In 2016 the International Monetary Fund (IMF) will be visiting New Zealand to conduct a Financial Sector Assessment Program (FSAP) of this country’s financial system. New Zealand’s last assessment by the IMF was completed over a decade ago in 2003.
This is a great opportunity for us to be benchmarked against international principles to show how much progress we have made since the last mission, and to receive some recommendations and feedback from the IMF.
The FSAP is a comprehensive assessment of the country’s financial sector and is being coordinated by the Reserve Bank of New Zealand (RBNZ) on behalf of the members of New Zealand’s Council of Financial Regulators, which includes the FMA, the Treasury and MBIE.
New Zealand’s prudential and securities regulation will be tested against international principles and practices.
Taking part in the IMF assessment programme is an important way for New Zealand to show we want to be recognised as an international destination for investor capital. Seeing how our system stacks up against international best practice means investors both here and abroad can have confidence in the regulatory framework we have been building over the last decade.
The regulations covering our financial system, and in particular our securities markets, have been transformed since the IMF’s last FSAP review. And not only as a result of the shortcomings reported in the last FSAP. The impacts of the Global Financial Crisis and the recommendations from the Capital Markets Development
Taskforce have also contributed to a huge overhaul of our regulatory framework.
New Zealand now has a twin peaks oversight model for the financial system, with RBNZ taking on prudential supervision of the banks and non-bank deposit takers (NBDTs), and the establishment of the FMA to supervise securities and financial markets conduct.
The IMF’s 2016 FSAP review will involve a joint effort between the RBNZ, the FMA, Treasury and the Ministry of Business, Innovation and Employment (MBIE).
While the FMA’s part in the overall FSAP review (which is focused on assessing New Zealand’s financial stability) is secondary to RBNZ’s, it still represents a major piece of work for the FMA.
The IMF will conduct two missions to New Zealand – the first in mid-August 2016, (which will be focussed on reviewing the banking and insurance sectors) and the second in the first three weeks of November, when they will review securities regulation.
As the new regulatory regime for securities under the Financial Markets Conduct Act won’t be fully implemented until later this year, it’s been recognised that the FMA and New Zealand’s financial markets are still in transition.
The IMF has acknowledged they could not conduct a full detailed assessment of the effectiveness of our new regime, when many market participants haven’t completed the licensing process yet and there is little practical experience under the new regime.
The FMA has agreed with the IMF that instead of a full detailed assessment with a rating, the IMF will conduct a review of New Zealand securities regulation and provide a ‘technical note’ on its findings. This note will assess how our regime measures up against best practice and international principles.
We will be talking more to the industry over the coming months, in the lead up to the IMF’s mission to New Zealand, about how the IMF will be completing its review of our securities regime and how the industry can contribute to demonstrating best practice in New Zealand.