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The Reserve Bank of New Zealand (RBNZ) has launched a consultation on a proposal to bring the High Value Clearing System (HVCS) under formal regulation, aligning it with international norms.
The central bank said it wants New Zealand’s minister of finance to designate the HVCS under the country’s Financial Market Infrastructures (FMI) Act, bringing it more in line with how payment systems are overseen in comparable jurisdictions.
This move would subject the system to regulatory supervision by RBNZ and require adherence to the standards set by the legislation.
“Designating HVCS will allow us to make sure that HVCS is operating soundly and efficiently,” said Scott McKinnon, RBNZ’s director of specialist supervision.
“It would also allow us to look closely at the governance, access and crisis management of HVCS, while giving us powers that can help avoid significant damage to the financial system if there were problems with HVCS.”
The HVCS, operated by Payments NZ, is a dedicated payment system responsible for clearing high-value transactions in New Zealand, including property settlements and other time-critical payments.
In 2024, the HVCS cleared an average monthly value of approximately $420bn, equivalent to 1.2 times New Zealand’s GDP, highlighting its centrality to the functioning of the financial system.
According to RBNZ, the HVCS is not easily substitutable, and disruption to its operations could pose significant risks to financial stability. If designated, it would benefit from greater legal protections, such as settlement finality, while also facing more robust oversight.
Systemic importance
In supporting the proposal, RBNZ has formally assessed the HVCS as “systemically important” under the criteria set out in the FMI Act.
The assessment, first shared with Payments NZ in October 2023, found the HVCS to be critical based on its size, the nature of its participants and the scope of its activities. It also highlighted interconnections with other infrastructures, such as the Exchange Settlement Account System (ESAS), and the systemic risks that could result from disruption.
There are currently 14 direct participants in the HVCS, including systemically important banks and other FMIs, and 14 indirect participants that access the system via agency arrangements.
The top five participants account for nearly 89 percent of settled transaction volumes, which the central bank said reflects a high concentration of activity and associated contagion risk.
RBNZ added that although the HVCS does not itself settle transactions, it only clears them, it is integral to the end-to-end processing of high-value payments.
The central bank pointed out that the system also depends on compliance with well-defined rules around access, risk management, operational resilience and participant defaults.
It is also heavily reliant on the SWIFT messaging network, although there is a contingency model in place should SWIFT become unavailable.
Payments NZ has challenged aspects of RBNZ’s systemic importance assessment, arguing, among other points, that the HVCS is not itself a systemically important infrastructure and that Payments NZ is easily substitutable as the operator.
Nonetheless, RBNZ maintains that the HVCS meets the legal thresholds for designation under the FMI Act.
The norm elsewhere
High-value payment systems such as New Zealand’s HVCS are rarely kept outside the regulatory sphere; in fact, they are regulated in almost all major jurisdictions due to their critical role in financial stability and monetary policy transmission.
Most central banks designate and supervise these systems under dedicated legal and regulatory frameworks.
For example, in the UK, the high-value payment system CHAPS is designated as a systemically important payment system under the Banking Act 2009.
The Bank of England operates CHAPS and has statutory powers to oversee it, and the system is also subject to the Financial Market Infrastructure (FMI) supervisory regime under the Financial Services and Markets Act 2000.
In Europe, meanwhile, the T2 real-time gross settlement (RTGS) system, which is operated by the European Central Bank (ECB) and national central banks, is designated a systemically important payment system under EU regulation.
T2 must comply with strict requirements aligned with the CPMI-IOSCO Principles for Financial Market Infrastructures (PFMIs), on issues such as governance and resilience.
New Zealand’s neighbour Australia regulates its high-value payment system through a dual structure.
The Reserve Bank Information and Transfer System (RITS), which settles all high-value payments in real time, is operated and directly overseen by the Reserve Bank of Australia (RBA) and designated as systemically important.
Meanwhile, the High Value Clearing System (HVCS), managed by industry body AusPayNet, is governed by rules authorised by the Australian Competition and Consumer Commission (ACCC). Although HVCS is industry-run, final settlement occurs through RITS, giving the RBA ultimate oversight.
The list goes on. In the US, Singapore, and Hong Kong, the high-value payment systems (Fedwire, MEPS+ and CHATS respectively) are designated as systemically important and subject to central bank regulation and oversight.
The fact that New Zealand’s HVCS, operated by Payments NZ and settled via the Reserve Bank’s ESAS system, is not currently designated or formally regulated means that it stands out as an exception.
RBNZ does not have statutory oversight powers over HVCS or the ability to impose binding standards.
However, if the central bank’s consultation yields the response it is hoping for, it will be able to bring New Zealand into alignment with global best practice.
Ultimately, regulation should boost confidence and efficiency in New Zealand’s payment infrastructure, marking a shift from informal arrangements to a bolstered and enforceable framework.
