Administrators of financial benchmarks

Licensing regime

New Zealand’s new 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 the new EU regulations.

The new EU regulations set standards around the processes for setting financial benchmarks, and for recognising and using third country benchmarks in the EU. A benchmark or a combination of benchmarks provided by an administrator located in a third country may only be used in the EU where the benchmark and the administrator are included in the register maintained by the European Securities and Markets Authority (ESMA) following the adoption of an equivalence decision by the Commission, or a recognition or endorsement by competent authorities.

New Zealand’s new regime will provide the basis for an ‘equivalence’ decision by the European Commission.

Licensing process

Before the FMA can issue a licence to an administrator of a financial benchmark in New Zealand, we must be satisfied the applicant is capable of effectively performing the required functions, including meeting any conditions imposed on their licence.

We assess applications against the requirements set out in the Act and the Financial Markets Conduct Regulations 2014 (the Regulations).

If you are applying for a licence, we will ensure you have provided all relevant information before deciding on your application, and will request further information where required.

If we intend to grant your licence, we will contact you before issuing the licence so you can see and acknowledge any conditions we intend to set. If we need to decline your application, we will contact you first so you have the opportunity to discuss the decision with us.

How to apply for a licence

Download and complete the following:

• Application form (BMA.1)

This form helps you start processing your application. It contains information about how to submit your application, the fee and how to pay it.

• Information checklist and statutory declaration (BMA.2)

This form contains:

• a checklist of supporting information that you must submit with the application form
• an appendix of cover sheets to help us track the information you provide
• a list of all directors and senior managers who need to submit director/senior manager statutory declaration forms (see below).

Director/senior manager declarations forms (BMA.3)

Every director and senior manager named in the ‘Information checklist and statutory declaration’ form (above) must separately complete one of these forms.

• Submit the completed PDF versions of the application form, checklist, declarations and supporting forms to the FMA by email to [email protected]
• Contact [email protected] if you have questions.

If you are providing sensitive documents to support your application and would prefer to provide these documents by way of secure document transfer (rather than email), or if your files are too large to be provided via email, please contact [email protected].

The information and documents you supply with your application will be held securely by the FMA and used for the ongoing administration and monitoring of your licence.

Declarations from directors and senior managers

Every director and senior manager named in the ‘Information checklist and statutory declaration’ form (BMA.2) must complete a separate ‘Director/senior manager statutory declaration’ form (BMA.3)

The director/senior manager statutory declaration includes personal details, professional history and character assessment information required for us to ensure your directors and senior managers are fit and proper persons in accordance with the Act.

Registration on the Financial Service Providers Register

Administrators of financial benchmarks must be registered on the Financial Service Providers Register (FSPR) as holders of a market services licence. The FSPR registration process is conducted differently depending on whether you are a New Zealand registered company or not. 

For more information and the process for registration please visit the Companies Office website

As part of the FSPR registration process, all directors and senior managers of entities will be subject to a criminal history check, for which you will be charged a fee. Once registered, administrators of financial benchmarks are required to file an annual FSPR confirmation each year in the form prescribed. 

For more details on filing an annual confirmation refer to the FSPR website

The application fees for an administrator of a financial benchmark licence ­are determined by the Financial Markets Conduct (Fees) Regulations 2014 and made up of two parts:

• a one-off payment of $115 on application; and
• fees charged on an hourly basis (and charged pro-rata for every part-hour) for work on your application.

The hourly rates are charged as outlined below:

	Hourly rate
For each hour of work carried out by an FMA Board member	$230.00
For each hour of work carried out by an employee of the FMA who is qualified in accountancy, auditing, business, commerce, economics, or law	$178.25
For each hour of work carried out by an employee of the FMA who the FMA is satisfied has a professional level of skills, training or experience in financial markets matters of the kind to which the application relates	$178.25

The fees are payable on the issue of an invoice by or on behalf of the FMA and within the time frame specified in the invoice.

In addition to the application fee, administrators of financial benchmarks are required to pay an annual levy set by the Financial Markets Authority (Levies) Regulations 2012. The annual levy is $20,125 and charged pro rata for any part-year a licence is held.

