Oversight of Financial Market Infra

Oversight of Financial Market Infrastructures in New Zealand
(FMI1)

March 2015



1. Introduction

Financial market infrastructures (FMIs) provide channels through which payments, securities, derivatives or other financial transactions are cleared, settled or recorded. Well-functioning and efficient FMIs play a critical role in promoting financial stability and economic growth. FMIs can strengthen the markets they serve; if not managed properly, they can pose significant risks to the financial system and be a potential conduit or source of contagion. A stable financial system therefore depends on careful management and mitigation of credit, liquidity and operational risks in the FMIs.

FMIs are multilateral systems inclusive of the operator and participants. FMIs typically establish a set of common rules and procedures for all participants, a technical infrastructure, and a specialised risk-management framework appropriate to the risks they incur. In New Zealand, there are four key types of FMIs: payment systems, securities settlement systems, central securities depositories, and central counterparties1.

FMIs are essentially the network for economic agents (financial institutions, governments, business and individuals) to transmit money and financial instruments. Sound and efficient FMIs contribute to maintaining and promoting financial stability and economic growth. They are therefore highly relevant for the Reserve Bank’s core responsibilities that stem from its financial stability objective.

The Reserve Bank is also interested in selected infrastructure providers that provide services to an FMI (such as IT infrastructure, messaging services, communications and data processing) that are critical to the sound and effective provision of the FMI’s core function.



2. Role of the Reserve Bank

The Reserve Bank of New Zealand Act 1989 (“the Act”) provides in section 1A that the Reserve Bank, as the central bank of New Zealand, is responsible for (among other matters, notably monetary policy designed to promote price stability) promoting the maintenance of a sound and efficient financial system.


1 The international definition of “FMIs” also includes a fifth type of infrastructure: trade repositories. However, trade repositories are considered outside of the New Zealand FMI oversight context at the moment, as the current regulatory framework does not extend to them.

2


Reference to the promotion of the maintenance of a sound and efficient financial system is also found in the following sections of the Act:

• section 68 of the Act, which determines the purposes for which the Reserve Bank carries out its prudential supervision of registered banks.
• sections 156B and 156K, which determine the purposes for which the Reserve Bank carries out its regulatory oversight of payment and settlement systems.

It is also provided in the Non-bank Deposit Takers (NBDTs) Act 2013 as one of the purposes for which the Reserve Bank is regulator of NBDTs.

FMIs are a critical element of the financial system and the entities that the Reserve Bank regulate both interact with FMIs and depend on their operational performance. Therefore, in order to pursue its statutory purpose, the Reserve Bank seeks to influence the activities of FMIs and their interactions with participants.



3. Regulatory framework

Parts 5B and 5C of the Act provide the statutory backing for the Reserve Bank’s payment oversight activities.

Part 5B “Oversight of payment systems” provides the Reserve Bank the power to require information relating to a payment system to be provided by an operator of a payment system, any person who is wholly or partly responsible for the operation of a payment system (such as infrastructure providers), or a participant in a payment system. The Reserve Bank may require the information to be audited and failure to supply information is an offence. The Act also specifies the circumstances in which the Reserve Bank may publish or disclose the information.

Part 5C “Designated settlement systems” provides the Reserve Bank and Financial Markets Authority (FMA) with powers in relation to designated payment or settlement systems (including central counterparties that have an embedded settlement system). The FMA and the Reserve Bank are the joint regulators of designated systems except when the system is a pure payment system, in which case the Reserve Bank is the sole regulator. The Reserve Bank can:

• Require information to be provided;

• Recommend the designation be subject to conditions, and seek changes to those conditions; and
• Disallow proposed changes to the system’s rules.

For more information on the roles and policies of the Reserve Bank and FMA in relation to the designation and oversight of designated settlement systems, please refer to the
Designation and Oversight of Designated Settlement Systems (DSS1).

For other FMIs that are not payment or settlement systems and infrastructure providers that provide critical services to FMIs that are not payment or settlement systems, and over whom the Reserve Bank does not have regulatory power, the Reserve Bank endeavours to achieve its statutory purpose through issuing non-binding guidance, seeking opportunities to engage with FMIs and infrastructure providers, and by promoting internationally-developed guidelines.

