2005 Self-assessment of the Reserve Bank Information and Transfer System Core Principle I

The system should have a well founded legal basis under all relevant jurisdictions.

1.1. Assessment of Compliance

RITS complies with this principle. Australian legislation provides a comprehensive and well established framework for real-time gross settlement (RTGS) payments.

1.2. Legal Basis

The RITS Regulations and Conditions of Operation (RITS Regulations) provide the legal structure for RITS. The RITS Regulations set out the rules for the operation of RITS and the rights and obligations of participants and the Reserve Bank. The legal basis of RITS is established by contract. Standard agreements are executed to bind each party to the RITS Regulations. The RITS Regulations explicitly submit each party to the non-exclusive jurisdiction of the courts of New South Wales and courts of appeal from them.

RITS accepts payment transfer instructions from approved feeder systems that specify RTGS. A new facility will also allow ‘batch feeder’ settlements submitted by an approved batch administrator. Admission as a feeder system is by specific reference in the RITS Regulations and contractual arrangement with the Reserve Bank.

Finality of payment in RITS is made legally certain by Reserve Bank approval of RITS under the Payment Systems and Netting Act (see below).

1.3. Payment Systems and Netting Act approvals

RITS is an approved RTGS system in terms of Part 2, Section 9 of the Payment Systems and Netting Act. The Payment Systems and Netting Act provides for the Reserve Bank to approve a RTGS system so that transactions in that system are protected from the potential application of the zero-hour rule. Under this rule, a court-ordered liquidation is deemed to commence from the first moment of time on the day the court order was granted. The application of this rule could result in payments made by a failed institution between midnight and the time of the court order being declared invalid. This would undermine the irrevocable nature of RTGS payments and create severe liquidity, and potentially systemic, problems in the payments system.

Fallback arrangements, in the event that RTGS is unavailable and a decision has been made that it is unlikely to recover, provide for multilateral netting. The legal certainty of multilateral netting, and thereby irrevocability of finality of settlement, has been protected by an approval under Part 3, Section 12 of the Payment Systems and Netting Act.