In a surprisingly lively debate parliament cleared the way last week for a new set of rules governing the NZ financial ‘plumbing’ system.
The Financial Market Infrastructures (FMI) bill passed its second reading last Tuesday with all parties endorsing the much-amended proposed legislation.
Created to comply with International Monetary Fund (IMF) standards, the FMI will establish a new regulatory framework for the subterranean NZ financial payments and settlement network with a few key entities – such as NZClear – designated under the law with others able to opt-in.
However, after emerging from the select committee last year the draft legislation was substantially revised, Finance Minister Grant Robertson told parliament during the debate last week.
“… among the issues they have now put forward amendments that have been unanimously agreed on are broadening the circumstances where regulators may agree that one of them acts as the sole regulator; simplifying the thresholds for when Ministers can grant approval or consent to decisions being made by a regulator; clarifying the relationship between the general purposes of the bill and principles of the bill and the purposes and principles that relate to crisis management powers; removing the requirement of ministerial consent before the regulators can issue a notice requiring a rule change; and removing the requirement for the ministerial consent to a new operator scheme,” Robertson said.
Both the Reserve Bank of NZ (RBNZ) and the Financial Markets Authority (FMA) will share policing powers under the proposed law including the ability to take operational control of FMIs during crisis conditions.
National MP Andrew Bayly (previously a merchant banker), said the bill primarily brought the country’s ‘over-the-counter’ trading system up to global regulatory standards – an omission noted by the IMF in its 2016 review of the NZ financial structures.
“The legal standards behind [the FMI bill] clarify the ownership structure and all those different aspects. So there’s more clarity around what instruments we’re dealing with,” Bayly said. “It also enables the regulator to monitor what’s going on much more closely so we don’t get into a situation like the GFC, and for the regulator to have an oversight of what’s going on in the market.”
But in a debate that veered between befuddlement and technicalities, various speakers managed to name-check cultural reference points such as GFC movie ‘The big short’, blockchain, GameStop and ‘non-fungible tokens’.
Green MP Chlöe Swarbrick, for instance, admitted some trouble in understanding both the old- and new-fangled financial instruments in play.
“… to be perfectly honest with you, having engaged with a number of not just financial products but new products on to the market on the internet over the past few months, I’ve been trying to wrap my head around not just the likes of these FMIs but also something that some in this Chamber may know of as NFTs, otherwise known as non-fungible tokens, which are digital tokens which have a unique identity and ownership verified on Blockchain,” Swarbrick said. “They are not mutually interchangeable files but are often uploaded through the likes of Instagram or Twitter and then can be sold on, but still are able to be effectively screenshotted and passed along to other consumers—I would have guessed, but I can’t wrap my head around that.”
In another off-topic ramble, Act leader David Seymour, put in a good word for the NZ fintech sector (which had a conference last week in Queenstown).
“… we now have a lot of potential for New Zealand to grow its weightless economy through fintech companies. I’ve had a few of them in the Epsom electorate raised in this House over the years—some of the travails that Harmoney, for instance, have had attempting to do business under our current financial regulations,” Seymour said. “I could also raise NZFintech, and part of the challenge that they’ve had is that they haven’t been able to access clearing houses or payment systems so that they could be part of the wider New Zealand financial sector. I would hope that this bill will allow the FMA and the Reserve Bank to step in and regulate infrastructure for some of these emerging markets made possible by new technology so that we can have new entrants.”
The FMI bill moves to the house committee phase, probably next week with the legislation sixth on the provisional order paper. Plumbers, however, rarely turn up on time.