FMA class designation sets the NZD-referenced token test

The Financial Markets Authority (FMA) is consulting on a class designation under section 562(1)(c) of the Financial Markets Conduct Act 2013 that would place a qualifying NZD-referenced and New Zealand dollar-backed payment stablecoin outside the Act's financial-product definition where a bank bare trust, par redemption and a bar on holder yield are all met. The November 2026 consultation paper treats the designation as an interim path while payment-services law is still being designed, and submissions close at 5pm on Friday, December 18, 2026. What follows is the perimeter of that class, the publications an issuer would still owe, and the listing and redemption consequences for a broker or a payments firm dealing in an NZD-referenced token.

Key facts

• Legal tool: a class designation under section 562(1)(c) of the Financial Markets Conduct Act 2013, available where the purpose test in section 563 is met (FMA consultation paper, November 2026).
• Product test: issued for $1, held on bare trust at a New Zealand registered bank, redeemable at face value, with holder yield kept off the token (consultation, proposed product features).
• Ongoing duties: reserves at least equal to circulation, a monthly public confirmation, an annual independent verification, and a website statement of reliance (consultation).
• Precedent: the Financial Markets Conduct (ECDD Holdings Limited Stablecoin) Designation Notice 2026, in force on March 11, 2026, for NZDD (designation notice).
• Deadline: submissions close at 5pm on Friday, December 18, 2026, across 18 questions, and coverage reaches tokens issued or transferred after commencement (consultation).
• Fair-dealing scale: Financial Markets Authority v Tower Ltd [2025] NZHC 3771, on December 5, 2025, a $7 million penalty under section 22 (NZLII; FMA release, December 9, 2025).

Methodology and sources

The account rests on the FMA consultation paper, "Proposed class designation for New Zealand dollar-referenced and -backed stablecoins," a 15-page document dated November 2026, read in full from the consultation PDF published with the consultation page. The class power is section 562(1)(c) of the Financial Markets Conduct Act 2013 on legislation.govt.nz. The template is the Financial Markets Conduct (ECDD Holdings Limited Stablecoin) Designation Notice 2026.

Liam Mason's comment is the FMA media release of November 9, 2026, carried by Scoop. Enforcement uses Financial Markets Authority v Tower Ltd [2025] NZHC 3771 and the FMA penalty release of December 9, 2025. The window runs from the March 11, 2026 NZDD notice through the December 18, 2026 deadline. Comparators are the regimes the paper names, plus Financial Stability Institute Brief 33 (August 2026).

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What the proposed class designation would actually do

Section 562(1)(c) lets the FMA place a security that would otherwise be a financial product outside that definition, for one security or a class. Section 563 requires the step to be necessary or desirable for a purpose in section 3 or section 4, after regard to economic substance and consultation with people substantially affected. The purposes listed run from confident participation and fair markets to useful information, monitorable governance and innovation kept free of unnecessary compliance cost.

Section 8(1)(a) defines a debt security as a right to be repaid money, or paid interest, owing by any person, and section 8(5)(a)(ii) includes an equitable interest in such a product. The structure in the paper is a customer paying New Zealand dollars for tokens while the issuer holds the cash on bare trust, on call, at a registered bank, with a right to hand the tokens back for currency. The FMA says that is likely a debt security, an equitable interest in a bank deposit, and it cites the June 2010 Ministry of Economic Development securities-law paper for a regime built around return or risk management.

A qualifying NZD-referenced payment stablecoin, on the November 2026 FMA test, is a token sold to an account holder for $1 and backed, as trustee, by that $1 on bare trust at a New Zealand registered bank. The holder may return the token and require delivery of that $1, subject only to commercially reasonable restrictions on eligibility, compliance, minimum amounts, timing and fees agreed with the issuer. Income, interest or other gain from the issuer or a related party stays off the token, while the issuer may keep trust-account interest to cover cost. The features are taken from the ECDD Holdings Limited notice in force on March 11, 2026. Ongoing duties would hold reserves at least equal to face value in circulation, with a public confirmation at least monthly, an annual independent verification whose results are published, and a website statement of reliance on the class notice.

The ECDD notice names NZDD and one issuer. The class copies its features and duties, leaves later issuers off the face of the notice, and offers a named schedule as Question 5's alternative. Some banks have wanted a designation before the reserve account opens. Reserves are New Zealand dollars at a registered bank under Reserve Bank of New Zealand supervision, for retail and wholesale holders alike. Algorithmic tokens, mixed securities or money-market reserves, holder yield and other currencies sit outside. The FMA calls a designation a blunt tool and keeps complex treasury rules, and the lapse rule, for a statute and for Question 13.

How other payment-token regimes compare

Sources are the FMA consultation paper of November 2026 and the instruments named in it, last checked on November 11, 2026.

