2009/10 Assessment of Clearing and Settlement Facilities in Australia Appendix A: The Reserve Bank of Australia's Financial Stability Standards
Financial Stability Standard for Central Counterparties
A CS facility licensee must conduct its affairs in a prudent manner, in accordance with the standards of a reasonable facility in contributing to the overall stability of the Australian financial system, to the extent that it is reasonably practicable to do so. This Standard applies to all CS facility licensees that operate a central counterparty with the exception of those CS facility licensees granted a licence under section 824B(2) of the Corporations Act. This exception applies only for such time as the Reserve Bank receives annual documentary evidence from the licensee's overseas regulator that the licensee has complied in all material respects with the requirements of the overseas regulator related to matters affecting stability. Such evidence must be provided in a form and at a time agreed with the Reserve Bank.
The Standard does not apply to CS facility licensees granted a licence under section 824B(2). This exception applies only for such time as the Reserve Bank receives annual documentary evidence from the licensee's overseas regulator that the licensee has complied in all material respects with the requirements of the overseas regulator related to matters affecting stability. The required form of such documentary evidence will be discussed with the licensee and its overseas regulator, but it is expected that it would include the following: details of any assessments carried out over the preceding period relevant to the licensee's compliance with the requirements of the overseas regulator; and details of any specific areas of investigation by the regulator. Such documentary evidence must be received prior to the commencement of operations under the licence and on an annual schedule thereafter.
The Reserve Bank will also, from time to time, seek additional information directly from the licensee regarding its activities and risk management processes. Furthermore, notwithstanding that an overseas regime may be sufficiently equivalent to that in Australia, there may be some differences in the detailed application of principles or standards. The Reserve Bank will, in such cases, seek sufficient information to carry out a direct assessment of the CS facility licensee in respect of specific aspects of its operations. Subject to the outcome of such an assessment, the Reserve Bank may recommend that additional risk-mitigating actions be taken by the licensee.
At a minimum the Reserve Bank would expect to receive the following information on a regular basis:
- details of any material changes in the licensee's activities, processes, or people: The licensee is expected to provide activity reports and information on material changes in the conduct of its business – including changes to products, people and operational processes. The Reserve Bank expects to be informed in advance where material changes in these areas might be relevant to an assessment of systemic risk. Audited annual accounts, quarterly management accounts and data detailing stress-test outcomes relative to the facility's risk resources would also be expected; and
- additional information to allow assessment of specific aspects of the licensee's operations: The form and scope of the information necessary to carry out such an assessment will differ according to the coverage of the overseas regime. The Reserve Bank's expectations in this regard will be discussed periodically with the licensee.
In some cases it may be appropriate to establish a formal framework for cooperative oversight alongside the overseas regulator. Under such circumstances, the required level and frequency of information flow from both the regulator and the facility might be greater.
Financial Stability Standard for Securities Settlement Facilities
A CS facility licensee must conduct its affairs in a prudent manner, in accordance with the standards of a reasonable CS facility licensee in contributing to the overall stability of the Australian financial system, to the extent that it is reasonably practicable to do so.
This Standard only applies to CS facility licensees that provide a facility where the value of financial obligations settled in a financial year exceeds a threshold value of $100 million. When this threshold is exceeded for the first time, the provider of the facility must meet the Standard by the beginning of the next financial year.