New Financial Stability Standards:
Final Standards and Regulation Impact Statement – December 2012
4. Consultation on the Draft Standards

Under section 827D of the Act the Bank must consult with ASIC prior to revoking a FSS, and prior to determining or varying a FSS must consult with ASIC and any CS facility licensees that will be required to comply with the FSS. It is also the Bank's practice to publish any proposed new FSSs, or proposals to revoke or vary existing FSSs, for wider public consultation. This allows other stakeholders such as prospective CS facility licence applicants or participants to comment.

Accordingly, the Bank published a consultation paper on 29 August 2012 setting out its proposal to revoke the previously determined FSSs and determine new FSSs.[1] The draft FSSs were published as attachments to the paper, with accompanying draft guidance. A further attachment set out the Bank's proposed approach to assessing CS facility licensees.

The release of the consultation paper and attachments was followed by a period of public consultation, with written submissions from stakeholders invited by 19 October 2012. In addition, stakeholders were offered the opportunity to discuss their views with Bank staff at a series of meetings held in October.

4.1 Stakeholder Comments

During the consultation on the draft FSSs, the Bank held meetings or calls with eight stakeholders and received written submissions from six stakeholders. Written submissions were received from: ASX on behalf of current CS facility licensees; CS facilities operating in other jurisdictions (CME Group and LCH.Clearnet Group Limited); and industry groups representing market participants and other stakeholders (the International Swaps and Derivatives Association, the Australian Financial Markets Association, and the Australian Bankers' Association).[2] Stakeholders broadly supported the approach taken by the Bank, and comments were largely directed towards particular details of the draft FSSs and associated guidance. The Bank's response to stakeholder comments is discussed in Section 5.

Assessment approach

A number of submissions commented on the Bank's proposed assessment approach: one emphasised that overseas licensees should be held to the same standard of conduct as domestic licensees; by contrast, others suggested that reliance could be placed on an overseas regime's oversight at a broad rather than standard-by-standard level. One stakeholder expressed the view that a small SSF settling transactions in a systemically important market should not be exempt from the FSSs.

One stakeholder suggested that the Bank and ASIC should nominate a ‘lead agency’ for each of the Principles.

Recovery and resolution

Views on provisions across a range of FSSs that relate to FMI recovery and resolution varied: one stakeholder argued that these should be deferred, or at least subject to transitional relief, until such time as domestic legislation concerning FMI resolution is enacted; another considered that the provisions were adequate but may need to be revisited once international work on recovery and resolution had concluded.

Legal and governance

One stakeholder queried how the requirement under CCP and SSF Standard 1.1 for a CS facility licensee to operate within a separate legal entity would apply to a CS facility that operated a complementary service (such as an exchange or trade repository) within the same legal entity. Concern was also expressed that the guidance to CCP and SSF Standard 1.6 could be interpreted to mean that a CS facility operating in many jurisdictions would need to provide the Bank with a potentially extremely lengthy legal opinion covering all potential conflicts of law across each of these jurisdictions.

A number of stakeholders raised concerns or suggestions regarding CCP and SSF Standard 2:

  • Some raised the concern that the standards might prevent coordination of strategy or use of shared functions (such as internal audit) across corporate groups by restricting cross-directorships or group-level decision-making. They noted alternative intragroup arrangements and conflict management procedures could ensure that licensed entities fulfilled their regulatory obligations.
  • One stakeholder argued that non-executive directors shared with other group entities could be considered independent. Another recommended minimum requirements for non-executive board representation, in line with similar provisions in the US and EU.
  • It was suggested that external review requirements set out in CCP and SSF Standard 2.7 be limited to situations where external expertise was required to supplement the internal audit function.
  • It was argued that governance arrangements should be required to support efficiency as well as stability.
  • A concern was raised that CCP and SSF Standard 2.1 required CS facilities to take into account objectives beyond their licence obligations.

