3. Summary of Ratings and Actions

The following table summarises the Self-assessment of ASIC and the Bank against the Responsibilities in their regulation and oversight of CS facilities. In their Self-assessment, ASIC and the Bank have applied the approach and rating system set out in the Principles for Financial Market Infrastructures: Disclosure Framework and Assessment Methodology, published by CPSS and IOSCO in December 2012.[11] Under this rating system, the regulators' observance of a Responsibility may be rated as:

Observed – The authorities fulfil the Responsibility. Any identified gaps and shortcomings are not issues of concern and are minor, manageable and of a nature that the authorities can consider taking up in the normal conduct of their activities.

Broadly observed – The authorities are broadly fulfilling the Responsibility. The assessment has identified one or more issues of concern that authorities are encouraged to address and follow up in a defined time line.

Partly observed – The authorities partly fulfil the Responsibility. The assessment has identified one or more issues of concern that could seriously affect the reliable discharge of the Responsibility by the authorities if not addressed in a timely manner. The authorities to which these concerns apply should accord a high priority to their resolution.

Not observed – The authorities are not fulfilling the Responsibility. The assessment has identified one or more serious issues of concern in the current discharge of the Responsibility by the authorities that warrant immediate action. The authorities to which these concerns apply should accord the highest priority to their resolution.

Not applicable – This Responsibility does not pertain because of the particular institutional framework or other conditions faced by the authorities with respect to this responsibility.

ASIC and the Bank have concluded that they observe all relevant Responsibilities in their regulation and oversight of CS facilities. However, ASIC and the Bank will nevertheless work towards continual improvements to ensure that their arrangements for oversight of FMIs meet best practice. Table 2 below includes some specific actions.

The actions in Table 2 are discussed in more detail below and in the detailed assessments in Appendix A.

3.1 Regulation, supervision and oversight of clearing and settlement facilities

Consistent with the presumption under the Principles that all CCPs and SSFs are systemically important, the Corporations Act requires all CS facilities operating in Australia to be licensed and subject to regulation and oversight by ASIC and the Bank (unless granted a specific exemption by the responsible Minister). ASIC has clarified in regulatory guidance the criteria that it would apply in considering whether to advise the Minister that a CS facility be licensed or granted an exemption. These criteria have been applied in considering licence applications to date. Currently licensed facilities are listed in Table 1, above. No CS facilities currently operating in Australia have been granted an exemption from licensing requirements under the Corporations Act.[12]

ASIC and the Bank have issued policy documents and standards that clarify the scope of requirements and the nature and intensity of their regulation and oversight of CS facility licensees. ASIC's RG 211 and the Bank's FSS establish the regulators' requirements and their expectations of CS facility licensees under the Corporations Act. These documents implement the Principles within ASIC's and the Bank's respective regulatory regimes and provide transparency around how responsibilities are allocated between the regulators to ensure that there are no regulatory gaps. Other policy documents consider matters such as the frequency of formal assessments and how the regulators ensure appropriate influence over cross-border CS facilities operating in Australia.[13]

3.2 Regulatory, supervisory, and oversight powers and resources

ASIC and the Bank have joint regulatory responsibility for CS facilities. ASIC assesses CS facility licensees' compliance with their obligation to do all things practicable to provide their services in a fair and effective way, while the Bank has principal responsibility for the regulation and oversight of matters relating to financial stability.

The Corporations Act gives ASIC and the Minister important regulatory and enforcement powers to help ensure that CS facility operators comply with their obligations under the Corporations Act. The functions, powers and business of ASIC are further provided for under the ASIC Act. Resourcing for the team with responsibility for the oversight of licensed CS facilities reflects its current level of regulatory activity for CS facilities; the team sits within the wider ASIC team that has responsibility for the oversight of FMIs. ASIC is funded through the Commonwealth budget and any fees and/or charges it collects are returned to Consolidated Revenue.

The Corporations Act gives the Bank the power to determine standards, the FSS, for the purpose of ensuring that CS facility licensees conduct their affairs in a way which promotes the overall stability of the Australian financial system. These standards may apply to all CS facility licensees or a specified class of facility. The Bank assesses CS facilities' compliance with the FSS and lack of compliance may result in enforcement action. While enforcement powers rest with ASIC and the Minister, action may be taken on the Bank's advice. Execution of the Bank's regulatory and oversight responsibilities for CS facilities is carried out by a team within the Bank's Payments Policy Department, under the governance of the PSB. The Bank has sound policies in place to ensure that this team is appropriately resourced.

