Media Release Payments System Issues

At its meeting on 15 May 2009, the Payments System Board considered issues relating to clearing and settlement facilities, and the industry's progress on meeting the Board's conditions if it is to step back from interchange regulation.

1. Assessing Sufficient Equivalence of Regulation of Clearing and Settlement Facilities

The Reserve Bank is today releasing a Consultation on Assessing Sufficient Equivalence. This consultation follows the modification to the Financial Stability Standard for Central Counterparties on 24 February, which established a framework for the regulation of overseas central counterparties in Australia. This regime is intended to promote stability in the Australian financial system, while avoiding imposing an unnecessary regulatory burden.

A central counterparty may be granted a licence under this regime at the discretion of the Minister, provided it meets certain requirements, including that it is subject to ‘sufficiently equivalent’ regulation in its principal place of business. When it announced the new regime, the Reserve Bank committed to working with the Australian Securities and Investments Commission (ASIC) to establish guidance on how sufficient equivalence would be assessed, and to consult on this guidance. This is done in the consultation document released today.

Parties wishing to make submissions on the consultation document are invited to do so by 19 June 2009. Submissions will be placed on the Reserve Bank's website and those making submissions will be offered the opportunity to discuss their views with Reserve Bank staff. Submissions should be sent to:

Head of Payments Policy Department
Reserve Bank of Australia
GPO Box 3947


2. Survey of OTC Derivatives and the Role of Central Counterparties

The infrastructure supporting the over-the-counter (OTC) derivatives market has attracted considerable interest over the past year from regulators around the world. The Board has been following overseas developments in this area and has been kept abreast of work to assess market practices in the Australian OTC derivatives market, undertaken by a group comprising the Australian Prudential Regulation Authority (APRA), ASIC and the Reserve Bank. An important piece of work carried out by this group has been a Survey of the OTC Derivatives Market in Australia, the findings of which will be released publicly within the next week.

A particular focus for the Board has been whether there is a case for expanding the use of central counterparties in the OTC derivatives market. The Board has concluded that, where products are sufficiently standardised and pricing and valuations are reliable, the use of a robust central counterparty could help to mitigate systemic risk in the OTC derivatives market. The Board has also concluded, however, that the relatively small size of the Australian market may constrain the development of purely domestic central counterparty services for OTC derivatives products. Where this is the case, the Board endorses the Reserve Bank working with the other Australian financial authorities to encourage international central counterparties to extend their product coverage to the Australian market. This issue will be addressed during broader discussions with the industry following the release of the Survey of the OTC Derivatives Market in Australia.

3. Progress on Conditions for the Removal of Interchange Regulation

In its conclusions to the 2007/08 review of the payments system reforms, the Board indicated that it would be prepared to step back from direct interchange regulation if industry participants took steps that could give the Board comfort that interchange fees in the credit card system would not rise from current levels.

One approach to addressing the Board's concerns in this area was for competition to be enhanced through a number of measures including: changes to the EFTPOS system to enhance its ability to compete with the international card schemes; further modifications to the ‘honour all cards’ rule; and more transparent scheme fees. The Board also highlighted the development of an alternative online payment method (either by the EFTPOS scheme or some other channel) as a particular way of enhancing competition. The Board indicated that if it did not see sufficient progress in addressing these concerns by August 2009, it would retain interchange regulation and further lower interchange fees in the credit card, scheme debit and EFTPOS systems.

The Board discussed industry progress on the EFTPOS system and online payments. In particular, the Board noted that an EFTPOS scheme has been set up and that the scheme's first board meeting has been held. It also noted, however, that much remained to be achieved before the Board could be comfortable that the system is a viable and competitive alternative to the international schemes. In particular, the governance structure, while substantially in place, will not be complete until a CEO and independent directors are appointed. Furthermore, the Board will be looking for evidence that the scheme has a business plan for future development which it is actively pursuing, including arrangements for promotion of the scheme and reform of access. With respect to developments in online payments, the Board noted that while there are some possibilities being considered in the industry, there have been no concrete steps in this area and such a service is unlikely to be in place by August 2009.

The Board will be considering these issues again at its August meeting, with a view to deciding whether sufficient progress has been made in addressing its concerns to enable it to step back from interchange regulation.


Dr Malcolm Edey
Assistant Governor (Financial System)
Reserve Bank of Australia

Phone: +61 2 9551 8500

Mrs Michele Bullock
Head of Payments Policy
Payments Policy Department
Reserve Bank of Australia

Phone: +61 2 9551 8700

Media Office
Information Department
Reserve Bank of Australia

Phone: +61 2 9551 9720
Fax: +61 2 9551 8033