Consultation on Variation of the Financial Stability Standard for Central Counterparties: Oversight of Overseas Facilities 3. Variation of the Guidance to the Financial Stability Standard for Central Counterparties

As noted above, the Financial Stability Standard for Central Counterparties is supported by a set of minimum measures that the Reserve Bank considers are relevant in determining whether a CS facility licensee has met the Standard. The Reserve Bank has also issued guidance to assist in interpretation of the Standard and its measures.

As the proposed variation to the Standard is intended to provide a conditional exemption for overseas facilities, the Reserve Bank proposes to issue guidance in relation to the nature of such conditionality. The proposed wording of the guidance reflects the Reserve Bank's preference to retain a principles-based approach, thereby recognising differences between overseas jurisdictions (notwithstanding that they may be sufficiently equivalent) and accommodating evolution over time. Furthermore, the guidance is intended to be indicative, not exhaustive. Specifically, it is proposed that the guidance would read:

Guidance for Section 824B(2) licensees

The Standard does not apply to any overseas CS facility licensed under Section 824B(2) where the Reserve Bank has received an annual statement that the facility has complied with the requirements of the overseas regulator related to matters affecting stability. Such a statement must be in a form agreed with the Reserve Bank and must be received prior to the commencement of operations under the licence and annually thereafter. The Reserve Bank's preference is that the statement be provided directly by the overseas regulator, although it is acknowledged that this may not be possible in some circumstances. Where this is the case, the Reserve Bank may rely on indirect provision of the regulator's assessment of compliance via the licensee, or self-certification by the directors of the licensed facility. The statement should include details of any specific areas of investigation by the regulator during the period.

Separately, the Reserve Bank would also expect to receive information from the licensee to support its assessment of whether the CS facility licensee is doing all other things necessary to reduce systemic risk. Such information should include, at a minimum:

  • detail of any material changes in the overseas facility's activities, processes, or people: The facility is expected to provide information on material changes in the conduct of its business as well as audited annual accounts and annual data detailing stress-test outcomes relative to its risk resources; and
  • additional information to allow assessment of measures not explicitly covered by the overseas regime: Where the measures underpinning the Standard are not explicitly covered by the overseas regime, the Reserve Bank will, as part of its general oversight, assess the facility against these measures.

A critical element of this arrangement will be the framework for the exchange of information between the Reserve Bank, the overseas facility, and the overseas regulator. The Corporations Act requires that the facility ‘cooperate with ASIC and the Reserve Bank of Australia by sharing information and in other ways’. It is envisaged that this would be governed by a letter signed by the facility in conjunction with its obtaining a CS facility licence. It is also envisaged that arrangements for the exchange of information with the overseas regulator would be established prior to the Minister granting a licence under Section 824B(2). Reflecting this, the Reserve Bank would seek to conclude a Memorandum of Understanding with the overseas regulator, capturing, amongst other things:

  • information regarding relevant consultations or regulatory developments;
  • information relevant to developments which may have an impact on the regulatory responsibilities of the other agency; and
  • information relevant to each agency's annual assessment obligations.