New Zealand dollar stablecoins could skip one-by-one FMA approval under proposal

The Financial Markets Authority (FMA) has proposed a single rule covering all qualifying New Zealand dollar stablecoins, so issuers would no longer need individual approval to keep their coins outside financial product law.

The FMA said a coin like NZDD is "likely to be a debt security" under current law.

The label matters, according to its consultation paper.

Leading digital asset exchanges will not list tokens treated as securities, and at least some New Zealand banks prefer issuers to have an FMA designation when opening an account.

The FMA gave a designation to NZDD, launched by cryptocurrency exchange Easy Crypto in 2023 and issued by ECDD Holdings Limited, in a one-off decision in March.

The FMA opened consultation on Monday on a "class designation" that would declare any qualifying stablecoin is not a financial product under the Financial Markets Conduct Act.

Submissions close at 5pm on 18 December.

To qualify, each coin would have to be backed by $1 held in a trust account at a New Zealand registered bank, be redeemable at face value and pay holders no return.

FMA general counsel Liam Mason said the regulator wanted to test whether the way stablecoins are regulated should better reflect how they are designed and used.

"Stablecoins are generally designed to work more like a payment method than an investment," Mason said in the FMA's release.

The paper said "a small number of other firms" are developing or considering coins with a similar structure to NZDD.

It also pointed to "a clear international trend towards bespoke regulation of non-yield-bearing payment stablecoins".

Under the proposal, issuers would not need to be named or apply - and the FMA "would not necessarily know which issuers are relying on the designation".

It also floated the alternative: a named list issuers would have to apply to join. It asked whether issuers should at least have to notify it before relying on the designation.

Why it has been hard

Stablecoins issued here so far have worked roughly like this, the paper said. A customer sends dollars to the issuer and receives the matching number of coins. The issuer holds the money on trust in an on-call bank account, the coins move between holders on a blockchain, and any holder can hand them back for dollars.

Because holders have a claim on that money, the FMA said the coin is likely to count as a debt security, even though people use it to pay, not to invest.

The FMA accepted the label may add little in the way of disclosure or governance rules, because the bank deposits behind the coins are not regulated offers.

"Financial product status may therefore have significant practical consequences and create barriers for issuers," the paper said.

New Zealand's first dollar token, NZDT from Christchurch crypto exchange Cryptopia, launched in May 2017. It was suspended later that year after its bank, ASB, "got cold feet about regulatory issues and difficulties identifying customers and their activities", BusinessDesk reported in 2018.

For now, the paper said, the only clear route is to apply to the FMA one coin at a time, as NZDD did. The regulator said doing it that way increases cost and time to market, could treat similar products unevenly and gives no certainty to new entrants.

What holders would get

Issuers relying on the designation would have to hold at least as many dollars in trust as there are coins in circulation, confirm that publicly every month and publish an independent check at least once a year.

If an issuer breaks those rules, its coins would be treated as financial products again until it complies.

Issuers could keep the interest earned on the reserves to cover their costs, and put "commercially reasonable" limits on redemptions, including fees. The FMA asked whether it should set firmer limits, or require a statement telling retail holders the coin is not a bank deposit.

"The designation would not be an endorsement or approval by the FMA of any issuer or stablecoin," the paper said.

The bigger picture

The FMA described the proposal as an interim step. The Ministry of Business, Innovation and Employment (MBIE) is leading policy work on potential reform of payment services law, including how payment stablecoins should be treated, and the Reserve Bank's consultation on retail payments also discusses them, the paper said.

A tax bill introduced in September would exempt gains on qualifying stablecoins from 1 April 2027, as Cryptocurrency NZ reported.

ACT took a stablecoin policy into the election. At CryptoWinter26 in August, deputy leader Nicole McKee promised a framework for "qualifying payment stablecoins", with requirements around reserves, redemption, custody, governance, disclosure and financial crime.

Preliminary results give National, NZ First and ACT 67 seats, one more than the 66 needed to govern. The final result is due on 27 November.

Overseas, the US, the European Union, Hong Kong, Singapore and the United Kingdom have each set up dedicated rules for payment stablecoins, the FMA said. Australia has taken an interim approach while wider reforms are developed.

The FMA said stablecoins' attraction comes from "predictable value and the speed, automation and lower transaction costs that blockchain technology offers".

Stripe said in October businesses could send instant stablecoin payouts to recipients in 160 markets, and it plans to make stablecoin card issuing available in 100 countries by the end of 2026.

Local use has been small. NZDD had 608 holders on-chain at the start of September, and Swyftx was in talks to sell it in March.

"No decisions have been made," Mason said.

Submissions close at 5pm on 18 December. The FMA said all feedback is subject to the Official Information Act and may be published.