Payments System Board Annual Report – 2009 Other Regulatory Responsibilities

Exchange Settlement Accounts

The Payments System Board has ongoing responsibility for the Bank's policy on access to ES accounts. Under current policy, both Authorised Deposit-taking Institutions (ADIs) and third-party payment providers supervised by APRA are eligible to hold ES accounts, provided the Bank is satisfied that they have the liquidity to meet settlement obligations under routine conditions, during seasonal peaks and during periods of stress. Organisations not supervised by APRA that operate in the deferred net settlement systems would typically also be subject to ongoing collateral requirements. ADIs that account for at least 0.25 per cent of all RTGS payments are required to settle on their own behalf. Smaller institutions may elect to settle using another ES account holder as an agent.

In 2008/09, the Bank granted ES accounts to nine institutions, up from three the previous year. In part, this was in response to a decision by the Reserve Bank to expand the securities it is willing to accept in repurchase agreements to include debt issued by ADIs that hold an ES account. Five building societies applied for and were granted ES accounts in 2008/09. ES accounts were also granted to three foreign banks applying to become ADIs and one third-party payment provider – the Australian Clearing House – which intends to use its ES account for margin-related funds movements and treasury investment-related settlements. All but two of these institutions applied for and were granted permission to settle using another ES account holder as an agent. A full list of ES account holders is available on the Bank's website.

Oversight of Continuous Linked Settlement (CLS) Bank

CLS Bank is chartered in the United States and regulated and supervised by the Federal Reserve System. Co-operative oversight by the central banks of the currencies that settle in CLS is, however, conducted through the CLS Oversight Committee, which is co-ordinated by the Federal Reserve. These oversight arrangements were finalised in late 2008, replacing the previous arrangements under the auspices of the Committee on Payment and Settlement Systems Subgroup on Foreign Exchange Settlement Risk. As CLS settles foreign exchange transactions involving the Australian dollar, the Reserve Bank is represented on the CLS Oversight Committee. The Oversight Protocol for CLS is published on the US Federal Reserve's website.^[22]

In March 2009, CLS Bank began settling one-sided Australian dollar payments, including non-deliverable forwards and credit derivatives. CLS has also been authorised to settle foreign exchange option premiums but has not yet commenced operation of this facility.

Footnote

The Oversight Protocol is available at: <http://www.federalreserve.gov/paymentsystems/cls_protocol.htm> [22]