Assessment of LCH Limited's SwapClear Service Executive Summary

Purpose This report presents the annual Assessment by the Reserve Bank of Australia (the Bank) of LCH Limited's (LCH Ltd's) SwapClear service, which operates in Australia under an overseas clearing and settlement (CS) facility licence. It details LCH Ltd's compliance with the Financial Stability Standards for Central Counterparties (CCP Standards) and with the obligation to do all other things necessary to reduce systemic risk over the 12 months ending 30 September 2018.
Conclusion In the assessment period, LCH Ltd has met the CCP Standards and has either met or made progress towards meeting the regulatory priorities identified by the Bank in its previous Assessment. The Bank therefore concludes that LCH Ltd has conducted its affairs in a manner that causes, or promotes, overall stability in the Australian financial system.
Progress Towards 2017/18 Priorities As at the end of the assessment period, all current participants the Bank expects to use LCH Ltd's Australian Protected Payments System (PPS) to settle their AUD obligations now do so. LCH Ltd also began to analyse the challenges and implications of extending the operating hours of the SwapClear service.
Other Material Developments

Other material developments relevant to the Bank's oversight of LCH Ltd that occurred during the assessment period include:

  • changes to LCH Ltd's governance and organisational structure to improve the effectiveness of its governance arrangements
  • developments related to operational and cyber risk, including LCH Ltd's management of risks associated with outsourcing
  • LCH Ltd's alignment with the Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) Resilience of central counterparties (CCPs): Further guidance on the PFMI (CCP Resilience Guidance), which the Bank considers in how it applies the CCP Standards related to financial risk management.
  • Macquarie Bank Limited joined the SwapClear service as a direct member.
Priorities for 2018/19

The Bank's practice is to set regulatory priorities where it expects LCH Ltd to conduct additional work to enhance its observance of the CCP Standards. This assessment carries over one priority from 2017/18, regarding the extension of SwapClear's operating hours. The Bank has set a new regulatory priority regarding LCH Ltd's PPS contingency arrangements.

In its supervision of LCH Ltd in the next 12 months, the Bank will also monitor: the effectiveness of LCH Ltd's governance arrangements; how it manages operational and cyber risks; its financial risk management related to liquidity risk and margin; and how it manages the tiering risks arising from its client clearing offerings.