Financial Market Infrastructures Bill

2.1. Are there any publicly available inquiry, review or evaluation reports that have informed, or are relevant to, the policy to be given effect by this Bill?

YES

The International Monetary Fund (IMF) carried out a Financial System Assessment Programme (FSAP) review of New Zealand in 2016/17. As part of that process, the IMF reviewed the current regulation and supervision of FMIs in New Zealand, and an earlier version of the proposals which are now included in the Bill. This resulted in the IMF publishing a technical note Regulation and Oversight of Financial Market Infrastructures in May 2017, along with other reports arising out of the FSAP review.

2.2. Does this Bill seek to give effect to New Zealand action in relation to an international treaty?

NO

2.2.1. If so, was a National Interest Analysis report prepared to inform a Parliamentary examination of the proposed New Zealand action in relation to the treaty?

NO

2.3. Were any regulatory impact statements provided to inform the policy decisions that led to this Bill?

YES

The Reserve Bank has prepared the Regulatory Impact Statement An Enhanced Oversight Framework for Financial Market Infrastructures (published in April 2017) and the Summary Impact Statement Financial Market Infrastructures Bill: Additional Policy Decisions (published in December 2019).

2.3.1. If so, did the RIA Team in the Treasury provide an independent opinion on the quality of any of these regulatory impact statements?

NO

The Regulatory Impact Statement and Summary Impact Statement did not meet the threshold for Treasury RIA Team assessment.

2.3.2. Are there aspects of the policy to be given effect by this Bill that were not addressed by, or that now vary materially from, the policy options analysed in these regulatory impact statements?

NO

2.4. Has further impact analysis become available for any aspects of the policy to be given effect by this Bill?

NO

2.5. For the policy to be given effect by this Bill, is there analysis available on:

(a)   the size of the potential costs and benefits?

YES

(b)   the potential for any group of persons to suffer a substantial unavoidable loss of income or wealth?

NO

Analysis of the costs and benefits of the policy to be given effect by this Bill is included in the Regulatory Impact Statement and Summary Impact Statement referred to in question 2.3.

2.6. For the policy to be given effect by this Bill, are the potential costs or benefits likely to be impacted by:

(a)   the level of effective compliance or non-compliance with applicable obligations or standards?

YES

(b)   the nature and level of regulator effort put into encouraging or securing compliance?

YES

The Bill establishes a regulatory regime for Financial Market Infrastructures (FMIs) which imposes certain obligation on designated FMIs (as well as more minimal obligations on non-designated FMIs). The purposes of the Bill are to:

• promote the maintenance of a sound and efficient financial system; and
• avoid significant damage to the financial system that could result from problems with an FMI, an operator of an FMI, or a participant of an FMI; and
• promote the confident and informed participation of businesses, investors, and consumers in the financial markets; and
• promote and facilitate the development of fair, efficient, and transparent financial markets.

In order to achieve these purposes the regulators (the Reserve Bank and Financial Markets Authority) will need to monitor compliance with, and enforce obligations imposed by or under the Bill. Initial estimates of the resourcing implications for the Reserve Bank and FMA are in paragraphs 115-118 of the Cabinet paper An Enhanced Oversight Framework for Financial Market Infrastructures. Work on the detailed design of the regulators' supervisory approach under the Bill is ongoing.

3.1. What steps have been taken to determine whether the policy to be given effect by this Bill is consistent with New Zealand’s international obligations?

No policy measures in this Bill have been identified, as part of the normal policy process, as raising any questions of consistency with our international obligations. As a result, no separate formal steps have been taken to determine whether the policy to be given effect by this Bill is consistent with New Zealand’s international obligations.

The global standard for the regulation of financial market infrastructures (the Principles for Financial Market Infrastructures) have been taken into account during the policy development process.

3.2. What steps have been taken to determine whether the policy to be given effect by this Bill is consistent with the principles of the Treaty of Waitangi?

The provisions of the Bill affect the New Zealand public as participants in financial markets and payment systems, and do not impact on the principles of the Treaty of Waitangi. 

