Administrators of financial benchmarks
On 30 August 2019 the Financial Markets (Derivatives Margin and Benchmarking) Reform Amendment Act 2019 received Royal assent. The Act introduces a licensing regime for administrators of financial benchmarks.
Why a licensing regime is necessary
A licensing regime for administrators of financial benchmarks will provide additional assurance around the accuracy, integrity, reliability, and continuity of New Zealand's benchmarks. A robust regulatory framework is also necessary to respond to new European Union (EU) regulations around the administration of financial benchmarks, which will take full effect on 1 January 2022.
The new EU regulations will set standards around the processes for setting financial benchmarks, and for recognising and using third country benchmarks in the EU.
Implications of new EU regulations for New Zealand
The EU regulations have significant implications for New Zealand. Unless New Zealand’s regulatory regime meets the new EU standards, New Zealand benchmarks will not be able to be used in critical financial contracts with EU parties.
This means that banks and other benchmark users, including ACC, the New Zealand Super Fund and the New Zealand Debt Management Office, would no longer be able to transact with EU counterparties in critical financial transactions that reference New Zealand benchmarks. Ultimately this could lead to significant costs to New Zealand businesses and consumers.
A new opt-in licensing regime
To ensure continued access for New Zealand benchmarks to EU financial markets, a new opt-in licensing regime for New Zealand administrators of financial benchmarks was introduced under the Financial Markets Conduct Act 2013.
The Financial Markets (Derivatives Margin and Benchmarking) Reform Amendment Act 2019, which introduced the licensing framework for financial benchmark administrators, received Royal assent on 30 August 2019.
Regulations, which set out detail of the eligibility criteria and licence conditions for benchmark administrators, have been made.
The new regulatory regime for benchmark administrators came into force on 15 March 2021.
This regime is intended to provide the basis for an ‘equivalence’ decision by the European Commission.
Read the documents behind the policy decisions:
Article 30 of the EU benchmark regulations empowers the European Commission to adopt ‘implementing decisions’ stating that the legal and supervisory framework of a third country with respect to specific administrators are equivalent to the requirements under the EU benchmark regulations.
New Zealand has submitted an ‘equivalence application’ to the European Commission seeking an implementing decision and is awaiting the outcome from the Commission’s consideration.
Visit the NZ Parliament website(external link) to view the history of the Financial Markets (Derivatives Margin and Benchmarking) Reform Amendment Act 2019.