Administrators of financial benchmarks have a number of ongoing obligations. The licence is a market services licence under Part 6 of the Act so has certain key standards and general conditions, as well as those specific to an administrator of a financial benchmark. In addition, the FMA may impose entity specific conditions.

Key standards

To meet and maintain certain key standards set out in section 396 of the Act:

• the eligibility criteria prescribed by the Regulations must be satisfied
• directors and senior managers (current or proposed) must be fit and proper for their positions
• the business must be capable of performing the service effectively and in keeping with licence conditions
• we must have no reason to think you're likely to contravene your licensee obligations.

General conditions for market service licensees

Under section 402 of the Act, a licensee or authorised body may only provide the market services or class of market services to which their licence relates, and only by those people authorised under the licence.

Section 403 confirms that the FMA may, by written notice, impose conditions on a licence when the licence is issued, and vary, revoke, add to, or substitute any conditions of licence imposed under this section at any time after the licence is issued.

Part 6, subpart 2 of the Regulations provides reporting conditions for market service licence holders. Benchmark administrators must report to the FMA as soon as practicable if certain events occur or are likely to occur, including insolvency, director or senior manager bankruptcy, certain proceedings against the entity or its directors or senior managers, resignations and appointments of directors, senior managers or an auditor, a change of the entity name, or a proposition to enter into a major transaction. Refer to section 191(1) of the Regulations for full details of reporting events.

Conditions for benchmark administrators imposed by the Regulations

Section 448B of the Act provides the purpose for licensing administrators of financial benchmarks. When considering a license application we will assess whether this purpose is being met.

Part 3 of schedule 28 of the Regulations sets out conditions specific to an administrator of a financial benchmark licence. See the schedule for further details - a summary is below.

Governance and management conditions

A benchmark administrator must:

• regularly review its systems and procedures for governance and oversight, and conflicts of interest and identify and promptly remediate any deficiencies
• ensure all outsourcing arrangements are in a written contract, that the activity is performed by the nominee in the same manner and subject to the same duties and restrictions as if the administrator were performing it directly, and monitor the performance of that activity
• ensure its board provides the independent oversight committee with an opportunity to comment on, and make recommendations about, any matter within the committee’s responsibility, and has regard to each recommendation of the committee, and notifies the committee in writing of—
  • the steps that have been or will be taken in response to the recommendations; or
  • any decision by the board to decline to adopt the recommendation, with its reasons for doing so
• permit the independent oversight committee to notify the FMA if it knows or suspects that, in connection with the service covered by the licence:
  • the licensee or an authorised body has or may have contravened, or is likely to contravene, a market services licensee obligation; or
  • a contributor has or may have contravened, or is likely to contravene, an obligation imposed by or under the Act.

Generation and operation conditions

A benchmark administrator must:

• act in a fair, orderly, and transparent manner when generating and operating the specified financial benchmark
• to the extent that it is reasonably practicable to do so, generate and operate the specified financial benchmark in a manner that—
  • is appropriate for the nature, complexity and intended use of the benchmark;
  • maintains the accuracy, integrity, reliability and continued availability of the benchmark; and
  • does not adversely affect the integrity of any market connected with the benchmark.
• take all reasonable steps to ensure the financial benchmark data is sufficient to accurately and reliably represent the state of affairs the benchmark is intended to represent, and is based on active market data if suitable data is available.
• continue to use a financial benchmark methodology that complies with the eligibility criteria in schedule 28, part 2, clause 9 of the Regulations, and have in place methods to regularly review, test, systematically identify and promptly remedy deficiencies in—
  • the methodology; and
  • the use of that methodology by the licensee and any authorised body.
• take reasonable steps to consult with users of their benchmark about any proposed changes (other than a change made to comply with a direction from the FMA) including any users, or their representatives that the licensee or authorised body considers will be substantially affected by the change; and if a change is then implemented, to notify users within a reasonable time before it is implemented
• if the specified benchmark is an interest rate benchmark, to maintain a methodology (final stage) for generating and operating the benchmark that is designed to allow the licensee or an authorised body to generate and operate the benchmark when the methodologies normally used have failed, or are likely to fail; and such methodology must, to the extent that is reasonably practicable, include generating and operating the benchmark by using information or data that is based on the exercise of expert judgement by the contributors
• make publicly available the following information to the extent necessary to ensure users of their benchmark have sufficient information to understand how it is developed and its intended use:
  • an explanation of the state of affairs the benchmark is intended to represent; and
  • a description of the financial benchmark methodology, including the matters set out in schedule 28, part 2, clause 9 of the Regulations.

