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Source: MIL-OSI Submissions
Source: Reserve Bank of New Zealand

20 January 2022 – The Reserve Bank of New Zealand – Te Pūtea Matua and the Financial Markets Authority (FMA) – Te Mana Tātai Hokohoko have released their finalised framework for assessing the systemic importance of Financial Market Infrastructures (FMIs) following consultation with industry and stakeholders.

FMIs are a set of critical systems that are sometimes referred to as the plumbing of the financial system which allow electronic payments and financial market transactions to occur. The Reserve Bank and the FMA are the joint regulator of FMIs under the Financial Market Infrastructure Act.

The systemic importance framework provides guidance on the factors that will be considered when determining whether an FMI is deemed of systemic importance, Deputy Governor and General Manager of Financial Stability Christian Hawkesby says.

“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.”

FMA Acting Director of Capital Markets Paul Gregory says industry and stakeholder submissions were considered carefully and helped to improve the final framework.

“We appreciate the constructive feedback we received from stakeholders and have adjusted the regulatory approach to take this feedback into account. Changes include the treatment of critical service providers and discretion regarding the publication of material breaches.”

We have also published our responses to the feedback received on our proposed approach to developing standards for FMIs, including the incorporation of the internationally-recognised Principles for Financial Market Infrastructures into standards appropriate for New Zealand. We will next be consulting on an exposure draft of the standards.

Given the key role that FMIs play in the financial system, the disruption or failure of a systemically important FMI has the potential to cause significant adverse impacts on financial markets, businesses, and consumers, potentially threatening the stability of the financial system, Mr Hawkesby says.

More information

Framework for Identifying Systemically Important Financial Market Infrastructures, Summary of submissions and finalised approach to implementing the FMI Act 2021
Reserve Bank and FMA consult on implementing new law to safeguard the ‘plumbing’ of the financial system, July 2021

What are FMIs and why are they important?

FMIs are often described as the plumbing of the financial system. Like other important infrastructure, such as the electricity grid or the road system, FMIs are essential for the wellbeing of New Zealanders.
FMIs are systems that facilitate non-cash payments and financial market transactions and are therefore essential for the day-to-day operation of the economy. More precisely, FMIs are multilateral systems that provide clearing, settlement, and reporting services in relation to payments, securities, derivatives and other financial transactions.
There are several types of FMIs, including payment systems, securities settlement systems, central securities depositories, central counterparties, and trade repositories.
New Zealanders depend on FMIs in their daily economic lives, although in most cases they will not be directly aware of this because FMIs typically operate behind the scenes with banks and other financial sector institutions providing the interface to their customers. The inter-bank payment system operated by the Reserve Bank– the Exchange Settlement Account System (ESAS) – is one example of an FMI operating in New Zealand.

MIL OSI