Select Committee report leaves Financial Market Infrastructures Bill largely intact

Wednesday 5 August 2020

Author: David Craig

​​Despite the best efforts of those making video submissions during Alert Level 3 to the Select Committee considering the Financial Market Infrastructures Bill (FMI Bill), the Committee has not felt the need to make sweeping changes. 

In its report tabled in Parliament yesterday, the Committee preserved the overall structure of the FMI Bill.1 Aspects of that structure had been criticised as being inappropriate by both local FMIs (for creating a 'one size fits all' regulatory model) and by overseas FMIs (for unjustifiably allowing the tail to wag the dog).

However, in the end, the Committee would have reflected on the extensive consultation that had already gone into the FMI Bill prior to its introduction into Parliament2 and concluded the time for an overhaul has long passed. Consequently, critics of the FMI Bill will have to accept more modest changes. These include:

  • (in response to the 'one size fits all' criticism) requiring the regulator to recognise the diversity of FMIs, and to take into account the circumstances of particular FMIs, when exercising their powers, or considering doing so,

  • a more streamlined transition process for settlement systems that have already been designated under the Reserve Bank of New Zealand Act 1989,

  • the removal of the requirement for the regulator to obtain ministerial consent before issuing a notice requiring an FMI to change its rules, and

  • a change to the restriction on the exercise of close-out netting and collateral enforcement rights by a derivatives counterparty against an FMI in statutory management.

With Parliament adjourning on 6 August until after the 19 September general election, the FMI Bill will technically lapse. However, it can be (and is expected to be) reinstated by the new House once Parliament resumes.

Once the FMI Bill is enacted, there will be a transition period during which “systemically important" FMIs will be identified and will need to be designated. The Reserve Bank has indicated this period is likely to be 12 months.

If you would like guidance on how this proposed reform could affect your business, please contact David Craig or your usual Bell Gully adviser.


1 We outlined key parts of the FMI Bill in an article in December 2019.

2 We discussed that consultation process in an article in May 2017.


Disclaimer

This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.

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  • David Craig

    Partner Wellington
Related areas of expertise
  • Derivatives
  • Financial sector regulation