Payment stablecoins that keep a return off the holder are, on the paper's account, moving into bespoke regimes. Financial Stability Institute Brief 33 (August 2026), by Adrien Currat, Johannes Ehrentraud and Denise Garcia Ocampo, is the cited menu of reserve rules, redemption rights, governance and prudential oversight, plus the trend to treat issuance as its own activity. Section 562(1)(c) either leaves the token in the product regime or lifts it out, so a licensing gateway, a capital formula and a redemption clock measured in hours wait on a statute.

The class designation out for comment is a feature test for an NZD-referenced token, run through the issuer's publications and offered as a bridge to later legislation. Under section 562(1)(c) a qualifying token is sold for $1, matched by New Zealand dollars on bare trust at a registered bank, redeemable at par within commercially reasonable agreed limits, and free of holder yield, with a monthly confirmation, an annual published verification and a reliance statement. Submissions close at 5pm on December 18, 2026, and a lapse pulls that issuer's tokens back under the product rules until compliance returns. The Bank and FCA split of systemic sterling issuers is a two-authority model this proposal replaces with one class. Singapore's draft power to delist a designated systemic stablecoin is a supervisor's switch beside a missed issuer report.

"Stablecoins are generally designed to work more like a payment method than an investment. We want to test whether the way they are regulated should better reflect how they are designed and used, while making sure appropriate safeguards are in place."

— Liam Mason, General Counsel, Financial Markets Authority (FMA media release, November 9, 2026, via Scoop)

Fair dealing still reaches a payments promise

If the designation is made, qualifying stablecoins sit outside the financial-product definition, and the issuer remains a provider of a financial service. Section 5(1) of the Financial Service Providers (Registration and Dispute Resolution) Act 2008 is the basis the FMA gives for keeping Part 2 fair dealing, registration and, for retail clients, a dispute-resolution scheme under section 48. Reserve assets remain debt securities of New Zealand registered banks. The Anti-Money Laundering and Countering Financing of Terrorism Act 2009 continues to apply. The designation would not be an endorsement or approval by the FMA of any issuer or stablecoin.

Fair dealing is why the line outside the product definition is easy to over-read. A false or misleading representation about a financial service can draw a pecuniary penalty even where the conduct sits outside a regulated offer. In Financial Markets Authority v Tower Ltd [2025] NZHC 3771, decided on December 5, 2025, the High Court imposed a $7 million penalty for a misrepresented multi-policy discount from September 2016 to February 2025, contrary to section 22(d), (f) and/or (h). The figure started at $10 million and took a 30% reduction. The FMA release of December 9, 2025 records about 61,000 customers, remediation above $11.7 million and overcharges above $11 million, after a March 2021 self-report.

"Tower's issues stemmed from deficiencies in its systems that meant the insurer failed to deliver to customers a publicly advertised discount."

— Margot Gatland, Head of Enforcement, Financial Markets Authority (FMA media release, December 9, 2025)

Tower is the precedent for the promise that remains, full backing and redemption at face value, because a monthly confirmation and an annual verification are representations about a financial service. If the ledger and the trust balance diverge, Part 2 is still in the room, and the $7 million penalty is the scale of that duty beside the lapse that pulls a token back inside the product definition. An exemption that left the token labelled a financial product was set aside, together with wider reserves, holder yield and a long wait beside the small number of similar tokens already in development.

What this means for issuers, brokers and payments firms

For an issuer the draft is a public checklist: sale at $1 into an on-call bare trust, a balance at least equal to face value, commercially reasonable redemption terms, par for the holder and bank interest kept by the issuer as cost recovery, plus a monthly confirmation, an annual independent check and a reliance statement. Question 12 asks whether the checker must be a qualified auditor under a recognised assurance standard. Question 14 asks about a terms pack, a retail warning, a capital buffer and express register and dispute-scheme duties. The footnote already treats retail issuance as likely to be a financial service.

For a broker, an exchange or another crypto-asset service provider (CASP), the class notice targets venues that keep off securities-transaction tokens and removes the wait for a named designation on each new NZD-referenced issuer. A gap in the monthly confirmation or the annual verification drops the designation, so the venue needs a rule for that gap. Question 6 would make issuers tell the FMA first, and banks can use the class notice in the account-opening file while still matching the trust balance to circulation. For a payments firm, Question 9 may swap commercially reasonable timing and fees for a time limit and a fee cap. Questions 2 and 16 ask platforms, holders and banks for the cost figures.

Fund managers and custodians are told the token tracks registered-bank deposit risk, already outside a regulated offer, while wallet control stays with trust law, prudential rules, fair dealing and anti-money-laundering duties. Legal teams would document the four features, the four publications and Questions 10, 12, 14 and 15.

"While this is a positive step, in our view, the FMA should consider a broader designation to cover alternative structures. In reality, stablecoin design has already evolved beyond the ECDD model, particularly as overseas regimes have been put in place, meaning a limited designation may not be fit-for-purpose."