3


4. Oversight objectives

The Reserve Bank oversees FMIs for the purposes of promoting the maintenance of a sound and efficient financial system, and for designated settlement systems, avoiding significant damage to the financial system that could result from the failure of a participant in the designated system(s).

Broadly speaking, the high level objectives mean that the Reserve Bank aims to encourage FMIs, which provide the services and facilities underpinning financial market activities, to be sound and efficient.

To promote the soundness and efficiency of FMIs, the Reserve Bank aims for the following outcomes:

• That FMIs have clear and transparent governance arrangements that promote the soundness and efficiency of the FMIs, and support the stability of the broader financial system

• That FMIs have a sound risk-management framework for comprehensively managing legal, credit, liquidity, operational and other risks

• That FMIs ensure they provide clear and certain final settlement

• That FMIs have appropriate failure-to-settle mechanisms in place to minimise disruptions associated with the failure of one or more of their participants

• That FMIs ensure they can continue to provide critical services in all circumstances

• That FMIs have objective, risk-based, and publicly disclosed criteria for participation, which promote fair and open access with no unwarranted barriers to entry

• That FMIs be efficient and effective in meeting the requirements of their participants and the markets they serve

• That FMIs publish all relevant rules and key procedures, and provide sufficient information to enable participants to have an accurate understanding of the risks, fees and other material costs they incur by participating in the FMIs.

The operational reliability of an FMI may be dependent on the continuous and adequate functioning of infrastructure providers that are critical to an FMI’s operations. The Reserve Bank therefore expects that the operations of an FMI’s critical infrastructure providers are held to the same standards as if the FMI provided the service itself.

These outcomes are reflected in the regulatory approach adopted by the Reserve Bank in respect of payment systems and settlement systems and in its engagement approach with other FMIs.

4


5. Approach to risk management

Expanding on the points on managing risks, a guiding principle for the Reserve Bank’s engagement with the industry has been, and continues to be, that risks and costs should be borne by those best placed to manage them. This approach maximises the market incentives to manage and appropriately price risks, and reduce costs. Where FMI risks and costs are borne by FMI operators and participants, the Reserve Bank is interested in seeing that those risks and costs are managed appropriately. Where FMI risks and costs are borne by parties other than the operators and participants, the Reserve Bank views it as important that the operators and participants have sufficient regard to those risks and costs in the design and operation of the FMI, and that there is a high level of transparency relating to the incidence of those risks and costs.

The Reserve Bank’s expectation of critical infrastructure providers is that they will support the FMI’s overall soundness and efficiency. The Reserve Bank therefore encourages infrastructure providers that provide critical services to FMIs to have appropriate policies, procedures and resources for risk identification and management, reliability and resilience, robust information security management, effective technology planning and strong communications with users.

These objectives and expectations underpin the Reserve Bank’s FMI oversight activities and are well aligned with the international standards, the Principles for Financial Market Infrastructures (PFMIs) 2, developed by the Committee on Payments and Market Infrastructures (CPMI)3 and the Technical Committee of the International Organisation of Securities Commissions (IOSCO). The PFMIs, released in 2012, recognise the increasingly critical role played by FMIs in the financial system, and constitute a single set of harmonised operational standards that relate to risk management, governance, efficiency and transparency. The Reserve Bank bases its oversight on the PFMIs and the Annex F “Oversight expectations applicable to critical service providers” for the oversight of critical infrastructure providers.



6. Oversight approach

Risk-based approach

The Reserve Bank’s general approach is to focus its oversight activities on the larges

Kết quả (Việt) 1:

