Reserve Bank eyes lack of payment system supervision

The Reserve Bank is looking at ways to bring regulatory oversight to the country's payment systems, in what is an otherwise sound financial system, the bank's head of prudential supervision Toby Fiennes says.

The central bank sees the lack of regulatory oversight of New Zealand's payment and settlement systems as a problem, and what powers it does have "are blunt and poorly targeted", Mr Fiennes said in a speech to Law and Economics Association of New Zealand in Wellington.

The bank sought submissions in March on plans to bolster its supervision of payment systems and give it the ability to impose penalties and management regimes for failing systems.

"Some payment systems are 'systemic' in that a failure would have serious and immediate repercussions for the economy and for people's daily business," he said. "After reviewing feedback from the consultation we will put forward firmer proposals as to how to address this gap."

Potential changes to the regime were flagged in last November's financial stability report, which highlighted a disruption to retail payments systems in April last year and prompted a review to mitigate the impact of future events.

Mr Fiennes said New Zealand's regulation of the financial system is "conservative but non-intrusive and with a strong emphasis on director and management responsibilities" which keeps down the chance of a bank or insurer failing.

The Reserve Bank looks to introduce international standards it thinks are appropriate for New Zealand and is not convinced a domestic regime listing so-called 'Systemically Important Financial Institutions' and making them carry extra capital is right for the country.

"Our regime already has a system-wide focus at its heart as we calibrate our regulatory settings and our work (capital and solvency requirements, supervisory programme, etc) to protect against system-wide risk," he said. "We already have conservative requirements compared to the rest of the world."

The bank is mulling a review of its non-bank deposit taker regime, where the key question is how to ensure the sector won't repeat the failures of the last decade, especially if macro-prudential tools such as restricted loan to valuation lending ratios were to force borrowers outside the regulated banking system.

(BusinessDesk)