Reserve Bank deputy governor Grant Spencer is signalling a new supervision regime for the country's payments system, two years after he first outlined concerns about the global infrastructure that facilitates wholesale market transactions.

New Zealand's legislation for overseeing the payments system is no longer fit for purpose and the Reserve Bank has developed a new framework to oversee the sector, which is still waiting for Cabinet approval, Spencer told the Payments NZ conference in Auckland.

The key features of the framework would grant the central bank and Financial Markets Authority information-gathering powers to better identify emerging risks and place large payment and settlement schemes, known as financial market infrastructures (FMIs), under a new regime allowing greater scrutiny from regulators.

The risk posed by FMIs relates to the fact their home jurisdictions govern how a failure would be managed, Spencer said, when he outlined concerns two years ago.

Advertisement

The proposed new framework focuses on processes for crisis management leading to a return to normal operations and would give the RBNZ and FMA tools to respond if an FMI fails or is poised to fail.

"In such a situation, we want to facilitate an orderly recovery or resolution so as to minimise potential disruptions to the financial system," Spencer said in speech notes. "This would not be an 'all-or-nothing' oversight regime. Rather, it would give the bank and the FMA the flexibility to tailor the oversight regime in light of the risks identified."

The Reserve Bank's Exchange Settlement Account System and NZClear, NZX's New Zealand Clearing and Depository Corporation, and CLS Bank International's CLS system have already been designated as systemically important under the existing regime. The regulator also expects to designate Payments NZ's Settlement Before Interchange and High Value Clearing System, London-based LCH, ASX Clear and Singapore's DTCC trade repository, Spencer said.

New legislation has to be prepared and the Reserve Bank anticipates a draft exposure will be put out for consultation in the late first or early second quarter next year.

Spencer also said its ESAS and NZClear payments systems, which it decided to keep after a tender process didn't attract strong enough bidders, are being upgraded by the end of 2018.

(BusinessDesk)