Giám sát của cơ sở hạ tầng thị trường tài chính ở New Zealand(FMI1)Tháng ba năm 20151. giới thiệuThị trường tài chính cơ sở hạ tầng (FMIs) cung cấp các kênh thông qua đó thanh toán, chứng khoán, phái sinh hoặc các giao dịch tài chính được xóa, định cư hay ghi lại. Hoạt động và hiệu quả FMIs đóng một vai trò quan trọng trong việc thúc đẩy tài chính ổn định và tăng trưởng kinh tế. FMIs có thể tăng cường các thị trường họ phục vụ; Nếu không được quản lý đúng cách, họ có thể đặt ra những rủi ro đáng kể cho hệ thống tài chính và là một conduit tiềm năng hoặc nguồn gốc của lây. Một hệ thống tài chính ổn định do đó phụ thuộc vào quản và giảm nhẹ của tín dụng, khả năng thanh toán và rủi ro hoạt động trong các FMIs.FMIs là hệ thống đa phương bao gồm nhà điều hành và những người tham gia. FMIs thường thiết lập một tập các quy tắc và thủ tục thông thường cho mọi người tham gia, một cơ sở hạ tầng kỹ thuật và một khuôn khổ quản lý rủi ro chuyên môn phù hợp với những rủi ro mà họ phải chịu. Ở New Zealand, có bốn loại chính của FMIs: Hệ thống thanh toán, chứng khoán giải quyết hệ thống, Bồn chứa Trung tâm chứng khoán, và Trung tâm counterparties1.FMIs là về cơ bản là mạng lưới cho các đại lý kinh tế (tổ chức tài chính, chính phủ, doanh nghiệp và cá nhân) để chuyển tiền và công cụ tài chính. Âm thanh và hiệu quả FMIs đóng góp cho việc duy trì và thúc đẩy sự ổn định tài chính và tăng trưởng kinh tế. Họ là do đó rất phù hợp cho trách nhiệm cốt lõi của ngân hàng dự trữ xuất phát từ mục tiêu tài chính ổn định của nó.Ngân hàng dự trữ cũng quan tâm đến cơ sở hạ tầng đã chọn nhà cung cấp mà cung cấp dịch vụ cho một FMI (chẳng hạn như hạ tầng CNTT, nhắn tin dịch vụ, thông tin liên lạc và xử lý dữ liệu) mà là quan trọng đối với việc cung cấp âm thanh và hiệu quả các chức năng cốt lõi của FMI.2. vai trò của ngân hàng dự trữNgân hàng dự trữ Úc Act 1989 ("đạo luật") cung cấp trong phần 1A rằng ngân hàng dự trữ, như là ngân hàng Trung ương của New Zealand, chịu trách nhiệm về (trong số các vấn đề khác, đặc biệt là tiền tệ chính sách được thiết kế để thúc đẩy ổn định giá cả) thúc đẩy việc duy trì một hệ thống âm thanh và hiệu quả tài chính.1 định nghĩa quốc tế của "FMIs" cũng bao gồm một loại thứ năm của cơ sở hạ tầng: thương mại kho. Tuy nhiên, kho phần mềm thương mại được coi là bên ngoài bối cảnh giám sát New Zealand FMI lúc này, như khuôn khổ pháp lý hiện tại không mở rộng với họ. 2Tài liệu tham khảo để thúc đẩy việc duy trì một hệ thống âm thanh và hiệu quả tài chính cũng được tìm thấy trong các phần sau của đạo luật:• phần 68 của đạo luật xác định mục đích mà ngân hàng dự trữ thực hiện của nó giám sát prudential của ngân hàng đăng ký.• phần 156B và 156K, mà xác định mục đích mà ngân hàng dự trữ thực hiện của nó giám sát quy định của hệ thống thanh toán và thanh toán.Nó cũng được cung cấp trong hành động phòng không-ngân hàng tiền gửi thực thi (NBDTs) năm 2013 là một trong những mục đích mà ngân hàng dự trữ là điều NBDTs.FMIs are a critical element of the financial system and the entities that the Reserve Bank regulate both interact with FMIs and depend on their operational performance. Therefore, in order to pursue its statutory purpose, the Reserve Bank seeks to influence the activities of FMIs and their interactions with participants.3. Regulatory frameworkParts 5B and 5C of the Act provide the statutory backing for the Reserve Bank’s payment oversight activities.Part 5B “Oversight of payment systems” provides the Reserve Bank the power to require information relating to a payment system to be provided by an operator of a payment system, any person who is wholly or partly responsible for the operation of a payment system (such as infrastructure providers), or a participant in a payment system. The Reserve Bank may require the information to be audited and failure to supply information is an offence. The Act also specifies the circumstances in which the Reserve Bank may publish or disclose the information.Part 5C “Designated settlement systems” provides the Reserve Bank and Financial Markets Authority (FMA) with powers in relation to designated payment or settlement systems (including central counterparties that have an embedded settlement system). The FMA and the Reserve Bank are the joint regulators of designated systems except when the system is a pure payment system, in which case the Reserve Bank is the sole regulator. The Reserve Bank can:• Require information to be provided;• Recommend the designation be subject to conditions, and seek changes to those conditions; and• Disallow proposed changes to the system’s rules.For more information on the roles and policies of the Reserve Bank and FMA in relation to the designation and oversight of designated settlement systems, please refer to theDesignation and Oversight of Designated Settlement Systems (DSS1).For other FMIs that are not payment or settlement systems and infrastructure providers that provide critical services to FMIs that are not payment or settlement systems, and over whom the Reserve Bank does not have regulatory power, the Reserve Bank endeavours to achieve its statutory purpose through issuing non-binding guidance, seeking opportunities to engage with FMIs and infrastructure providers, and by promoting internationally-developed guidelines. 