3.3. Has advice been provided to the Attorney-General on whether any provisions of this Bill appear to limit any of the rights and freedoms affirmed in the New Zealand Bill of Rights Act 1990?

YES

3.4. Does this Bill create, amend, or remove:

(a)   offences or penalties (including infringement offences or penalties and civil pecuniary penalty regimes)?

YES

(b)   the jurisdiction of a court or tribunal (including rights to judicial review or rights of appeal)?

YES

The Bill establishes criminal offences or pecuniary penalties for the breach of different requirements imposed by or under the Bill.

The offences in the Bill are established by clauses 15(1), 17(1), 19(1), 30(2), 44(1), 49, 53(1), 66(1) or (2), 70(1), 83(1), 83(2), 85(1), and 113(1) or (3), 137(2) or (4), 140(1), and 143(1), (with the relevant penalty levels set out in clause 124).

The pecuniary penalties in the Bill are established by clauses 27, 34, 46, and 48(2) (with the relevant penalty levels set out in clause 128). 

The Bill also establishes the High Court’s jurisdiction to, on the application of the regulators, enforce a voluntary undertaking entered into under the Bill, and impose any of the pecuniary penalties established by the Bill. 

3.4.1. Was the Ministry of Justice consulted about these provisions?

YES

The Ministry of Justice has been consulted and has not raised any concerns about these provisions.

3.5. Does this Bill create, amend or remove any provisions relating to the collection, storage, access to, correction of, use or disclosure of personal information?

NO

The information gathering provisions in the Bill apply to the operators, participants, and indirect participants of FMIs. It is extremely unlikely that any of these entities would be a natural person, and that personal information would ever be collected under the Bill.

3.5.1. Was the Privacy Commissioner consulted about these provisions?

NO

See the response to question 3.5.

3.6. Has there been any external consultation on the policy to be given effect by this Bill, or on a draft of this Bill?

YES

Two separate rounds of consultation on an enhanced FMI oversight framework were carried out in late 2013 and mid-2015. Submitters broadly supported the proposal as outlined in the second of these consultations, but made a number of technical comments and suggestions. Where appropriate, these were reflected in the final proposal for the entire framework (except the specific design of crisis management powers) that was published in December 2015. An additional round of consultation on the design of crisis management powers under the proposed framework was carried out in early 2016. Submitters remained supportive of the proposal as outlined in the consultation, although a number of technical comments and suggestions were incorporated into the final proposal.

An exposure draft of the Bill was published in August 2019. Where appropriate, the Bill was amended to take into account technical comments and suggestions from submitters. 

3.7. Have the policy details to be given effect by this Bill been otherwise tested or assessed in any way to ensure the Bill’s provisions are workable and complete? 

YES

The International Monetary Fund (IMF) carried out a Financial System Assessment Programme (FSAP) review of New Zealand in 2016/17. As part of that process, the IMF reviewed the current regulation and supervision of FMIs in New Zealand, and an earlier version of the proposals which are now included in the Bill. This resulted in the IMF publishing a technical note Regulation and Oversight of Financial Market Infrastructures along with other reports arising out of the review. The technical note was supportive of the proposed framework and considered that it would bring New Zealand broadly into alignment with international best practice.

4.1. Does this Bill contain any provisions that could result in the compulsory acquisition of private property?

YES

Powers that can be exercised in statutory management include the ability to sell the business of an FMI operator to a third party, or transfer that business to a new operator under a new operator scheme. These powers are only exercisable in cases where the FMI is distressed (i.e. has been subject to a financial, operational or governance failure). As such, they only apply when all, or a substantial part, of the operator’s business has failed and/or where it is necessary to protect the stability of financial system (and achieve the purposes of the Bill).

4.2. Does this Bill create or amend a power to impose a fee, levy or charge in the nature of a tax?

NO

The Bill allows for regulations to be made setting fees and charges payable by operators in connection with the carrying out by the regulator of any function under the Bill, or on an application or request to the regulator to carry out any function under the Bill. Fees are expected to be set for only a small number of matters (possibly just for applications by an FMI to opt-in to the regime), will be set at no more than a cost recovery basis, and because they can only be set by regulations, will be subject to standard Cabinet processes.  

