Media Release Eligibility for Exchange Settlement Accounts

The Payments System Board today announced changes to eligibility requirements for Exchange Settlement (ES) Accounts at the Reserve Bank.

ES Accounts are the means by which providers of payments services settle obligations which they have accrued in the clearing process. To date, access to ES Accounts has been restricted to banks and to two Special Service Providers for building societies and credit unions, respectively.

In its January 1997 submission to the Financial System Inquiry, the Bank noted that the introduction of Australia's real-time gross settlement (RTGS) system, which has substantially reduced settlement risk in the Australian payments system, would provide scope to widen access to ES Accounts. The Inquiry recommended wider access, and the Government in September 1997 agreed that eligibility should be liberalised on the basis of clear and open guidelines to be determined by the Payments System Board.

The Payments System Board has now decided the terms on which the Bank will make ES Accounts available. Applicants for ES Accounts must be:

• an actual or prospective provider of third-party (customer) payment services with a need to settle clearing obligations with other providers. In general, applicants must be current or prospective members of a payments clearing arrangement or operate a clearing house which acts as a central counterparty. ES Accounts will be provided only for settlement of obligations from the clearing process; and
• able to demonstrate that they have the liquidity to meet settlement obligations under routine conditions, during seasonal peaks and under periods of stress.

Institutions which are supervised by the Australian Prudential Regulation Authority (APRA), and which satisfy the Bank that they have the capacity to meet their settlement obligations, are eligible for ES Accounts without special conditions. However, the Bank may impose collateral requirements on a transitional basis for institutions with only limited payments experience.

Organisations not supervised by APRA which operate in deferred net settlement systems will have to meet collateral requirements on an ongoing basis, except where they are always net receivers in payments clearing arrangements. Organisations which operate in the RTGS system will have to demonstrate that they have the necessary operational capacity and adequate liquidity, but will not be subject to ongoing collateral requirements.

ES Accounts must be maintained in credit at all times. The Bank may revoke an ES Account if a holder is unable, or likely to become unable, to meet this condition or any other requirements on the Account. Importantly, the Bank does not guarantee that an ES Account holder will be able to meet its settlement obligations.

Some background material is in the attached paper on The Role of Exchange Settlement Accounts. Details of application procedures are available on request.