Quarterly Statement by the Council of Financial Regulators – May 2022

The Council of Financial Regulators (CoFR) held its quarterly meeting on Tuesday 31 May. The meeting was chaired by FMA Chief Executive Samantha Barrass.

Key items of discussion were cross-agency protocols during a cyber incident, system-wide risks and opportunities in relation to crypto-assets, and the coordination of monitoring activities across CoFR members. The Council also received an update on the investigation into recent changes in the Credit Contracts and Consumer Finance Act (CCCFA), efforts to address price inflation, and reflected on the continuing situation in Ukraine and risks related to the COVID-19 pandemic.

CoFR discussed and endorsed for implementation a draft cyber incident response protocol framework that would ensure a coordinated and collaborative response to any future cyber incidents involving New Zealand’s financial sector. The framework establishes clear roles for relevant agencies and outlines the practices to be followed in the event of a significant cyber incident or high-vulnerability alert.

CoFR discussed the system-wide risks and opportunities in relation to crypto-assets. The Council noted five areas of risk and/or opportunity in relation to crypto-assets and the adequacy of the regulatory framework in relation to each one. These areas included: consumer loss due to poor selling practices or inadequate disclosure of risks; potential transmission mechanism for financial instability; potential to facilitate money laundering; de-risking practices limiting scope for innovation; and money stewardship. The Council noted that crypto-assets were outside the regulatory perimeter in some cases. CoFR also noted MBIE is consulting on the use of blockchain technology in the context of its “Draft Long-term Insights Briefing on the future of business for Aotearoa New Zealand” and that RBNZ planned to publish an issues paper on the potential use of crypto-assets as new forms of money later in 2022. The Council agreed to maintain a watching brief over the sector and the emergence of regulatory practices in other jurisdictions.

CoFR also considered how they might further improve coordination across the members’ various functions responsible for monitoring the financial sector. They agreed to establish a new Monitoring and Coordination Forum to improve information sharing and understanding of operational activity in areas of mutual interest. The Council noted that the programme to implement the expected conduct regime for deposit takers and insurers, the development of the Deposit Takers Act and the implementation of the CCCFA all provide an opportunity to deepen insights and co-ordination across the monitoring agencies.

The Council received an update on the investigation into the initial implementation of recent changes to CCCFA. They noted that Ministers had received the final report and advice and were considering next steps, with decisions expected to be made in July. Concurrently, the initial changes to the CCCFA Regulations and the Responsible Lending Code that were announced in March are progressing. These changes are expected to be finalised in June.

CoFR also discussed the current inflationary environment and the efforts taken to proactively manage back inflationary expectations; the ongoing situation in Ukraine and its impacts on the New Zealand economy; and the latest developments in the global pandemic noting particularly the impact of lockdowns in China on the supply chain and the risks of long covid and recurring covid on productivity.

CoFR considered an updated Regulatory Initiatives Calendar for the New Zealand financial sector and endorsed this for publication.