regime would continue to be less intrusive than in most other jurisdictions. as in our recent engagement with the industry on the potential impact of a point - of - sale switch outage, we will seek to identify relevant action points for the reserve bank and industry. but, consistent with our broader regulatory philosophy, we will avoid prescriptive solutions if possible. industry cooperation and rigorous self - assessment in the context of international standards is 3 / 5 bis central bankers'speeches preferable to regulatory intervention. the proposals are still subject to cabinet approval. the next step in the process would be to prepare new legislation. the reserve bank would issue an exposure draft for consultation around the end of q1 or early q2 next year. apart from the new regulatory framework for fmis, the ministry of business, innovation and employment ( mbie ) has recently released an issues paper on retail payment systems, their focus being on merchant service and interchange fees. this is an important efficiency and competition issue that many countries are grappling with. the reserve bank and the government share the common objective of a sound and efficient payments system and which facilitates innovation and open access. the government ’ s issues paper looks at features of the retail payments system that may also have broader social efficiency implications, for example arising from the allocation of costs associated with new payment services. i encourage you to consider and make submissions on the issues paper. replacement technology for esas and nzclear the reserve bank operates two important parts of the new zealand payments infrastructure : esas and nzclear. these systems, both of which are designated, need to remain reliable, efficient and fit for purpose. we also need to be responsive to changing customer demands and new technologies. the current esas and nzclear systems, introduced in 1998 and 1990, have served us well, but both now require upgrades. the replacement project underway aims to implement systems that meet modern standards of reliability and security while having sufficient capacity and agility to meet customers ’ performance expectations. at this point, these upgrades are expected to be completed by the end of 2018. closing in conclusion, i want to reinforce what i have said about the proposed new fmi oversight regime. we have sought your input to the regime over recent years and we believe we have listened. we do not envisage that the new framework will significantly change how the payments industry operates or how we engage with each other. we already have a very collaborative relationship with the industry, including payments nz. while some

current processes will be formalised over time, the nature of our open engagement means there should not be surprises. we want to continue our open dialogue with the industry, allowing mutual goals to be achieved in a low key and non - prescriptive manner. the rapidly changing payments landscape provides challenges and opportunities. competition in payments is important but collaboration is also needed between financial institutions, new entrants and policy - makers. this is necessary to create the right environment for modernising the payments system and sensibly managing the risks that arise. effective innovation is often best achieved through collaboration and we encourage the industry to move in this direction. for the bank, the main focus is on preserving financial stability while also facilitating innovation and improved efficiency. to do this, we need to keep abreast of the changing technology environment and continue to assess the level of preparedness of the system to handle adverse shocks. the challenge for the reserve bank, and for all of us, is to understand the evolving financial services landscape, including its opportunities and vulnerabilities. as we move forward in this rapidly changing environment, it serves all our interests to first ensure the safety of the system. this is the foundation for achieving innovation and growth in the industry. 1 watson, a ( 2016 ), “ disruption or distraction? how digitisation is changing new zealand banks and core banking systems ’, rbnz bulletin, 78 ( 8 ). 2 based on microsoft ’ s malware infection index 2016. 4 / 5 bis central bankers'speeches 3 bank for international settlements ( bis ) - principles for financial market infrastructures ( pfmi ). 4 financial stability board ( fsb ) - key attributes of effective resolution regimes for financial institutions. 5 bank for international settlements ( bis ) - cpmi - iosco release guidance on cyber resilience for financial market infrastructures. 5 / 5 bis central bankers'speeches