In October 2011, the Council of Financial Regulators (the Council) consulted on a broad package of reforms to the regulatory framework for financial market infrastructures (FMIs).1 The Council subsequently wrote to the Treasurer and Deputy Prime Minister outlining its final recommendations, with this letter released in March 2012 along with an invitation for further stakeholder comment on implementation. Among its proposed reforms, the Council recommended legislative change to underpin the imposition of graduated 'location requirements'. These may be more broadly defined as measures to be taken by the Reserve Bank of Australia (RBA) and the Australian Securities and Investment Commission (ASIC) (together, the Regulators) to ensure that they retain sufficient regulatory influence over cross-border FMIs that operate in Australia. The term cross-border is used throughout this paper to refer to the provision of services to domestic participants by offshore-based facilities, and 'offshoring' by domestic facilities.
The purpose of this paper is to provide further clarity on measures that could be applied in the case of cross-border clearing and settlement (CS) facilities and how they might be implemented in practice under current legislative arrangements.2 The need for further detail in this regard has become evident in consultation with stakeholders on the proposed regulatory reforms for FMIs. The framework described in this paper would apply equally to overseas facilities operating in Australia and domestic facilities seeking to move some operations offshore.
This paper focuses primarily on how the Regulators' existing powers under the Corporations Act 2001 (the Act) could be used to apply to the framework. The relevant powers include the following:
- Under advice from the Regulators, section 825A of the Act gives the Minister assigned responsibility for the Act (currently, the Minister for Financial Services, Superannuation and Corporate Law) the power to impose, vary or revoke conditions on CS facility licenses. ASIC's Regulatory Guide (RG) 211 sets out ASIC's broad approach to advising the Minister on CS facility licence applications and associated conditions.
- Section 827D of the Act gives the RBA the power to determine Financial Stability Standards (FSSs).
ASIC and the RBA intend to consult on revisions to RG 211 and the FSSs, respectively, later in the year. These consultations will have two objectives. First, the Regulators will consult on revisions required to align their regulation of CS facilities with best practice as reflected in the recently released CPSS-IOSCO
'Principles for Financial Market Infrastructures' (the Principles).3 Second, the consultation will provide an opportunity for stakeholder input on revisions to RG 211 and the FSS that would give effect to the specific additional measures for cross-border CS facilities envisaged under the framework described herein.
As stated in their advice to the Deputy Prime Minister and Treasurer, the Regulators see merit in having the scope of existing powers buttressed by amendments to the Act to enhance regulatory influence. The Regulators anticipate that the framework outlined in this paper would be capable of ready adaptation should legislative amendments create explicit powers.
1 On 8 April 2011, further to the Government's rejection of a proposed merger between the Australian Securities Exchange and the Singapore Exchange, the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP, referred a number of issues to the Council relating to the regulation of financial market infrastructures. The Council released a consultation paper on 21 October 2011, seeking stakeholder views on a number of regulatory reform measures. On 30 March 2012 the Deputy Prime Minister and Treasurer released the Council's letter of advice in relation to the review. The Treasurer's referral, the public submissions and the Council's advice are available on the Treasury website.
2 This paper does not discuss the application of this framework to other classes of FMI currently, or prospectively, covered by the Corporations Act 2001, such as financial markets or trade repositories. ASIC will consider in the future the application of similar measures to other types of cross-border FMIs. The focus on CS facilities in this paper reflects the scope of stakeholder feedback.
3 CPSS-IOSCO (Committee on Payment and Settlement Systems and the Technical Committee of the International Organization of Securities Commissions) (2012), 'Principles for Financial Market Infrastructures', April. Available on the Bank for International Settlements website.