The Reserve Bank has issued a consultation paper setting out its proposals on strengthening its payment oversight powers. Overall, the proposed reforms represent a significant increase in the scope and depth of regulation in this area. The consultation paper sets out a number of questions in respect of which feedback is sought from the sector.
The Reserve Bank's payment oversight powers are contained in Parts 5B and 5C of the Reserve Bank Act. Part 5B provides the Reserve Bank with information gathering powers in relation to operators of and participants in payment systems. Part 5C provides the Reserve Bank with greater powers in relation to designated payment or settlement systems, including: information gathering, recommending a designation be subject to conditions, and disallowing changes to a system's rules. However, the current regime is mainly directed at the legal efficacy of settlement and netting arrangements, and the Reserve Bank cannot (for example) require changes to system rules, intervene in the case of a crisis, or give directions to an operator or participant that is not also a registered bank.
The Reserve Bank has concluded that there is a need for more explicit powers for the oversight of clearing and settlement systems in general and systemically important systems in particular. This would bring it more into line with international practice.
The key features of the proposed new legislative framework are:
- The Reserve Bank's oversight will apply to "systems", which will be defined to include any infrastructures that facilitate the clearing, settlement and recording of monetary and other financial transactions, and cover systems rules or arrangements, systems operators, participants, infrastructure providers, governance structure and payment instruments. This is a significant widening of the scope of the current regime.
"Recognition" of systemically important systems
- The Reserve Bank will oversee all systems, with increased oversight on systems it has identified as systemically important. Systemically important systems will be formally "recognised".
- The Reserve Bank will have exclusive responsibility over recognised systemically important payment systems, and the FMA will be the joint regulator for recognised systems that are not pure payment systems. The Reserve Bank considers there are 5 systemically important systems in New Zealand: ESAS, the CLS system, NZClear, the NZCDC settlement system and the SBI arrangements.
- The recognition process would be separated from the designation regime. Designation would continue to concern legal certainty regarding settlement and netting of transactions in a system; recognition concerns applying increased oversight on systemically important systems. Systems could be designated without necessarily being systemically important.
- The regulators (being the Reserve Bank and FMA) would have specific powers relating to: obtaining information, imposing requirements, enforcement and crisis management. Some of these powers are already contained in Parts 5B and 5C of the Reserve Bank Act, but the majority are new or modifications to existing powers. There are broad similarities between the Reserve Bank's proposed approach and the Reserve Bank's existing powers to oversee banks, NBDTs and insurers.
- Information obtaining powers would include a general information gathering power (all systems), the power to require information to be audited (all systems), the power to require independent reports (recognised systems only), the power for onsite inspection (recognised systems only), the power to require public disclosure (recognised systems only) and the requirement for confidentiality/limits of disclosure.
- Powers to impose requirements would include the power to impose conditions on the operation of recognised systems and a power to be able to instruct the system operator to take certain actions in relation to system rules.
- Powers to enforce would include the power to publish a warning and potential non-compliance/offence and a power to impose penalties.
- Crisis management powers for recognised systems would include the power to direct, the power to remove, replace or appoint directors and the power to appoint a statutory manager.
A copy of the consultation paper is available here. Submissions close on 3 May 2013.