Corporations Amendment Regulations 2002 (No. 7)

Overview

The Corporations Amendment Regulations 2002 (No. 7) were introduced to address the need for a tailored regulatory approach for CLS Bank International's proposed operations. Enacted by the Parliament of Australia, these regulations seek to exempt certain operations of CLS from the licensing and oversight provisions applicable to clearing and settlement facilities. The underlying policy objective is to recognise that CLS's proposed services, particularly in relation to the settlement of non-cash payments in various currencies, function more as a payment system rather than a traditional clearing and settlement facility. This distinction justifies a regulatory exemption, ensuring that CLS can operate efficiently under the oversight of the United States Federal Reserve System in consultation with relevant international central banks. These regulations amend the Corporations Act 2001 by exempting CLS from specific licensing and regulatory requirements that would otherwise apply to clearing and settlement facilities. This exemption is based on the determination that CLS's proposed activities, such as the simultaneous settlement of payments in foreign exchange transactions, are not appropriately regulated under the Act's existing clearing and settlement provisions. The regulations also declare CLS's system as a netting market under the Payment Systems and Netting Act 1998, ensuring it operates within an appropriate regulatory framework that balances innovation with necessary safeguards.

Scope and Application

The Corporations Amendment Regulations 2002 (No. 7) apply to CLS Bank International (CLS), a financial institution, and its operations concerning the settlement of non-cash payments in various currencies. Specifically, the regulations exempt CLS from certain licensing requirements and regulatory oversight outlined in Part 7.3 of the Corporations Act 2001, as well as from the powers of the Australian Securities and Investments Commission to issue directions under section 794E. This exemption is based on the characterisation of CLS's operations as a payment system rather than a clearing and settlement facility, which typically involves the transfer of cash and securities to settle securities transactions on a stock exchange. The exemption does not extend to other operations of CLS, which remain subject to the full scope of the Act. Additionally, the regulations declare CLS's proposed system a netting market under the Payment Systems and Netting Act 1998, and specify that CLS will be regulated by the United States Federal Reserve System in consultation with international central banks, including the Reserve Bank of Australia.

Key Provisions

The key operative sections of the Corporations Amendment Regulations 2002 (No. 7) pertain to specific exemptions for CLS Bank International's operations from certain regulatory requirements under the Corporations Act 2001 (the Act). Specifically, section 1364 of the Act allows for the making of regulations that prescribe matters required or permitted by the Act, or necessary for its effective implementation. This is further elaborated in section 1368, which provides that regulations may exempt certain provisions from having effect in relation to specified classes of transactions. Subregulation 9.12.02(1) directly addresses these exemptions, focusing on the operations of CLS Bank International, which are considered payment systems rather than clearing and settlement facilities. The Corporations Amendment Regulations 2002 (No. 7) impose certain obligations and requirements on CLS Bank International. The primary obligation is that CLS will operate under the oversight of the United States Federal Reserve System, in consultation with several international central banks, including the Reserve Bank of Australia. The regulations also stipulate that CLS will provide a continuous linked settlement service for foreign exchange transactions, which will settle both legs of a transaction simultaneously, thereby reducing settlement risk. Additionally, the regulations specify that CLS's proposed system for the settlement of payment instructions arising from foreign exchange transactions will be declared a netting market under the Payment Systems and Netting Act 1998. In terms of compliance and enforcement, the Regulations do not explicitly outline specific offences, penalties, or consequences for breaches. However, the exemptions provided are conditional and subject to the oversight and approval of the United States Federal Reserve System and relevant international central banks. Failure to adhere to the conditions of the exemption could potentially result in regulatory scrutiny and possible revocation of the exemption, thereby subjecting CLS's operations to the full regulatory requirements of the Corporations Act 2001. The absence of explicit penalties within the Regulations suggests that non-compliance would be addressed through broader regulatory mechanisms and oversight.