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The Reserve Bank of New Zealand (RBNZ) is consulting on new criteria to open access to its Exchange Settlement Account System (ESAS) to non-bank deposit takers (NBDTs), payment service providers and other entities.
ESAS’s primary function is to provide a mechanism for the RBNZ to settle payments among banks and other financial institutions but it is also used in the implementation of monetary policy by RBNZ account holders earning OCR-based returns.
Driving innovation and competition
ESAS provides for the immediate settlement of inter-bank financial transactions in an efficient, open and robust setting. It is currently used by 12 banks in New Zealand and five large non-bank institutions.1
This review is taking place amid a series of reforms that are fundamentally changing the payments landscape in New Zealand. The RBNZ notes in the consultation document, and agrees with, the recent Commerce Commission recommendation that:
“broader access to ESAS accounts will benefit both innovation and competition through its use as an input into payment services as well as an account that provides access to OCR returns”2
Application process
The proposed assessment process for applications to participate in ESAS would include:
- Assessing the business activities that may be carried out using ESAS to establish that access will provide a net benefit for New Zealand;
- Evaluating the applicant’s risk profile to ensure that it is within the RBNZ’s risk appetite for ESAS;
- Seeking information or advice from third parties, or recommending that an applicant undertake certain actions to meet the access criteria; and
- Imposing additional conditions or requirements as considered necessary or desirable.
Key components of proposed access criteria
The Reserve Bank proposes four criteria, all of which must be satisfied for ESAS access to be granted. These are set out in a Risk Assessment Framework (RAF) developed last year (see Chapman Tripp’s commentary here) and reproduced below.
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Criteria |
Key summary |
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Business activity criteria |
Applicants must demonstrate that their business activity is a net benefit to New Zealand and is aligned with the purpose of ESAS, which is to:
Certain entities are deemed to be carrying out qualifying business activities within this criterion:
Entity activity types that will be eligible for ESAS accounts when carrying out specified business activities include:
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AML compliance criteria |
Applicants must be reporting entities and in compliance with the Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) regime in New Zealand or under an equivalent regulatory regime in an overseas jurisdiction. |
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Prudential and governance criteria |
Applicants that are prudentially regulated entities under:
may rely on certain requirements under existing prudential regulation and supervision legislation to demonstrate an acceptable risk profile. For non-prudentially regulated entities, other criteria apply including:
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Operational criteria |
Applicants must provide evidence of established policies, procedures and processes which cover:
These criteria do not distinguish between prudentially regulated and unregulated applicants but specify the types of information in which we are interested to assess the operational risks an applicant would pose to ESAS. |
Overseas entities
Applicants registered overseas or not carrying out business in New Zealand must provide an independent legal opinion confirming:
- the enforceability of the , as published by the RBNZ, in the applicant’s home jurisdiction, and
- that there is no impediment to the applicant’s ability to meet its obligations under the ESAS Terms and Conditions.
Our comments
We agree with the clear distinction the RBNZ is making between direct payment settlement access, and access to an OCR-based account, and the requirement that each meet a net benefit test.
ESAS has evolved over the years, in terms of both purpose and use, and the dynamics of the financial sector are also changing through innovations such as seven-day payments, open banking and the Deposit Takers Act, and it is important that the RBNZ keep pace with such evolution.
Allowing wider access to OCR-based accounts via ESAS may, in theory, encourage more direct holdings with the RBNZ and reduce deposits with commercial banks (and therefore their ability to lend out such amounts to borrowers on longer timeframes – so-called ‘maturity transformation’).
However, as with the development of a central bank digital currency (CBDC) and the diversification toward fin-techs and non-banks, the RBNZ needs to facilitate rather than resist innovation if it is to retain its ability to manage financial stability and maintain the effectiveness of its monetary policy implementation.
Next steps
Submissions close on Monday 18 November 2024.
The RBNZ intends to open for applications from mid-2025.
If you would like more information or assistance with preparing a submission, please get in touch with one of our experts.
1 - Reserve Bank of New Zealand, ESAS Access Review is open for second consultation (7 October 2024).
2 - Commerce Commission, Personal Banking Services – Market Study – Final Report (20 August 2024).
