Reserve Bank of Australia Annual Report – 2017 Financial Statements Note 11 – Contingent Assets and Liabilities

Committed Liquidity Facility

Since 1 January 2015, the RBA has provided a Committed Liquidity Facility (CLF) to eligible ADIs as part of Australia's implementation of the Basel III liquidity standards. The CLF provides ADIs with a contractual commitment to funding under repurchase agreements with the RBA, subject to certain conditions. It was established to ensure that ADIs are able to meet their liquidity requirements under Basel III. The CLF is made available to ADIs in Australia because the supply of high quality liquid assets (HQLA) is lower in Australia than is typical in other major countries; in other countries, these liquidity requirements are usually met by banks HQLAs on their balance sheet. While the RBA administers the CLF, the Australian Prudential Regulation Authority (APRA) determines which institutions have access to the facility and the limits available. Any drawdown must meet certain conditions, including: APRA does not object to the drawdown; and the RBA assesses that the ADI has positive net worth. Accordingly, the potential funding under the CLF is disclosed as a contingent liability; repurchase agreements associated with providing funding are disclosed as a contingent asset. If an ADI drew on the CLF, the funds drawn would be shown as a deposit liability of the RBA, and the counterpart repurchase agreement as an Australian dollar investment.

The aggregate undrawn commitment of the CLF at 30 June 2017 totalled about $193 billion for 14 ADIs (about $224 billion for 13 ADIs at 30 June 2016).

Bank for International Settlements

The RBA has a contingent liability, amounting to $65.1 million at 30 June 2017 ($67.7 million at 30 June 2016), for the uncalled portion of its shares held in the BIS.

NPA and Securency

Charges were laid in 2011 against NPA and Securency International Pty Ltd (Securency) alleging that the companies and a number of individuals conspired to provide or to offer to provide, at various times between December 1999 and September 2004, benefits to foreign public officials that were not legitimately due. A number of former employees of the companies were charged between 2011 and 2013 with engaging in the alleged conspiracies, with false accounting offences or with both. The RBA has accounted for the costs, and potential costs, to the consolidated entity related to these charges in accordance with AASB 137 – Provisions, Contingent Liabilities and Contingent Assets. Specific information about these charges and the associated costs have not been disclosed in the notes to the accounts as these matters remain before the courts. In light of several uncertainties, it is not possible to make reliable estimates of all of the potential costs associated with the charges, or potential claims in connection with them, at the date of preparing these accounts.

In February 2013, the RBA completed the sale of its 50 per cent interest in Securency (now known as CCL Secure Pty Ltd) to a related entity of Innovia Films, a UK-based film manufacturer, which had previously owned the other half of Securency. Under the sale agreement the RBA provided the owner of Securency with a number of indemnities in relation to the period during which Securency had been jointly owned by the RBA and Innovia Films. It is not possible to reliably estimate the potential financial effect of these indemnities. The RBA, however, does not consider it probable at this time that it will have to make payments in terms of these indemnities. Accordingly, the indemnities are treated as contingent liabilities in accordance with AASB 137.

In addition, an amount covering 50 per cent of certain potential liabilities of Securency relating to events prior to the sale was placed in escrow in February 2013. In 2016/17 the RBA contributed its agreed share from the escrow for one of those liabilities. The residual amount in escrow for that liability was released to the RBA during the financial year. In February 2020 the RBA will receive the balance then remaining in escrow after relevant claims have been paid, settled or lapse. Where it is not possible to estimate the likelihood of the RBA receiving any payments from amounts held in escrow, these amounts are treated as a contingent asset, in accordance with AASB 137.

Insurance

The RBA carries its own insurance risks except when external insurance cover is considered to be more cost-effective or is required by legislation.

Performance Guarantees

In the course of providing services to its customers, the RBA provides performance guarantees to third parties in relation to customer activities. Such exposure is not material and has not given rise to losses in the past.