2013 Self-assessment of the Reserve Bank of Australia –
Systemically Important Payment Systems 3. Summary of Ratings and Actions

The following table summarises the 2013 Self-assessment of the Bank against the Responsibilities in its role as overseer of systemically important payment systems. In its Self-assessment, the Bank has 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.^[1] Under this rating system the Bank's 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.

The Bank has concluded that it observes all relevant Responsibilities in its role as overseer of systemically important payment systems. However, the Bank will nevertheless work towards continual improvements to ensure that its arrangements for oversight of FMIs meet best practice. The table below includes some specific actions.

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

3.1 Regulation, supervision and oversight of systemically important payment systems

In a joint statement with ASIC (the Joint Statement), the Bank has set out the criteria that it uses to determine whether a system should be subject to ongoing oversight as a systemically important payment system and assessed against the Principles.^[2] RITS has been identified as the only domestic payment system that meets these criteria. Oversight of RITS is carried out by the Payments Policy Department of the Bank, under the governance of the Payments System Board. The Bank has undertaken to conduct Self-assessments of RITS against the Principles annually, having previously self-assessed RITS periodically against the Core Principles. Self-assessments of RITS against the Principles are endorsed by the Payments System Board.

The Bank has also identified CLS as a systemically important international payment. CLS is regulated, supervised and overseen by the Federal Reserve, in cooperation with an Oversight Committee that includes the Bank and a number of other overseas central banks. The Bank is also involved in the oversight of the Society for Worldwide Interbank Financial Telecommunication (SWIFT), a critical provider of messaging services for RITS, CLS, and many other FMIs and participants.

To ensure ongoing observance of this responsibility, the Payments System Board, supported by Payments Policy Department, will continue to monitor developments in the payments landscape periodically to consider whether any other payment systems should also be subject to ongoing oversight and assessment against the Principles.

3.2 Regulatory, supervisory, and oversight powers and resources

The Payment Systems (Regulation) Act provides the Bank with a number of powers to ensure the safety and stability of the payments system, including powers to gather information, and to designate and set standards for payment systems. Currently, these powers are not required to oversee systemically important payment systems because the Bank owns and operates the only domestic payment system that meets the criteria for such oversight. Rather, the Bank has established governance arrangements to ensure the effective oversight of RITS.

Since RITS is not operated as a separate entity, the management and operation of RITS fall under the governance structure of the Bank, and are therefore subject to its normal oversight, decision-making and audit processes (Figure 1). The Governor and Deputy Governor of the Bank are appointed by the Australian Government in accordance with the Reserve Bank Act. The Governor is the chief executive of the Bank (an independent statutory authority), and chairman of the Reserve Bank Board and the Payments System Board. The Governor is accountable to these boards and to the government for the policy decisions and performance of the Bank.

Decisions affecting the day-to-day operations, customer relations and development of RITS are the responsibility of the Payments Settlements Department of the Bank. Clear procedures are in place to elevate day-to-day operational matters within Payments Settlements Department and other areas of the Bank, as appropriate. Major decisions that may require significant expenditure, or have policy implications, are considered by the Bank's Executive Committee.

Payments Settlements Department is part of the Bank's Banking and Payments Group, which is headed by an Assistant Governor and subject to frequent operational audits by the internal audit area of the Bank. Audit reports are reviewed by the Audit Committee, which comprises two non-executive members of the Reserve Bank Board and two externally appointed members. Minutes of the Audit Committee, which meets quarterly, are provided to the Reserve Bank Board and discussed as appropriate.

As noted, RITS is subject to oversight by Payments Policy Department, under the governance of the Payments System Board. In conjunction with its oversight role, Payments Policy Department also determines the eligibility criteria for access to ESAs with the Bank, which effectively represent the eligibility criteria for participation in RITS. To ensure independence in its oversight activities, Payments Policy Department is separate from Payments Settlements Department in the Bank's organisational structure, with separate reporting lines up to and including the level of Assistant Governor.

The Bank has policies in place to help ensure that Payments Policy Department has sufficient resources and that the staff responsible for the oversight and regulation of payment systems have the appropriate skills and experience to perform their duties. The Payments Policy and Payments Settlements Departments meet regularly to discuss policy issues and operational developments. The Payments System Board is periodically updated on relevant developments.

3.3 Disclosure of policies with respect to systemically important payment systems

The Bank's high-level objectives related to the payments system are set out in the Reserve Bank Act. The Bank's role in the oversight of RITS as a systemically important payment system is also discussed in public documents available on the Bank's website, including Payments System Board Annual Reports and Self-assessments of RITS.

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 systemically important payment systems. Steps have been taken, where necessary, to amend relevant rules and standards.

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 Payments Policy Department. Consistency is also supported by the governance of the Bank's oversight function by the Payments System Board and the Bank's practice of publishing detailed assessments of each relevant FMI's observance of the Principles.^[3] To supplement these arrangements, the Bank is in the process of introducing a more formal FMI Oversight Coordination Group within Payments Policy Department and is considering establishing a higher level internal FMI Oversight Committee to govern day-to-day oversight activities.

3.5 Cooperation with other authorities

The Bank has extensive cooperative arrangements with both domestic and international authorities to promote the safety and efficiency of the payments system. Domestically, the Bank has MOUs with the ACCC, APRA and ASIC, supplemented with a number of informal arrangements, including regular liaison and occasional secondments.

Internationally, the Bank is a member of international bodies related to the regulation and oversight of payment systems, most notably the CPSS and the Executives' Meeting of East Asia Pacific Central Banks. The Bank also participates in the cooperative oversight of CLS and SWIFT. The Federal Reserve and the National Bank of Belgium (NBB) are lead overseers for CLS and SWIFT, respectively.

Footnotes

The disclosure framework and assessment methodology are available at <http://www.bis.org/publ/cpssl06.htm>. [1]

The Joint Statement is available at <https://www.rba.gov.au/payments-and-infrastructure/financial-market-infrastructure/principles/implementation-of-principles.html>. [2]

For example, see the Bank's 2012/13 Assessment of ASX Clearing and Settlement Facilities, available at <https://www.rba.gov.au/payments-and-infrastructure/financial-market-infrastructure/clearing-and-settlement-facilities/assessments/2012-2013/>. [3]