— John Anayi, Solicitor, Financial Services, MinterEllisonRuddWatts, co-author of the firm's legal update (MinterEllisonRuddWatts, November 10, 2026)

What stays open once submissions close

Comments close at 5pm on Friday, December 18, 2026, under the Official Information Act 1982. Commencement, and open class versus a named schedule, are left to the making of any notice. Readers are asked to keep the notice off the drawing board of any future statute, which New Zealand still lacks for digital assets. The Ministry of Business, Innovation and Employment is leading payment-services reform that includes stablecoins. Clause 10 of the Taxation (Annual Rates for 2026–27, FBT Simplification, Foreign Investment Funds, and Remedial Measures) Bill 2026 (344-1) would exempt income on certain stablecoins acquired for disposal. The Reserve Bank of New Zealand discusses stablecoins briefly in its retail-payments consultation. Questions 4 through 17 test the remaining design choices.

Government-securities reserves and a pass-through of bank interest need tools the paper says a designation lacks. A bridge copied from the March 2026 NZDD notice can be narrow for foreign-rulebook designs, the legal-update point above, and wide if notification, audit and capital stay optional. United Kingdom work, including the front-end guidance in PS26/18 and the exclusion tests in CP26/36, shows another regulator writing feature tests in public. A US capital discussion for stablecoin issuers shows the buffer Question 14 leaves with the percentage unset.

TL;DR

The FMA's November 2026 paper proposes a class designation under section 562(1)(c) of the Financial Markets Conduct Act 2013 for an NZD-referenced token sold at $1, held on bare trust at a New Zealand registered bank, redeemable at face value, with holder yield kept off the token. Issuers would publish a monthly reserve confirmation, an annual verification and a reliance statement. Miss those duties and the token is treated as a financial product again until they comply, while Part 2 fair dealing continues. Financial Markets Authority v Tower Ltd [2025] NZHC 3771 imposed a $7 million penalty, per the FMA release of December 9, 2025, for a discount systems failed to deliver. Submissions close at 5pm on December 18, 2026.

FAQ

What is the FMA's proposed class designation?

The proposal is a notice under section 562(1)(c) of the Financial Markets Conduct Act 2013 placing qualifying NZD-referenced stablecoins outside the financial-product definition. The November 2026 paper copies the ECDD Holdings notice, in force for NZDD since March 11, 2026, and prefers an open class, with a named schedule as the alternative. Issuers rely on the features and on monthly and annual publications. Submissions close at 5pm on Friday, December 18, 2026.

Which NZD-referenced tokens would sit inside the class?

A token inside the draft is issued for $1, backed by cash on bare trust at a New Zealand registered bank, and redeemable at face value within commercially reasonable limits. Holder yield stays off the token, and retail and wholesale holders are both covered. Other currencies, securities or money-market reserves, a holder return, and algorithmic or commodity pegs sit outside. Tokens issued or transferred after the notice comes into force are the ones covered, and that date is fixed when the notice is made.

What would an issuer still have to do?

The issuer would keep trust cash at least equal to face value in circulation and publish a monthly confirmation. An annual independent verification would be published with a website statement of reliance on the class notice. Question 12 asks who may sign that check. Conditions still being asked about include a terms pack, a retail statement distinguishing the token from a bank deposit, a capital buffer, and register and dispute-scheme duties.

What changes for a broker or an exchange?

The FMA says leading venues keep off tokens that would count as securities transactions, so a debt-security label has blocked distribution where Part 3 adds little. A class notice answers that for any NZD-referenced token meeting the features, in place of a named designation. If the monthly confirmation or the annual verification lapses, the product rules apply again, and a listing rule has to cover that gap. Banks opening reserve accounts would read the same public record.

Which duties stay in place if the token leaves the product definition?

Issuing the token remains, on the FMA's view, a financial service under the Financial Service Providers (Registration and Dispute Resolution) Act 2008, so Part 2 still governs misleading conduct. Registration and a retail dispute scheme stay in view, and Question 14 asks whether to write them into the notice. The Anti-Money Laundering and Countering Financing of Terrorism Act 2009 stays in place, and the reserve remains a bank debt security. The designation stops short of an FMA endorsement of any issuer or token.

What remains open after submissions close?

Notification, multi-bank reserves, a redemption time and fee cap, the annual verifier, and any capital or dispute-scheme condition are still questions, as is any currency besides the New Zealand dollar. Payment-services reform, an Inland Revenue clause on certain stablecoin disposals, and the Reserve Bank's retail-payments consultation run on separate timetables. Any notice follows the December 18, 2026 close, with the start date fixed when the notice is made.

This article is informational analysis only and does not constitute legal, regulatory, tax, or investment advice. Regulatory frameworks change frequently and interpretation depends on facts and circumstances; primary documents and official regulator guidance always supersede summaries. Firms should consult qualified legal counsel and their relevant supervisory authority before taking any action based on the analysis above.