Government moves to 'guard against risk' of FMI failure
Concerns over the threat posed by potential failures of financial market infrastructures (FMIs) to the financial services sector have prompted the Government to consult the industry.
Federal Assistant Treasurer, Josh Frydenberg, announced the Government's consultation call on a potential crisis resolution regime for FMIs, on Friday.
The announcement follows an initial "high-level consultation" on a proposed framework in 2012, in the consultation paper 'Strengthening APRA's crisis management powers'. Further work was halted under a moratorium imposed by the Government in 2013 pending the completion of the Financial System Inquiry (FSI).
In its final report last December, the FSI backed the completion of the policy development and consultation process with respect to an FMI resolution framework.
The Government's consultation paper has set out a proposal for an FMI resolution framework and called for submissions relating to key issues and questions 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.
"The Government is committed to implementing measures to mitigate the risks of a financial market or related service failing," Frydenberg said. "Although Australia has statutory crisis resolution regimes for banks and insurance companies, such provisions do not exist for key market infrastructure, despite the risks to the stability of the financial system that could result from their failure.
"These risks are not unique to Australia. International bodies, including the Financial Stability Board (FSB), have acknowledged these risks and developed standards setting out the powers regulators should have to resolve a failing market infrastructure. The proposals put forward in the consultation paper are consistent with those developed by the FSB."
The closing date for submissions is 27 March 2015. Further information relating to the consultation process is available on the Treasury website.
AUTHOR
Nicholas O'Donoghue
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