bizEDGE New Zealand logo
Story image

RBNZ seeks stronger regulatory oversight of payment systems

The Reserve Bank wants stronger oversight of the nation's payment systems, with a particularly focus on managing risks from the global infrastructure that facilitates wholesale market transactions.

The central bank has four objectives - good governance, sound risk management, continuity of service, and fair and open access - for the large payment and settlement schemes known as financial market infrastructures (FMIs), deputy governor Grant Spencer told the Payments NZ conference in Auckland. It wants to extend those principles beyond a voluntary designation to all systemic FMIs, he said.

Those systems posed a risk to New Zealand entities, as the failure of an FMI would be determined by the framework of its home jurisdiction with local authorities having little influence, and the RBNZ wants a change in crisis management to allow for the return to normal operations in the event of a disruption.

"The bank is currently looking to establish an enhanced oversight regime based around systemically important FMIs with attention given to crisis management powers," Spencer said. "Our approach will be aligned with international principles and, while remaining near the non-intrusive end of the international spectrum, will focus on the core objectives for a sound and efficient payment system."

The Reserve Bank will give its six-monthly update on the country's financial stability tomorrow, which includes its gauge of the payments and settlements system. Its May report said the bank had appointed Ernst & Young to aid a strategic review of the operations of its Exchange Settlement Account System, in anticipation substantial upgrades would be needed in the coming two to four years.

Spencer today said it will release a progress report on that strategic review this week.

The bank still has concerns about the length of time it takes to settle retail transactions and the frequency of interchange, and expects by 2016 that participants will interchange retail payments at least hourly, Spencer said.

The opening up of industry body Payments NZ to new players was welcomed by the central bank, and Spencer said the challenge for the entity is to promote efficiency and innovation by expanding participation in the market, while managing the risks at the same time.

Spencer said growth in contactless, online, and mobile payments reflected technical advances, and customer demand, which had attracted new entrants into the market such as Apple, Google and Paypal, and that those trends open up the prospect of digital crypto-currencies becoming more important.

At the retail end of the payments system, operational risks weren't solely around business continuity and contingency plans, but also around protecting systems from cyber-attacks.

Last week, Visa's New Zealand and South Pacific country manager Caroline Ada said payment and point-of-sale systems were highly attractive investment opportunities, with a buoyant market and strong investment in innovation. Increased customer expectations and stronger security settings for contactless card payments supported the shift.