New Financial Stability Standards:
Final Standards and Regulation Impact Statement – December 2012 1. Introduction

In accordance with powers under the Corporations Act 2001 (the Act), the Reserve Bank has consulted on a proposal to determine new Financial Stability Standards (FSSs) for central counterparties (CCPs) and for securities settlement facilities (SSFs), in place of previously determined FSSs. The FSSs aim to ensure that licensed clearing and settlement (CS) facilities conduct their affairs in a way that promotes overall stability in the Australian financial system.

The Bank's proposal follows the development by the Committee on Payment and Settlement Systems (CPSS) and the Technical Committee of the International Organization of Securities Commissions (IOSCO) of new international standards for the regulation and conduct of CS facilities and other financial market infrastructures (FMIs), the Principles for Financial Market Infrastructures (the Principles).^[1] The Principles, released in April 2012, acknowledge the critical, and expanding, role played by FMIs, including CS facilities, in the financial system and aim to strengthen and harmonise the operational standards to which they are held internationally.

In light of these developments, and feedback from stakeholders during the consultation process, the Reserve Bank's Payments System Board decided at its November meeting that new FSSs should be determined, reflecting the detailed requirements of the Principles. While aligning with the Principles, the Board determined that the new FSSs should also: uphold the standards to which licensed CS facilities are held under the current FSSs; reflect selected standards applied to CS facilities in other relevant jurisdictions; and implement key elements of the Council of Financial Regulators' (the Council's) framework for ensuring that Australian regulators have appropriate influence over cross-border CS facilities. In line with this decision, the Bank will revoke the previously determined FSSs, and determine new FSSs for both CCPs and SSFs.

The Bank is also issuing guidance to assist in the interpretation and application of the new FSSs, and on its approach to assessing licensed CS facilities' compliance with the new standards. In particular, in assessing a licensed overseas facility subject to sufficiently equivalent regulation in its principal place of business, the Bank will place conditional reliance on information and reports from the regulator in the facility's home jurisdiction.

The Bank's new FSSs are complemented by the Australian Securities and Investment Commission's (ASIC's) consultation on revised regulatory guidance regarding its oversight of CS facilities, which proposes to adopt the Principles and the Council's framework for ensuring that Australian regulators have appropriate influence over cross-border CS facilities within ASIC's regulatory mandate.^[2]

This document is structured as follows. Section 2 discusses recent international and domestic developments in the regulation and conduct of CS facilities. Section 3 discusses the draft FSSs released for consultation in August 2012, while Section 4 discusses comments received through the consultation process. Section 5 sets out the changes adopted in the final FSSs in response to consultation. Section 6 sets out the details of implementation and arrangements for CS facilities to seek transitional relief. The Regulation Impact Statement considered by the Bank's Payments System Board is set out in Attachment 1, the new FSSs and associated guidance are set out in detail in Attachments 2 to 5, and guidance on the Bank's assessment approach is set out in Attachment 6.

Footnotes

See CPSS-IOSCO (2012), Principles for Financial Market Infrastructures, CPSS Publications No 101, Bank for International Settlements, April, available at <http://www.bis.org/publ/cpss101.htm> [1]

ASIC's consultation paper on revising Regulatory Guide 211 is available at <http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/cp186-published-11-September-2012.pdf/$file/cp186-published-11-September-2012.pdf>. [2]