3.3 Disclosure of policies with respect to Clearing and Settlement Facilities

ASIC's and the Bank's roles, responsibilities and objectives related to CS facilities are clearly defined in relevant legislation, including the Corporations Act, the Reserve Bank Act and the PSNA.

Relevant policies adopted by ASIC and the Bank in their regulation and oversight of CS facilities are disclosed in various public documents.

  • The Joint Statement on implementing the Principles in Australia clarifies how ASIC and the Bank have implemented the Principles within their respective regulatory frameworks.
  • ASIC's approach to the licensing and regulation of CS facilities is further disclosed in ASIC's RG 211, which provides guidance to CS facility licensees and prospective licensees on a range of regulatory matters.
  • The Bank's policies with respect to the regulation and oversight of CS facilities are disclosed in the following documents, available on its website:

    – the Bank's FSS, determined by the PSB in accordance with the Bank's responsibilities under s 827D of the Corporations Act

    – the Reserve Bank's Approach to Assessing Clearing and Settlement Facility Licensees.

Both ASIC and the Bank also make their formal assessment reports on CS facility licensees publicly available on their respective websites, with the Bank's oversight activities in respect of CS facilities further disclosed annually in the PSB's Annual Report.

Further policy guidance on specific matters relevant to the licensing and oversight of cross-border CS facilities is also published from time to time.

3.4 Application of the Principles for Financial Market Infrastructures

ASIC and the Bank, the Australian regulators responsible for oversight of FMIs, have committed in the Joint Statement to apply the Principles in their oversight of all FMI types, including CS facilities. Since the publication of the Principles, steps have been taken to amend relevant rules and standards – in particular, ASIC's RG 211 and the Bank's FSS.

Both regulators have also amended their oversight processes to ensure consistent application of the Principles both across CS facilities and across FMI types.

  • ASIC has a number of mechanisms to ensure consistent application of the Principles both across CS facilities and across FMI types. These mechanisms allow ASIC to consider the broader impact of CS facility regulation on the fairness and efficiency of financial markets.

    – ASIC's team with responsibility for the oversight of FMIs has regulatory responsibility for a range of FMIs that are covered by the Principles. Members of the team work closely together to ensure there is consistent interpretation and application of regulatory requirements across the different types of FMIs.

    – Within ASIC, the stakeholder teams with responsibility for market integrity and oversight work cooperatively through formal and informal channels on matters of cross-team relevance; for instance, where a matter has implications for CS facilities and market licensees and/or market participants, or raises broader policy issues. The advice and input of other ASIC teams, such as those with responsibility for policy coordination and economic and market research, is also sought from time to time to further ensure that fair, effective and reasonable regulatory outcomes are reached.

    – Significant or novel matters are considered by ASIC's policy decision-making group and/or the Commission, either for decision or to provide direction.

    – ASIC has other forums that facilitate discussion about current issues or developments affecting financial markets, including issues that have cross-team relevance.
  • Consistent application of the Principles across and within FMI types overseen by the Bank is promoted by the location of oversight of all FMIs in a single team within the Bank's Payments Policy Department. Consistency is also supported by the governance of the Bank's oversight function by the PSB and the Bank's practice of publishing detailed assessments of each relevant FMI's observance of the Principles. To supplement these arrangements, the Bank has introduced regular FMI Oversight Coordination meetings within Payments Policy Department and recently established a senior level internal FMI Oversight Committee to govern day-to-day oversight activities within the policy framework set by the PSB.

ASIC and the Bank will continue to refine existing mechanisms to promote consistent regulatory outcomes both across CS facilities and across FMI types, including in the application of the Principles.

  • To ensure consistent regulatory outcomes across FMIs and the markets that they serve, ASIC will continue to use existing forums for coordination across its stakeholder teams. Such coordination will facilitate consideration of the broader impact of application of the Principles and other aspects of CS facility regulation on the fairness and efficiency of financial markets.
  • The Bank will monitor the effectiveness of the new FMI Oversight Committee on an ongoing basis. Appropriate steps will be taken to ensure that the Committee meets its key objective of providing a forum for review and challenge to the staff's routine oversight decisions within the policy framework established by the PSB.

