The designation will take effect from 4 October 2012.

The Reserve Bank and FMA are joint regulators of designated settlement systems. The NZ Clear Settlement System is operated by the Financial Services Group of the Reserve Bank of New Zealand.

Reserve Bank Head of Prudential Supervision Toby Fiennes, and FMA Head of Compliance Monitoring Elaine Campbell said the designation gives statutory backing to the finality of settlement and netting of transactions through the system so that in the event of failure by a participant, transactions cannot be unwound.

Designated settlement systems are subject to ongoing oversight by FMA and the Reserve Bank. However, it is not compulsory for settlement systems operating in New Zealand to be designated.

New Zealand has three existing designated settlement systems: the Reserve Bank's Exchange Settlement Account System, the Continuous Linked Settlement System operated by CLS Bank International and the NZCDC Settlement System which is operated by New Zealand Clearing and Depository Corporation, a wholly-owned subsidiary of NZX Limited. The first two are pure payment systems and so are regulated solely by the Reserve Bank whereas the last is a settlement system and therefore regulated by both the Reserve Bank and FMA.

A settlement system will only be recommended for designation after a thorough assessment by the regulators, who will assess, amongst other things, the clarity and legal certainty of the rules of a system, its financial soundness and risk management policies, and the capability and capacity of the operator.