Risk controls

Two stakeholders queried whether the requirement under CCP and SSF Standard 4.2 to have mechanisms in place to calculate exposures in real time meant that a CS facility would need to monitor exposures on a continuous basis. One indicated that there would be technical obstacles to meeting such a requirement. It was also suggested that the authority for a CS facility to impose additional risk controls on participants under CCP and SSF Standard 4.3 should be set out in the facility's rules, and that a ‘grace period’ for participants should apply before additional risk controls became operative.

With respect to CCP and SSF Standard 5.1, a number of stakeholders noted the potential shortage of high-quality liquid assets and argued for CS facilities to have flexibility to accept a broader range of collateral, including bank guarantees.

One stakeholder noted the potential liquidity impact that intraday margin calls may have on participants, and suggested that CCPs be required to treat variation margin payments and calls symmetrically. Another stakeholder noted that the guidance to CCP Standard 7.4 did not make reference to outright holdings of qualifying liquid resources, and could be interpreted as expressing a preference for meeting liquid resource requirements via committed arrangements for liquidity provision.


The requirements placed on CS facilities to monitor risks arising from commercial settlement banks under CCP Standard 9 and SSF Standard 8 were queried by one stakeholder, since CS facilities do not necessarily have a relationship with such banks.

Stakeholders requested greater clarity on what was meant by a ‘large’ or ‘small’ trade value under CCP Standard 11.2 and SSF Standard 10.2. It was also noted that CS facilities may be unable to influence settlement methods for some transactions (such as some issuance transactions), as set out under the guidance to CCP Standard 11.1 and SSF Standard 10.1. Stakeholders also expressed the view that CCP Standard 11.2 and SSF Standard 10.2 should not prohibit the use of DvP model 2 settlement.[3]

One stakeholder also expressed concern that the audit and reconciliation requirements for SSFs operating a central securities depository set out in guidance to SSF Standard 9.1 were overly burdensome.

Default arrangements

One stakeholder queried why the guidance to CCP Standard 13 omitted text from the explanatory notes to the Principles setting out an exception to segregation and portability requirements for cash markets. Another expressed the view that customers of participants should receive the same level of protection in both cash and derivatives markets.

It was also suggested that the interests that a CS facility must take into account when establishing its default management procedures under CCP Standard 12 and SSF Standard 11 should be more explicitly identified.

Business and investment risks

One stakeholder noted that, under certain market conditions, meeting the concentration limit requirements set out in guidance to CCP Standard 15.4 and SSF Standard 13.4 could require a CS facility to invest in lower-quality assets in order to prevent concentrated exposures to highly rated counterparties. It was also suggested by one party that guidance to these standards should not automatically preclude the investment of margin monies with affiliates of participants, and by another that CS facilities be required to place a minimum proportion of their cash deposits in arrangements fully secured by collateral, in line with ESMA's Draft Technical Standards.

Clarification was also sought by one stakeholder as to whether capital held against general business risk could be held at a group-wide level.

Operational risks

A number of concerns were raised regarding the requirements for outsourcing arrangements set out in CCP Standards 16.9, 16.10 and 16.11 and SSF Standards 14.9, 14.10 and 14.11:

  • it was queried whether the consultation requirement under CCP Standard 16.10 and SSF Standard 14.10 meant that a CS facility would require the Bank's permission to enter into an outsourcing arrangement
  • it was noted that additional costs might result from increased scrutiny of service providers
  • greater clarity was sought regarding the scope of application of the outsourcing requirements, in particular with respect to the provision of important functions by third parties that have never been provided internally.

Stakeholders also provided suggestions for additional guidance on how CS facilities should address cyber security risks.


The consultation paper and attachments setting out the draft FSSs, accompanying guidance and draft guidance regarding the Bank's approach to assessing CS facility licensees are available at <>. [1]

Written submissions from stakeholders are available at <>. [2]

DvP model 2 settlement involves the settlement of securities on a trade-by-trade or line-by-line basis in real time, with linked payment obligations settled on a multilateral net basis at the end of a processing cycle. [3]