Financial market infrastructure regulatory reforms: crisis management

Treasury has released for consultation draft legislation and regulations constituting the financial market infrastructure (FMI) reform package.

FMI entities are supervised either solely by ASIC or, in respect of clearing and settlement facilities (CS facilities), both ASIC and the RBA. They are typically large and intertwined with the broader financial system.

These are highly regulated entities, as failure in any of these entities could have severe consequences for the operation of markets, and in turn damage the Australian economy.

These reforms provide the Reserve Bank of Australia (RBA) with powers to step in and resolve a crisis at a licensed clearing and settlement facility (as defined in section 768A of the Corporations Act 2001) to ensure the continuity of critical clearing functions, and to protect Australia’s financial stability.

They also strengthen and streamline ASIC and the RBA’s licensing, supervisory and enforcement powers for FMI to reduce the likelihood of a crisis occurring and enhance supervisory oversight generally.

The draft legislation also enhances regulator powers over foreign entities operating FMIs with a significant Australian nexus to ensure they are subject to appropriate oversight.

A crisis is defined as when certain conditions are met, broadly relating to threats to CS facility viability or critical service continuity; or financial instability.

The RBA’s powers to facilitate crisis management in a distressed CS facility include:
• giving binding directions in relation to a crisis;
• taking control of distressed domestic CS facility licensees and, in some circumstances, related bodies corporate; and
• initiating the transfer of business or shares of a domestic CS facility licensee (and, in some circumstances, related bodies corporate) to a third party.

Australia’s FMI is comprised of:
• financial markets (operated by financial market operators);
• clearing and settlement facilities;
• derivative trade repositories; and
• benchmark administrators.

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David Jacobson

Author: David Jacobson
Principal, Bright Corporate Law
About David Jacobson
The information contained in this article is not legal advice. It is not to be relied upon as a full statement of the law. You should seek professional advice for your specific needs and circumstances before acting or relying on any of the content.

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