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New Financial Stability Standards: final standards – Regulation Impact Statement – Reserve Bank of Australia

Financial Market Infrastructures include systemically important payment systems, central securities depositories, securities settlement systems, central counterparties and trade repositories.  These entities are seen as having an increasingly important and expanding role in the financial system.  At the international level, risk management principles for these entities are developed jointly by the Committee on Payment and Settlement Systems (CPSS) and the International Organisation of Securities Commissions (IOSCO). Based on these principles, the Reserve Bank of Australia (RBA) develops Financial Stability Standards for central counterparties (CCPs) and securities settlement facilities (SSFs) operating in Australia.  These standards have been in place since 2003 and broadly require that CCPs and SSFs conduct their affairs in a prudent manner, so as to contribute to the overall stability of the Australian financial system. In April 2012, CPSS and IOSCO introduced new standards which strengthened the previous principles in some areas.  The new standards cover:

  • internal governance and risk management;
  • credit and liquidity management;
  • settlement;
  • default management; and
  • access arrangements.

The principles also set out key responsibilities for central banks and securities regulators. On 5 December 2012, the RBA announced that its Payments System Board approved the determination of new Financial Stability Standards (the standards), which aim to align the Australian regulations with the new international standards.  Most of the new standards will come into effect on 29 March 2013, subject to any requests for transitional relief. The new standards are likely to require changes in the conduct of CS facilities, which would impose costs.  These costs are both transitional (adjusting key policies, rules and procedures) as well as ongoing (maintenance of more robust risk controls and governance procedures).  CCPs would need to ensure their financial resources were sufficient to meet the requirements of the new standards.  This may require access to significantly increased liquidity.  Other market participants may also need to provide alternative forms of collateral to CCPs. A Regulation Impact Statement was prepared by the RBA and assessed as adequate by the Office of Best Practice Regulation.