2009/10 Assessment of Clearing and Settlement Facilities in Australia 4. The Financial Stability Standards
The Financial Stability Standards
The Reserve Bank has determined Financial Stability Standards for central counterparties and securities settlement facilities under powers conferred in the Corporations Act (see Appendix A). The Standards are supplemented by a set of detailed measures that the Reserve Bank considers relevant for meeting each Standard (see Appendix B).
The Standards comprehensively cover matters relevant to the assessment of systemic risks arising from the activities of licensed domestic facilities. As such, in assessing these facilities' compliance with the Standards, the Reserve Bank also fulfils its obligation under the Corporations Act to assess whether a facility is ‘doing all other things necessary to reduce systemic risk’. In the case of overseas facilities granted a licence under section 824B(2) of the Corporations Act, the Reserve Bank is relying to some extent on the overseas regulatory authority. Therefore, other factors may need to be taken into account to assess whether the facility is doing all things necessary to reduce systemic risk. There are not currently any CS facilities licensed under section 824B(2).
Determination, Variation and Revocation of Financial Stability Standards
Section 25M(1)(a)-(c) of the Reserve Bank Act requires that the Payments System Board describe standards for CS facilities determined during the year and any variations or revocations of existing standards.
No new standards for CS facilities were determined by the Reserve Bank under section 827D(1) of the Corporations Act during the year to June 2010. No existing standards were varied or revoked.
During the period, the Reserve Bank did, however, publish guidance on how it would assess the sufficient equivalence of an overseas regulatory regime for clearing and settlement facilities in relation to ‘protection from systemic risk’.[1] The exemption from full assessment against the Financial Stability Standard for Central Counterparties for overseas central counterparties under certain conditions – introduced in February 2009 – applies only to central counterparties licensed under section 824B(2) of the Corporations Act. A licence may be granted under this section at the Minister's discretion, and only where the applicant is deemed to be subject to a regulatory regime in its principal place of business that is sufficiently equivalent to that in Australia ‘in relation to the degree of protection from systemic risk and the level of effectiveness and fairness of services they achieve’. The Reserve Bank's assessment of sufficient equivalence takes into account the clarity and coverage of the overseas regime, the oversight process of the overseas regulator and the observed outcomes of the regime.