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'No plans' to separate monetary policy and prudential supervision in Phase 2 of RBNZ review

Thursday 7th June 2018

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The government is "not planning" to separate the Reserve Bank's separate monetary policy and prudential supervision responsibilities in the second phase of the review of the Reserve Bank Act  - aimed at the financial stability role and broader governance reform, says Finance Minister Grant Robertson.

"The government is not planning to go down the separation path at this stage," said Robertson in a question and answer document about the terms of the reference for the second phase published today.

However, stakeholder consultation exercise did reveal interest in the issue and that further submissions could be made on it after the first round of public consultation on the Phase 2 issues, terms of reference for which were released this afternoon.

The review team "will be explaining the rationale for retaining prudential regulation and supervision inside the Reserve Bank as part of the first round of public consultation on Phase 2 issues".

Treasury and the RBNZ will jointly carry out the Phase 2 work, in conjunction with the Independent Expert Advisory Panel, chaired by Suzanne Snively, which will continue in its current form, said Robertson. He is considering further additions to the panel to ensure it contains the necessary expertise for the matters covered by Phase 2. These will be announced in the near future.

Key considerations for the review will be whether the act provides a coherent framework for the Reserve Bank’s roles and responsibilities, whether the act’s purpose and Reserve Bank’s objectives are clear, whether they remain appropriate, and the process by which they are set. It will consider the Reserve Bank’s accountability to the board, the minister of finance and parliament. 

It will also consider options to work more closely with Australian regulatory agencies to explore and perhaps improve the coordination of policy. 

The scope and objectives for macro-prudential policy will be reviewed to define the policy, its use, and its relationship to prudential and/or monetary policy. The review will also consider decision making, the macro-prudential toolkit, and processes to provide transparency, accountability, and review.

Regarding the timeline, Roberston said an initial task of the review team will be to develop a work programme and identify what it needs to deliver, including timelines for the development and introduction of legislation, with most of the major legislative amendments likely to be advanced in the current parliamentary term.

The goal is to ensure that the framework within which the Reserve Bank regulates and supervises the banking sector is fit-for-purpose and enables the Reserve Bank to perform its role effectively, he said.

However, it will not address the separate legislation underpinning the current prudential frameworks for the insurance and non-bank deposit-taking sectors respectively, nor the proposed legislation for financial market infrastructure, except where consequential changes are necessary or could encourage alignment. The Reserve Bank’s role as an anti-money laundering supervisor is also out of scope.

Robertson made clear the review will not directly touch on conduct issues raised by the Australian Royal Commission. The Reserve Bank, the Financial Markets Authority and the Commerce Commission are currently engaging with New Zealand’s banking sector on the Australian findings, he said.

The government announced the review in November 2017. The first phase covered changes to the objectives of monetary policy to give due consideration to maximising employment alongside price stability and making provision for a committee decision-making model for monetary policy.


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