important will be on the basis of their systemic importance in New Zealand, and not their importance in the global market,” the guideline says.
Operations such as the RBNZ-owned services Exchange Settlement Account System (ESAS) and NZClear, for example, will fall under the FMI law along with others such as the NZX-owned NZ Clearing and Depository Corporation (NZCDC).
However, the potential FMI universe covers entities that “provide clearing, settlement, and reporting services in relation to payments, securities, derivatives and other financial transactions”, according to a RBNZ paper.
“There are several types of FMIs, including payment systems, securities settlement systems, central securities depositories, central counterparties, and trade repositories,” the RBNZ says.
In a submission on the proposed rules, Payments NZ – the governing body of the country’s payment systems providers – argues the FMI designation rules could go too far.
“We believe that it is better to have two different frameworks – one for identifying (systemically important) payment systems and one for other FMIs,” the Payments NZ submission says. “This is because the risks and issues between the two types of infrastructure are very different and as such should be managed quite differently.”
The regulatory papers also clarify a number of FMI rules include cyber-risk management standards and obligations to ensure the quality of ‘critical’ service providers.
Government launched the FMI review process in 2013 in a post-GFC financial ‘plumbing’ system upgrade process that should finally be in place by the end of this year or early 2023.