Reporting conditions

A benchmark administrator must notify the FMA if the licensee or authorised body (as applicable):

• proposes to make a material change to the financial benchmark methodology or final stage methodology for the specified financial benchmark
• proposes to make a material change to the contributor conduct rules
• knows or suspects that a contributor has committed, is committing or is likely to commit a significant contravention of part 2 of the Act (which relates to fair dealing) in connection with the service covered by the licence; or
• intends to cease generating or operating the specified financial benchmark and must, at least 4 weeks before ceasing, ensure it:
  • confirms the arrangements for ensuring the orderly transfer of the generation or operation of the benchmark to another person, or the orderly cessation of the generation or operation of the benchmark; and
  • confirms any changes to those arrangements made after the notification above, as soon as reasonably practicable afterwards.

Other conditions

A benchmark administrator must:

• create and maintain records that enable the licensee and the authorised body to demonstrate compliance with the market services licensee obligations
• create and maintain records of any matters notified by the contributor under the contributor conduct rules, and keep all other information or data provided or made available by each contributor
• keep a copy of the records, information and data that comes into its possession for at least 7 years after it comes into its possession.
• on written notice from the FMA, give it any records, information or data, or class of records, information or data specified in the notice, as well as any reasonable assistance required to access or reproduce it in a usable form.
• monitor each contributor’s compliance with the contributor conduct rules, and take the steps specified in those rules if the contributor reports an error, a discrepancy, or a suspicious activity or the contributor notifies the administrator of a breach of the contributor conduct rules
• investigate complaints in a timely and fair manner, and ensure the outcome of an investigation is communicated to the complainant as soon as practicable
• obtain an assurance engagement (including an assurance report) with a qualified auditor, in accordance with applicable auditing and assurance standards, that determines whether the licensee’s (and every authorised body’s) systems and procedures were suitably designed to meet the market services licensee obligations and operated effectively; and ensure such engagements cover specific 2-year periods and are obtained within 4 months after the period end date, unless an alternative date is specified in a notice given by the FMA.

Financial reporting obligations

Administrators of financial benchmarks are FMC reporting entities and so must:

• keep proper accounting records to assist with the preparation of compliant financial statements, in English and with a copy kept in New Zealand  
• prepare financial statements for the entity’s (or group's) operation, which comply with generally accepted accounting practices in New Zealand
• ensure its financial statements are audited by a licensed auditor or registered audit firm 
• lodge financial statements and the auditor’s report with the Companies Office within 4 months of the balance date. 

Fair dealing

The Act sets out minimum compliance standards of behaviour for people operating in the financial markets. It prohibits:

• misleading or deceptive conduct
• false or misleading representations
• unsubstantiated representations
• offers of financial products in the course of unsolicited meetings

 

The FMA has wide powers to exempt persons or transactions from some financial markets law requirements. These powers enable us to remove rigidities in the law and ensure requirements for businesses are reasonable and cost-effective. Read more about exemptions under the FMC Act and current exemption notices.

The new EU regulations have significant implications for New Zealand. Unless our regulatory regime and the administrators of New Zealand benchmarks meet the standards set in the EU regulations, 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, such as significant Crown Financial Institutions, would no longer be able to transact with EU counterparties in critical financial transactions. Ultimately this would lead to significant costs to New Zealand businesses and consumers.

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 has been introduced under the Financial Markets Conduct Act 2013 (the Act).