IMF to review financial system oversight and securities law

The International Monetary Fund will look at the Reserve Bank's oversight of the insurance and banking sectors, and review the overhaul of New Zealand's securities law to see how the country stacks up against global norms.

New Zealand's central bank is leading the local response to the IMF's first review under its financial sector assessment programme (FSAP) since 2004, the RBNZ said.

The review will be held in two parts, with the first assessing the banking sector, crisis management frameworks, the insurance sector, and financial market infrastructure. The second "main" assessment in November will review securities regulation, the central bank's macro-prudential policy framework, and stress test the nation's lenders.

"The benefits of an FSAP for New Zealand include identifying any 'gaps' that might exist across New Zealand's regulatory frameworks," the RBNZ said in a Bulletin report. "The IMF's findings and recommendations - which are likely to be made public in the early part of 2017 - will provide an objective evaluation of regulatory developments.

"This could help shape the direction of regulatory policy, or could influence changes in the way financial sector supervision is undertaken."

The review will be completed before RBNZ governor Graeme Wheeler's five-year term ends in September next year when the bank's policy target agreement is reviewed.

The existing agreement requires monetary policy to hold inflation between 1-3 % on average over the medium term, with a focus on keeping future average inflation near the 2% midpoint. At the same time, the governor has to take the "efficiency and soundness of the financial system" into account. Under Mr Wheeler's tenure the inflation rate has dropped from 1.8% and never hit the targeted 2% since.

The RBNZ said a favourable finding by the IMF would help improve perceptions that New Zealand has a well-regulated financial sector, which would support investor confidence and further market development.

Because New Zealand isn't one of the 29 jurisdictions deemed "systemically important" the review is voluntary, and the RBNZ said authorities started looking at when to have another assessment four years ago. That was put off due to the establishment of the Financial Markets Authority, which oversees securities law, and the implementation of Basel III banking rules.

New Zealand's banking and insurance sectors will undergo a full graded assessment, meaning they will be measured against international norms while securities law and financial market infrastructure will face limited reviews which aren't graded. The crisis management and macro-prudential frameworks will be the subject of technical notes, as will a stress testing exercise.

(BusinessDesk)

RAW DATA: Bulletin Vol. 79, No. 7 - The 2016 NZ Financial Sector Assessment Programme