Financial market infrastructures (FMIs) include critical elements of the financial system such as central counterparties and trade repositories, and to some extent also major exchange markets. FMIs have been growing in importance under recent global reforms, in particular those requiring central clearing of OTC derivatives. There is accordingly increased awareness that a failing FMI could pose a risk to the stability of the financial system and that a resolution framework is required to guard against that risk. International bodies such as the Financial Stability Board (FSB) have noted this emerging risk and have developed standards setting out the powers regulators should have to resolve a failing FMI.
Initial high-level consultation on a proposed framework was conducted in September 2012 in the consultation paper ‘Strengthening APRA’s crisis management powers’. Further work was halted under the moratorium imposed by the Government in 2013 pending the completion of the Financial System Inquiry (FSI). The FSI final report was released in December 2014. Recommendation 5 inter alia supports completion of the policy development and consultation process with respect to an FMI resolution framework.
This consultation paper accordingly sets out a proposal for an FMI resolution framework and requests submissions on key issues and questions arising in this context. It discusses a number of key matters relating to the proposed framework, including:
- Institutional scope of the framework, i.e. which types of entities should be subject to the resolution regime;
- Resolution authorities, i.e. which regulators should act as resolution authorities for particular types of FMIs, as well as the objectives that should guide their work and the powers that they should be given;
- Matters relating to the funding of resolution actions; and
- Enhancements to the directions powers of regulators and resolution authorities, primarily for the purpose of supporting the successful implementation of recovery and resolution actions.
These proposals are consistent with the standards promulgated by the FSB.