Following a public consultation, the Reserve Bank of Australia (RBA) has decided to increase the settlement activity threshold under the Financial Stability Standards for Securities Settlement Facilities (SSF Standards). This move aims to balance the risks posed by small firms to the financial system and the regulatory burden imposed on them. The review of the settlement activity threshold in the SSF Standards was initiated following the Payments System Board’s meeting in November 2023.
The SSF Standards will not apply to a clearing and settlement (CS) facility licensee that settles less than $40 billion of financial obligations through the facility in a financial year; this threshold was previously $200 million. The new threshold is equivalent to around 1 percent of total annual settlement activity for Australian equity securities and less than 1 percent of total annual settlement activity for Australian debt securities.
In accordance with section 827D of the Corporations Act 2001 (the Act), the RBA has implemented changes to the settlement activity threshold under the SSF Standards by:
- Revoking the existing SSF Standards, pursuant to section 827D(8) of the Act, effective June 24, 2024.
- Determining new SSF Standards, pursuant to section 827D(1) of the Act. The new SSF Standards are in similar terms as the existing standards, except for changes to the settlement activity threshold contained in paragraph (a) of the ‘Introduction’ section. These new standards will come into effect on June 24, 2024.
Background
The RBA and ASIC are co-regulators of licensed CS facilities and have separate but complementary responsibilities for licensing and supervision under Part 7.3 of the Act.
The Reserve Bank of Australia has authority under subsection 827D(1) of the Act to determine financial stability standards aimed at ensuring that CS facility licensees conduct their affairs in a manner that promotes overall stability in Australia's financial system. In line with this power, two sets of financial stability standards have been determined:
- The Financial Stability Standards for Central Counterparties (CCP Standards)
- The Financial Stability Standards for Securities Settlement Facilities (SSF Standards)
The RBA may assess how well each CS facility licensee meets their statutory obligations to comply with these standards and take necessary measures to reduce systemic risk.
ASIC has complementary responsibilities for supervising each CS facility licensee’s compliance with obligations to ensure that services are provided fairly and effectively where reasonably practicable.