Assessment of LCH Limited's SwapClear Service Executive Summary


This report presents the Reserve Bank of Australia's (the Bank's) annual Assessment 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 2019.

As a systemically important CS facility operated under an overseas licence, LCH Ltd is subject to an ongoing assessment against the CCP Standards over a rolling four-year period. The CCP Standards assessed this year were governance, margin, liquidity risk, money settlements, segregation and portability, operational risk and tiered participation arrangements.

Conclusion In the assessment period, LCH Ltd 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 2018/19 Priorities During the assessment period, LCH Ltd extended its flexible opening time by one hour to 4am UK time, and provided the Bank with analysis of the challenges and considerations of further extensions to operating hours. LCH Ltd made improvements to its Protected Payment System (PPS) contingency arrangements and began exploring complementary solutions.
Other Material Developments

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

  • a review of the effectiveness of recent changes to LCH Ltd's governance arrangements.
  • developments related to operational and cyber risk, including in LCH Ltd's oversight and management of critical service providers.
  • improvements in the areas of access to foreign exchange market liquidity and the validation of margin system add-ons.
  • developments in LCH Ltd's framework for managing and monitoring tiering risks from client clearing.
Priorities for 2019/20

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 both priorities from 2018/19, regarding the extension of SwapClear's operating hours and improvements to LCH Ltd's PPS contingency arrangements.

In its supervision of LCH Ltd in the next 12 months, the Bank will also monitor: how it manages operational and cyber risks; and the governance of LCH Ltd's model validations.