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 2020.

As a systemically important CS facility operated under an overseas licence, LCH Ltd is subject to ongoing assessment against the CCP Standards over a rolling four-year period. This work complements the work carried out by the Bank of England (BoE) as LCH Ltd's primary regulator. The CCP Standards assessed this year were Credit Risk (CCP Standard 4), Margin (CCP Standard 6) and Participant Default Rules (CCP Standard 12).

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 2019/20 Priorities During the assessment period, LCH Ltd provided the Bank with a plan to further extend its operating hours over the medium term. LCH Ltd also made improvements to its Protected Payment System (PPS) contingency arrangements and demonstrated operational and efficiency gains in its preferred solution.
Other Material Developments

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

  • overseeing LCH Ltd's handling of the operational and financial risk management challenges posed by the COVID-19 pandemic;
  • changes to LCH Ltd's governance arrangements to simplify its structure and reflect the London Stock Exchange Group's (LSEG's) increased ownership stake;
  • improvements to key aspects of LCH Ltd's resilience framework for managing operational risks, including cyber risk; and
  • LCH Ltd's management of risks associated with global benchmark reforms, including the transition away from the London Interbank Offered Rate (LIBOR).
Priorities for 2020/21

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 the priorities from 2019/20 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 review: how LCH Ltd manages cyber risks; a new LCH Ltd Australian legal opinion; and the governance of LCH Ltd's model validations.