34. Oversight objectivesThe Reserve Bank oversees FMIs for the purposes of promoting the maintenance of a sound and efficient financial system, and for designated settlement systems, avoiding significant damage to the financial system that could result from the failure of a participant in the designated system(s).Broadly speaking, the high level objectives mean that the Reserve Bank aims to encourage FMIs, which provide the services and facilities underpinning financial market activities, to be sound and efficient.To promote the soundness and efficiency of FMIs, the Reserve Bank aims for the following outcomes:• That FMIs have clear and transparent governance arrangements that promote the soundness and efficiency of the FMIs, and support the stability of the broader financial system• That FMIs have a sound risk-management framework for comprehensively managing legal, credit, liquidity, operational and other risks• That FMIs ensure they provide clear and certain final settlement• That FMIs have appropriate failure-to-settle mechanisms in place to minimise disruptions associated with the failure of one or more of their participants• That FMIs ensure they can continue to provide critical services in all circumstances• That FMIs have objective, risk-based, and publicly disclosed criteria for participation, which promote fair and open access with no unwarranted barriers to entry• That FMIs be efficient and effective in meeting the requirements of their participants and the markets they serve• That FMIs publish all relevant rules and key procedures, and provide sufficient information to enable participants to have an accurate understanding of the risks, fees and other material costs they incur by participating in the FMIs.The operational reliability of an FMI may be dependent on the continuous and adequate functioning of infrastructure providers that are critical to an FMI’s operations. The Reserve Bank therefore expects that the operations of an FMI’s critical infrastructure providers are held to the same standards as if the FMI provided the service itself.These outcomes are reflected in the regulatory approach adopted by the Reserve Bank in respect of payment systems and settlement systems and in its engagement approach with other FMIs. 45. Approach to risk managementExpanding on the points on managing risks, a guiding principle for the Reserve Bank’s engagement with the industry has been, and continues to be, that risks and costs should be borne by those best placed to manage them. This approach maximises the market incentives to manage and appropriately price risks, and reduce costs. Where FMI risks and costs are borne by FMI operators and participants, the Reserve Bank is interested in seeing that those risks and costs are managed appropriately. Where FMI risks and costs are borne by parties other than the operators and participants, the Reserve Bank views it as important that the operators and participants have sufficient regard to those risks and costs in the design and operation of the FMI, and that there is a high level of transparency relating to the incidence of those risks and costs.The Reserve Bank’s expectation of critical infrastructure providers is that they will support the FMI’s overall soundness and efficiency. The Reserve Bank therefore encourages infrastructure providers that provide critical services to FMIs to have appropriate policies, procedures and resources for risk identification and management, reliability and resilience, robust information security management, effective technology planning and strong communications with users.These objectives and expectations underpin the Reserve Bank’s FMI oversight activities and are well aligned with the international standards, the Principles for Financial Market Infrastructures (PFMIs) 2, developed by the Committee on Payments and Market Infrastructures (CPMI)3 and the Technical Committee of the International Organisation of Securities Commissions (IOSCO). The PFMIs, released in 2012, recognise the increasingly critical role played by FMIs in the financial system, and constitute a single set of harmonised operational standards that relate to risk management, governance, efficiency and transparency. The Reserve Bank bases its oversight on the PFMIs and the Annex F “Oversight expectations applicable to critical service providers” for the oversight of critical infrastructure providers.6. Oversight approachRisk-based approachThe Reserve Bank’s general approach is to focus its oversight activities on the larges