2006/07 Assessment of Clearing and Settlement Facilities in Australia 1. Introduction
This report sets out information that the Reserve Bank is required to report in relation to its role in the oversight of clearing and settlement (CS) facilities in Australia. This includes an assessment of how well CS facilities have complied with Financial Stability Standards determined by the Bank, along with information on developments in clearing and settlement and any changes in the Financial Stability Standards themselves that have occurred during the reporting period.
Under the Corporations Act 2001, the Reserve Bank has the power to determine Financial Stability Standards. The purpose of these standards is to ensure that licensed CS facilities serving financial markets operate in a way that promotes overall stability in the Australian financial system. At least once each year, the Reserve Bank is required to assess how well CS facilities have met these standards, along with their obligation to do all things necessary to reduce risk in the financial system. Under s823CA of the Corporations Act, the Bank must report its assessment to the Minister with portfolio responsibility for financial markets, as well as to the Australian Securities and Investments Commission (ASIC).
In addition, under s25M of the Reserve Bank Act 1959, the Payments System Board must report to the Minister any developments in the clearing and settlement industry that are relevant to Australia's financial stability, as well as any changes to the Financial Stability Standards. This report must be completed for the year to June.
This year, the Payments System Board has chosen to meet these reporting obligations through this single report. This has necessitated a change in the assessment timetable for CS facilities under the Corporations Act, to bring it into alignment with the requirements of the Reserve Bank Act. Whereas in recent years CS facilities have been assessed over the year to September, this assessment focuses on the nine months to June 2007. From 2008, assessments will relate to the full year to June.
The Payments System Board has also elected for the first time to make this report publicly available. The Board believes that this will lead to greater transparency of the risk controls used by CS facilities and the regulatory process. It will complement the public reporting of ASIC on other aspects of the operation of CS facilities.
The remainder of this report is divided into four parts. The first part provides a general description of clearing and settlement in Australia, the functions performed by CS facilities, and the main licence holders. The following two parts provide information required under the Reserve Bank Act. The first of these reports that no changes were made to the Financial Stability Standards during the year to June. The second of these parts sets out information on general developments in the clearing and settlement industry during the year. The final part of this report details the assessment of CS facilities undertaken under s823CA of the Corporations Act. This includes information on developments in the operations and risk management of individual facilities, which is also relevant to reporting under the Reserve Bank Act.
Two attachments to this report are also provided. The first attachment gives a detailed summary of each CS facility's compliance with the measures that the Reserve Bank considers relevant to meeting the Financial Stability Standards. The second attachment summarises approvals under the Payment Systems and Netting Act 1998 of relevance to CS facilities.