2010/11 Assessment of Clearing and Settlement Facilities in Australia 4. The Financial Stability Standards

The Corporations Act 2001 provides that the Reserve Bank may determine Financial Stability Standards (FSS) to ensure that clearing and settlement (CS) facilities promote overall stability in the financial system. The Standards for central counterparties and securities settlement facilities are discussed in detail in Appendix A. The Standards are supplemented by a set of detailed measures that the Reserve Bank considers relevant for that assessment (see Appendix B). These measures align with accepted international principles as set out by the Committee on Payment and Settlement Systems and International Organization of Securities Commissions.

The Standards and measures comprehensively cover matters relevant to the assessment of systemic risks arising from the activities of licensed facilities. As such, in assessing these facilities' compliance with the Standards, the Reserve Bank also fulfils its obligation under the Corporations Act to assess whether a facility is ‘doing all other things necessary to reduce systemic risk’.

The Corporations Act provides for an alternative regulatory regime for overseas CS facilities granted a licence under section 824B(2). Currently, there are no CS facilities licensed under that section. The section allows the Reserve Bank to rely to a large extent on the relevant overseas regulatory authority, so long as that authority's regulatory regime is sufficiently equivalent to that applying in Australia. However, the Minister may decide that licensing under the alternate regime for overseas facilities is not appropriate – irrespective of sufficient equivalence – and that the facility will require a domestic licence and so be under the direct oversight of the Australian Securities and Investment Commission and the Reserve Bank. For example, where a prospective overseas CS facility is considered to be serving a particularly large or systemically important market in Australia, the Reserve Bank expects to assess the facility in full against the FSS.

Section 25M(1)(a)-(c) of the Reserve Bank Act 1959 requires that the Payments System Board describe any new standards for CS facilities determined during the year and any variations or revocations of existing standards.

No new standards for CS facilities were determined by the Reserve Bank under section 827D(1) of the Corporations Act during the year to June 2011. No existing standards were varied or revoked.