CUBE RegNews:
17^th August

Australia’s central bank publishes payments systems update  

The Payments System Board of the Reserve Bank of Australia (RBA) has published brief minutes from its most recent board meeting. 

The main points are as follows: 

• Assessment of the Australian Securities Exchange (ASX) clearing and settlement facilities: The Board endorsed the Bank’s assessment of ASX clearing and settlement facilities against Financial Stability Standards. The assessment will be published after submission to the Treasurer and the Australian Securities and Investments Commission (ASIC). 
• Industry advisory group for clearing and settlement: The Board welcomed ASIC’s initiative for ASX to create an Advisory Group to address strategic clearing and settlement issues in cash equities. 
• Oversight of international financial market infrastructures: The Board discussed oversight of global financial market infrastructures, noting LCH SwapClear’s extension of operating hours to cover the Australian business day. 
• Oversight framework for prominent payment systems: The Bank consulted with the industry on a framework for overseeing significant payment systems. The Board considered the risk management framework of the New Payments Platform (NPP) and emphasized the need for continued investment in its safety and resilience. 
• Competition in debit card market: Based on feedback, the Board decided against prohibiting default routing on dual-network debit cards. The Board supports least-cost routing (LCR) and expects providers to make faster progress in enabling LCR for online transactions. If not achieved by June 2024, a regulatory requirement may be explored. 
• Enhancing security of debit card transactions online: A consultation indicated support for standardized payment card tokenisation to improve security, efficiency, and competition. The Bank will publish industry expectations by the end of 2023 to guide security improvements through tokenization. 
• Central Bank Digital Currency (CBDC) initiatives: The Board discussed ongoing CBDC research, including a recent pilot project with the Digital Finance Cooperative Research Centre (DFCRC). A report on the project’s use cases and findings will be published in late August. Discussions also covered digital asset industry firms and the potential role of CBDC in the digital economy. 

ESMA highlights risks in CDS market and CCPs

The European Central Bank has published an Interview with Verena Ross, Chair of the European Securities and Markets Authority in which Ross highlights the risks in the single-name credit default swap (CDS) market and central counterparties (CCPs). 

Ross says the CDS market is opaque and lacks liquidity, which could lead to sharp price movements. This is because there is limited trading activity and low liquidity in the market, meaning that a small number of trades can have a large price impact. Additionally, the global nature of the market makes it difficult to track and monitor. 

Ross notes that CCPs are exposed to operational risk because CCPs play a vital role in the financial system by clearing and settling trades, and if they were to fail, it could have a knock-on effect on other financial institutions. 

In response to these risks, and others outlined in the interview, Ross outlined a number of developments ESMA is planning: 

• Enhanced transparency in the CDS market, including the publication of more trade data and the development of a central repository for CDS data. 
• Stronger regulation of CCPs, including requirements for CCPs to have more robust risk management systems and to be subject to more frequent stress testing. 
• Further development of the EU’s ESG framework, to ensure that it is more effective in mitigating the risks of greenwashing. 

Compliance teams should develop and implement a risk management framework that specifically addresses the risks associated with the CDS market and CCPs. They should monitor market developments closely and identify any new or emerging risks. They should also communicate risks to senior management and other relevant stakeholders. Finally, they should conduct regular testing of risk management controls to ensure that they are effective.