Increasing the Threshold for the Application of the Financial Stability Standards for Securities Settlement Facilities November 2023

In accordance with powers under section 827D of the Corporations Act 2001 (the Act), the Reserve Bank of Australia (the Bank) has determined Financial Stability Standards (FSS) for central counterparties (CCPs) and for securities settlement facilities (SSFs). These standards aim to ensure that clearing and settlement (CS) facility licensees (CSFLs) conduct their affairs in a way that promotes overall stability in the Australian financial system.

The Bank is seeking views from interested parties on a proposal to increase the ‘activity threshold’ under the Financial Stability Standards for SSFs (SSF Standards). Since 2012, a CSFL that operates a SSF is exempt from the SSF Standards if the value of financial obligations settled through the SSF in a financial year does not exceed a threshold value of $200 million. The threshold was first introduced in 2005, in recognition of the fact that the activities of small SSFs are unlikely to affect the overall stability of the Australian financial system.

The Bank proposes to increase the threshold value to $40 billion. The proposed threshold represents around 1 per cent of the annual settlement activity for Australian equity securities and less than 1 per cent of annual settlement activity for Australian debt securities. The Bank considers that this proposed threshold strikes a more appropriate balance between the public interest in the management of risks to financial stability and the public interest in avoiding excessive regulatory burden, particularly on small enterprises.

The proposed change will not affect any other obligations imposed by Part 7.3 of the Act with respect to any CS facility operating in Australia. These other obligations include the requirement for the operator of the CS facility to be licensed, and the requirements of CSFLs to provide services in a fair and effective manner and reduce systemic risk as far as reasonably practicable.

Stakeholders were invited to provide written submissions in response to the proposal. The closing date for submissions was 19 January 2024.

The Conclusions Paper summarises the submissions provided by respondents and presents the conclusions of the RBA’s public consultation on increasing the threshold for the application of the SSF Standards. The RBA concluded that the higher threshold value strikes a more appropriate balance between the public interest in the management of risks to financial stability and the public interest in avoiding excessive regulatory burden, particularly on small enterprises. The RBA intends to implement the proposed changes to the SSF Standards, which are expected to come into effect on or around 1 June 2024.