FMA: NZX Met its Statutory Obligations as Market Operator in 2019

The (FMA) of New Zealand announced this Tuesday that the (NZX) met its statutory obligations as a licensed market operator during 2019.
According to the of the NZX, from the 1st of January 2019 until the 31st of December 2019, the exchange complied withs its market operator obligations and the FMA will be working with the exchange on the areas where the regulator considers improvements should be made.

In particular, the Kiwi regulator said there are potential conflicts with the NZX, as its policy decision-making sits within, and is driven by, its commercial function. 
FMA: policy decision-making of NZX will continue to be evaluated
As , the NZX announced that it will adopt a new regulatory operating and governance. Under this, a separate entity will execute all frontline regulatory functions, as part of its obligations as a market operator and operator of the designated settlement system.
The proposed entity will be structurally separate from the exchange’s commercial and operational activities, governed by a separate board with an independent chair, and will target to operate on a cost-neutral basis. However, the FMA said the new structure does not address this conflict.
“We have previously discussed with NZX the potential conflicts that may arise where policy decision-making sits within, and is driven by, its commercial function. We want to ensure that the regulatory impacts of policy decisions are given sufficient consideration,” the FMA said in its review. 
“Over the coming year, we will seek to understand how regulatory considerations are evaluated as part of the NZX’s policy decision-making. The implementation of the new regulatory model of itself does not address this conflict and policy decision-making is an area of continued interest to us.”
Staff turnover remains a concern
Furthermore, in its 2018 review, the market watchdog had concerns that staff turnover within NZX Regulation could contribute to increased key person risk. Although the regulator is satisfied that there is sufficient resourcing within NZX for the effective regulation of its licensed markets, the FMA highlighted that the exchange’s dependency on certain staff members is an area of risk.
“NZX is currently considering initiatives to mitigate this risk. For example, NZX has commenced a project to assess establishment of a dedicated third party provider panel, which would give NZX Regulation access to external expertise in support of regulatory activity,” the report said. 
“Those arrangements would include litigation and audit/valuation support. In addition, NZX has advised this would mean enhanced real time and strategic support will be available to the exchange’s regulatory function on implementation of the new regulatory model.”
Technology disruptions
In April of 2020, NZX experienced technology disruptions. Although this is not covered in the review, as it is outside the review period, the authority has commenced a review into these disruptions to understand the nature of the issues and assess the overall appropriateness of NZX’s response. The agency expects to reveal these findings this year.