New Zealand -- Stablecoin Regulations Regulatory Overview

New Zealand's regulatory framework for stablecoins is currently in an evolving state, marked by no specific legislation tailored exclusively to stablecoins. Instead, existing financial services and anti-money laundering laws apply based on a stablecoin's specific characteristics and use cases. The Reserve Bank of New Zealand (RBNZ) is actively engaging in comprehensive work on the "Future of Money," which includes significant consideration of stablecoins and a potential framework for "digital cash."

Here's a breakdown of the current situation and ongoing developments:

1. Classification of Stablecoins

There is no specific legal classification for stablecoins in New Zealand. Their classification depends on their specific features and how they are structured. They could potentially be categorised under existing legislation:

• Securities/Financial Products:

  • If a stablecoin confers rights similar to a debt security, equity security, managed investment product, or derivative, it could be classified as a financial product under the Financial Markets Conduct Act 2013 (FMC Act).
  • The Financial Markets Authority (FMA) would regulate such stablecoins, requiring compliance with disclosure obligations, fair dealing provisions, and potentially issuer licensing.
  • Reference: Financial Markets Conduct Act 2013

• E-money/Payment Tokens:

  • New Zealand does not have a dedicated e-money or payment token legal framework distinct from general banking regulation.
  • The RBNZ's ongoing "Future of Money" work is actively exploring whether new legislation is needed for a specific "digital cash" framework (which could encompass well-backed stablecoins meeting certain criteria) or other forms of private digital money.
  • Currently, for a stablecoin to be considered "money" in a regulatory sense, it would likely need to fall under the Reserve Bank of New Zealand Act 2021 if it constitutes a systemic payment system or if its issuer were to become a licensed bank (which is a very high bar).
  • The RBNZ differentiates between commercial bank money, central bank money (potential CBDC), and "private digital money" (which includes stablecoins). They are considering regulating "private digital money" if it becomes systemic.
  • Reference: RBNZ - The Future of Money – A phased approach to a CBDC in New Zealand

• Virtual Assets (AML/CFT):

  • Regardless of their classification under financial markets or banking law, entities dealing with stablecoins (e.g., exchanges, custodians) are generally considered Virtual Asset Service Providers (VASPs) and fall under the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT Act).
  • This requires them to implement AML/CFT programmes, conduct customer due diligence, report suspicious transactions, and be supervised by the Department of Internal Affairs (DIA).
  • Reference: Anti-Money Laundering and Countering Financing of Terrorism Act 2009

2. Reserve Requirements

• No specific stablecoin reserve requirements exist under current New Zealand law, as there is no dedicated stablecoin regulation.
• However, if a stablecoin were classified as a financial product under the FMC Act, the issuer would be subject to disclosure obligations regarding its backing assets, their custody, and auditing. This would ensure transparency for investors but does not impose a specific reserve ratio or type.
• The RBNZ's "Future of Money" discussions strongly advocate for robust reserve requirements for any form of regulated private digital money. They emphasise 1:1 backing with high-quality, liquid assets, ring-fenced or held in trust, and subject to regular independent audits to ensure stability and liquidity. This indicates a likely direction for future regulation.
• Reference: RBNZ - The Future of Money - Key policy considerations for stablecoins and other private digital money

3. Issuer Licensing

• No specific stablecoin issuer license currently exists.
• However, licensing requirements depend on how the stablecoin is classified:
  • Financial Service Provider (FSP) Registration: If the stablecoin is deemed a financial product, its issuer or certain service providers might need to register on the Financial Service Providers Register under the Financial Service Providers (Registration and Dispute Resolution) Act 2008. This is a registration, not a full license, but it brings obligations.
  • Banking License: If a stablecoin issuer were to engage in activities akin to deposit-taking and lending, they would likely require a registered bank license under the Reserve Bank of New Zealand Act 2021, which is an extremely stringent requirement.
  • AML/CFT Reporting Entity: All entities providing services related to virtual assets, including stablecoins, must register as a reporting entity with the DIA for AML/CFT compliance.
• The RBNZ is considering a new licensing regime for "digital cash" issuers (which could include certain stablecoins) as part of its future framework, which would likely include specific prudential requirements.

4. Redemption Rights

• No specific statutory redemption rights for stablecoins currently exist. Redemption rights are generally governed by the stablecoin's terms and conditions set by the issuer.
• If classified as a financial product, general consumer protection laws and contract law would apply, potentially allowing recourse for breach of contract or misleading conduct (e.g., under the Fair Trading Act 1986).
• The RBNZ's "Future of Money" work strongly advocates for guaranteed 1:1 redemption on demand for any regulated private digital money or "digital cash" to ensure public trust and stability. This would likely be a core component of any future dedicated stablecoin regulation.

5. Algorithmic Stablecoin Rules

• No specific rules or regulations for algorithmic stablecoins.
• The RBNZ and FMA are generally highly cautious regarding algorithmic stablecoins due to their inherent volatility and susceptibility to "bank runs," as demonstrated by past failures (e.g., Terra/LUNA).
• It is highly unlikely that an algorithmic stablecoin would be considered suitable for any "digital cash" or "e-money" framework the RBNZ might develop, as they inherently lack the stable backing mechanisms central to the RBNZ's vision for reliable digital money.
• Such stablecoins would likely face intense scrutiny and would almost certainly be classified as high-risk financial products (possibly derivatives or managed investment schemes) under the FMC Act, triggering significant disclosure and conduct obligations, or even prohibitions if deemed too risky for retail investors.

6. CBDC Interaction

• New Zealand does not currently have a Central Bank Digital Currency (CBDC). However, the RBNZ is actively researching and consulting on the potential introduction of a "digital cash" (a retail CBDC for New Zealand).
• Interaction:
  • Complementary vs. Competitive: The RBNZ sees a potential digital cash as complementing, rather than replacing, private forms of money, including stablecoins. A CBDC would offer a risk-free, central bank-backed option alongside private innovations.
  • Regulatory Benchmark: The RBNZ's exploration of a digital cash provides a framework for evaluating and potentially regulating private stablecoins. The principles of stability, interoperability, consumer protection, privacy, and financial integrity being developed for a CBDC would likely heavily influence any future stablecoin regulatory framework.
  • Future of Payments: The RBNZ views both a potential CBDC and well-regulated private stablecoins as part of a broader evolution of New Zealand's payment landscape, aiming to enhance resilience, innovation, and competition.
• Reference: RBNZ - The Future of Money – A phased approach to a CBDC in New Zealand

Summary

New Zealand's approach to stablecoin regulation is pragmatic and evolving. While no specific stablecoin law exists, current legislation (FMC Act, AML/CFT Act) applies based on a stablecoin's features. The Reserve Bank of New Zealand is the primary driver of future regulatory reform through its "Future of Money" work, strongly advocating for robust prudential standards (like 1:1 reserves, guaranteed redemption, and licensing) for any private digital money deemed systemic or widely used as "digital cash," alongside its research into a potential CBDC. Algorithmic stablecoins are viewed with significant caution and are unlikely to fit within any future regulated "digital cash" framework.