4.3. Does this Bill affect rights, freedoms, or impose obligations, retrospectively?

NO

4.4. Does this Bill:

(a)   create or amend a strict or absolute liability offence?

YES

(b)   reverse or modify the usual burden of proof for an offence or a civil pecuniary penalty proceeding?

YES

The Bill established three strict liability offences which reverse the normal burden of proof. Specifically:

• Clause 15(1) (Offence for failure to give information);
• Clause 17(1) (Offence for failure to obtain review); and
• Clause 143(1) (Offence for unauthorised disclosure or use).

The strict liability offences in clauses 15(1) and 17(1) are necessary in order to ensure that the regulators ability to identify when FMIs should be brought into the regime via a designation notice is not compromised. In an extreme case, the committing of an offence under these clauses could result in a systemically important FMI failing while not being designated, with material disruption and cost to a significant part of the financial system.

The strict liability offence in clause 143(1) is necessary in order to provide a high level of protection to confidential information, which if inappropriately disclosed could, in an extreme case result in significant adverse impacts on all or a substantial part of the financial system.

Potential adverse effects of these strict liability offences are mitigated by the defence provided for in the Bill. This defence applies where the person charged with the offence (“A”) can prove that both of the following criteria are met:

• The contravention was due to:

-         The conduct of another person, other than a director, an employee, or an agent of A; or

-         An accident of some other cause beyond the control of A and A’s directors, employees, and agents; and

• A took reasonable precautions and exercised due diligence to avoid the contravention. 

4.5. Does this Bill create or amend a civil or criminal immunity for any person?

YES

The Bill extends the existing protections from liability for Reserve Bank staff and certain other persons in the Reserve Bank of New Zealand Act 1989, so that it also covers Reserve Bank staff and these other persons in relation to acts or omissions when exercising powers under the Bill. These protections only apply where the act or omission occurred in good faith. The FMA’s existing protection from liability in section 22 of the Financial Markets Authority Act 2011 (which applies unless it can be shown that the FMA or is staff have acted in bad faith, or that the FMA has failed to exercise reasonable care) will also apply to the FMA’s exercise of powers under the Bill.

4.6. Does this Bill create or amend a decision-making power to make a determination about a person’s rights, obligations, or interests protected or recognised by law, and that could have a significant impact on those rights, obligations, or interests?

YES

The statutory management framework in the Bill permits the statutory manager of a distressed FMI to:

• Following consultation with the regulators, disapply a provision of that FMIs rules if they are satisfied that this is necessary for one of the purposes in clause 78 (broadly speaking, where it is necessary to ensure the continuity of essential services and/or avoid or mitigate threats to the stability of, or confidence in, the financial system); and
• With the consent of the regulators, not be required to take into account the desirability of consistency in the treatment of creditors within the same class (if they provide consent, the regulators must set out the reasons for doing so in a report which is tabled in the House).

These powers are necessary to order to ensure the stability of the financial system in extreme cases, and are subject to the safeguards noted above in order to ensure they are properly constrained and used appropriately.   

4.7. Does this Bill create or amend a power to make delegated legislation that could amend an Act, define the meaning of a term in an Act, or grant an exemption from an Act or delegated legislation?

NO

4.8. Does this Bill create or amend any other powers to make delegated legislation?

YES

The Bill contains provisions for the Reserve Bank and FMA to make legally binding standards that would apply to designated FMIs. These standards are disallowable instruments, and may set requirements relating to various topics including risk management, financial resources, governance, and contingency planning. 

These reason for these requirements being set via deemed regulations are that:

• The requirements are relatively detailed technical matters, that are not subject to criminal sanctions;
• The requirements apply to a narrowly defined, clearly identifiable group (i.e. designated FMIs); and
• The requirements are best made by the regulators given the technical expertise required and international best practice indicating that these types of requirements should be made by an independent body (or bodies).  

The Bill also includes various safeguards around this power including the requirement to consult with affected parties before standards are made, the requirement for standards to relate to certain matters, and the requirement for the regulators to have regard to certain principles when making standards.

4.9. Does this Bill contain any provisions (other than those noted above) that are unusual or call for special comment?

No