RESERVE BANK OF AUSTRALIA

Corporations Act 2001

EXPLANATORY STATEMENT:  VARIATION OF FINANCIAL STABILITY STANDARD FOR CENTRAL COUNTERPARTIES

1.             Background

In May 2003, the Reserve Bank determined the Financial Stability Standard for Central Counterparties (FSS 2003.1) and the Financial Stability Standard for Securities Settlement Facilities (FSS 2003.2).  These standards were determined under Part 7.3 of the Corporations Act 2001 (“the Act”), which grants the Reserve Bank formal responsibility for ensuring that clearing and settlement facility licensees conduct their affairs in a way that is consistent with financial system stability.  The Reserve Bank may also vary standards it has determined in writing under section 827D(6). The Financial Stability Standard for Securities Settlement Facilities was varied in June 2005 (FSS 2005.1) to introduce a threshold exemption.

2.             Purpose and Operation

The objective of the Standards is to ensure that licensees of clearing and settlement facilities identify and properly control the risks associated with their operations.  Each Standard is supplemented by a series of measures that the Reserve Bank considers are relevant for meeting the Standard.  The Reserve Bank has also issued guidance notes, which provide further information on each measure. 

The Reserve Bank has varied the Financial Stability Standard for Central Counterparties.  The Standard, as varied, is the Financial Stability Standard for Central Counterparties (2009.1).  The effect of this variation is to exempt an overseas central counterparty from assessment against the Standard, provided it is subject to sufficiently equivalent regulation overseas and able to provide documentary evidence from the regulator that it has met the requirements of that regime. This regime will ensure the robustness of central counterparties providing services to Australian markets, while placing appropriate reliance on overseas regulators so as to avoid unnecessary duplication of regulation. Such reliance is explicitly contemplated in the Corporations Act, with Section 823CA stating that ‘the Reserve Bank may take account of any information and reports that it thinks appropriate, including information and reports from an overseas regulatory authority’.

3.             Consultation

On 24 October 2008 the Reserve Bank released a Consultation Document setting out a proposed variation to the Standard that would have the effect of establishing a framework for the regulation of overseas central counterparties operating in Australia. Four submissions were received in response to the Consultation Document. Bilateral consultations were held with the respondents.

In the light of the submissions and subsequent discussion the variation to the Standard incorporates a number of revisions to that originally proposed in the Consultation Document. The main features are:

• exemption from the provisions of the Standard is conditional on the receipt of acceptable documentary evidence from the overseas regulator of the licensee’s compliance with the overseas regime rather than, as initially proposed, self-certification by the central counterparty;
• clarification that, while exempt from the need to comply with the Financial Stability Standard in full, overseas central counterparties licensed in Australia will retain obligations to the Reserve Bank;
• further clarification as to the nature of these obligations; and
• explicit recognition that this framework does not preclude entering into a formal cooperative oversight arrangement with the lead regulator.

Documents

The standards, measures and associated guidance notes are available:

• on the Reserve Bank’s website at www.rba.gov.au/PaymentsSystem/PaymentsPolicy; or
• by telephoning 02 9551 9720; or
• at the office of the Reserve Bank at 65 Martin Place, Sydney NSW 2000 (reference: Senior Manager, Payments System Stability, Payments Policy Department).