In a carefully-worded press release, the Reserve Bank (RBNZ) is "proposing" to ask Finance Minister Nicola Willis to designate HVCS, the clearing system through which high-value transactions such as house payments pass.
HVCS (High Value Clearing System) is one of three systems that clear funds, the final leg of the payments process before settlement. Designating it would allow the RBNZ to regulate and supervise the HVCS.
Every month, the RBNZ explained, more than $420 billion of transactions are cleared using HVCS, "which is more than New Zealand’s GDP."
It can't easily be substituted by another system, and disruption to its activities could damage New Zealand’s financial system, says RBNZ Director of Specialist Supervision Scott McKinnon.
“Designating HVCS will allow us to make sure that HVCS is operating soundly and efficiently. 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.”
HVCS is administered by bank-owned Payments NZ, which also administers the other two clearing systems - BECS (Bulk Electronic Clearing System), dealing with most retail payments, and CECS (Consumer Electronic Clearing System), dealing with the processing of ATM and EFTPOS payments.
Payments NZ is owned by ANZ, Westpac, BNZ, ASB, Kiwibank, TSB, HSBC and Citibank. The RBNZ says it shared its systemic importance assessment with Payments NZ in October 2023. Payments NZ responded via letter in December 2023, acknowledging the importance of the HVCS to the financial system, but "put forward several arguments related to our assessment," the RBNZ says.
"We considered their arguments and remain of the view that the HVCS is systemically important."
The RBNZ's interest in HVCS is due to its sheer size - its role is to make sure large payments, such as house purchases, are cleared and able to be settled.
Each clearing system sets out the rules, standards and procedures for exchanging payment information and for defining settlement obligations for relevant payments types.
Clearing systems are not technology infrastructures, but are a standardised set of requirements that participants must follow to exchange and settle payments, the RBNZ explains in its primer on New Zealand's payments landscape.
Clearing is part of the "back-end" of the payments system, taking over once a customer's payment instruction has been authorised by their bank.
Clearing systems serve two functions.
The first is to calculate the settlement obligations between two participants in the system - typically, the payer's bank, and the payee's.
Secondly they format and exchange payment information between them.
HVCS sends payments messages between members of the AVP (Assured Value Payment) group. To use HVCS you have to be an AVP member.
Payments NZ decides who has access to HVCS. The RBNZ owns and operates the AVP and decides who can be an member.
The RBNZ requires only that AVP participants meet its requirements for access to ESAS (Exchange Settlement Account System), the final leg of the payments journey where all interbank transactions in New Zealand are settled.
ESAS membership has until now been bank-only.
But the RBNZ in March extended potential eligibility to NBDTs (non-bank deposit takers) and anyone else who meets its revised criteria.
It has received expressions of interest from six licensed NBDT's, but no actual applications.
The RBNZ's HVCS designation proposal is, for now, just a proposal, open to consultation by 30 September.
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