3.5 Cooperation with other authorities

To support their joint regulatory activities, ASIC and the Bank have a range of cooperation arrangements in place. These are governed by a bilateral MOU that establishes a framework for information sharing, consultation and liaison. In addition to assisting each regulator in the performance of its responsibilities under the Corporations Act, the MOU aims to promote transparency, prevent duplication of effort, and minimise the regulatory burden on licensed facilities. In practice, ASIC and the Bank liaise very frequently in the execution of their regulatory activities and often conduct joint meetings with regulated entities and other relevant stakeholders.

ASIC and the Bank also have extensive cooperation arrangements with other domestic regulatory authorities and a range of international counterparts. These arrangements have similar objectives.

ASIC and the Bank both liaise regularly with other domestic financial regulators (APRA, The Treasury and the Australian Competition and Consumer Commission (ACCC)), both bilaterally and multilaterally. Policy matters relevant to FMIs are also often considered by the CFR.

Internationally, ASIC and the Bank are members of international bodies involved in policy development relevant to the regulation and oversight of CCPs and SSFs. ASIC is a member of IOSCO, while the Bank is a member of CPMI and the Executives' Meeting of East Asia-Pacific Central Banks (EMEAP).

ASIC and the Bank also each has bilateral MOUs with relevant overseas regulators to govern cooperation and information sharing relevant to the regulation and oversight of cross-border CS facilities:

  • Both ASIC and the Bank have MOUs in place with the Bank of England. These MOUs govern cooperation arrangements for LCH.C Ltd. The Bank also participates in a global cooperative oversight arrangement for LCH.C Ltd's SwapClear service.
  • In June 2014, ASIC and the Bank concluded a joint MOU with the CFTC, which governs cooperation and information sharing arrangements for both US and Australian CCPs.
  • In July 2014, the Bank concluded an MOU with the RBNZ. The MOU establishes cooperation arrangements relevant to certain Australian licensed CS facilities' existing activities in New Zealand dollar-denominated products, as well as any future offerings in Australia or Australian dollar-denominated products from New Zealand-domiciled entities. New Zealand is introducing legislation that will give the RBNZ regulatory responsibility for CS facilities.
  • Other cooperative arrangements are being established. For instance, further to an equivalence assessment in 2013, ESMA advised the EC that it regards the Australian regime for CCPs to be equivalent to the regime in the EU. Accordingly, the EC is developing an Implementing Act to give effect to this decision and ASIC and the Bank are negotiating an MOU with ESMA.

ASIC and the Bank will continue to work with other central banks and regulators of CS facilities to promote effective cooperation and mutual assistance in the regulation and oversight of cross-border CS facilities. Existing arrangements will continue to be enhanced, particularly in relation to cooperation during periods of market stress and in addressing matters related to the recovery, wind-down or resolution of cross-border CS facilities. Formal cooperation arrangements with other authorities will be established as appropriate.

Footnotes

The disclosure framework and assessment methodology are available at <http://www.bis.org/publ/cpss106.htm>. [11]

For completeness, the regulators note that a small number of facilities prescribed under the Corporations Regulations are deemed not to be operating a CS facility if they meet requirements specified under the Regulations. Currently, these requirements are met by the National Stock Exchange of Australia and Bendigo Stock Exchange Limited (now known as SIM Venture Securities Exchange Limited), and their agents or participants. These facilities were grandfathered into the CS facilities regime at the time of transition to the Corporations Act in 2004. [12]

The Council of Financial Regulators' framework for ensuring appropriate regulatory influence over cross-border CS facilities that operate in Australia is available at <http://www.treasury.gov.au/ConsultationsandReviews/Consultations/2012/cross-border-clearing>. Supplementary guidance on how the framework would be applied to CCPs operating in the major Australian financial markets is available at <https://www.cfr.gov.au/publications/policy-statements-and-other-reports/2014/application-of-the-regulatory-influence-framework-for-cross-border-central-counterparties/>. [13]