Resilience and Collateral Protection

Note: Originally published on 21 December 2015, updated on 29 January 2016 and further updated on 18 February 2016. This page also held the original detail for the Client Money Reforms consultation. Details can now been found on the Client Money Reforms consultation page.

The Government thanks interested parties for their comments on the exposure drafts of the Financial System Legislation Amendment (Resilience and Collateral Protection) Bill 2016, Financial System Legislation Amendment (Resilience and Collateral Protection) Regulation 2016, and associated documentation.

The Government will take feedback into account in developing the final Bill and Regulation. Implementation of the Bill and Regulation is planned for the first half of 2016.

The Bill will amend the PSN Act and associated provisions in other Acts to:

1. enable entities subject to Australian law to give, and enforce rights in respect of, margin provided by way of security in connection with certain financial market transactions in a manner consistent with international requirements;
2. clarify domestic legislation to support globally coordinated policy efforts ^[1] and provide certainty about the operation of Australian law in relation to the exercise of termination rights (also known as close-out rights) under certain financial market transactions; and
3. enhance financial system stability by ensuring legal certainty for the operation of approved Real Time Gross Settlement (RTGS) systems, approved netting arrangements and netting markets (more specifically, market netting contracts) in all market conditions.

The Bill also makes consequential amendments to the Banking Act 1959, Financial Sector (Business Transfer and Group Restructure) Act 1999, Insurance Act 1973, Life Insurance Act 1995, and Private Health Insurance (Prudential Supervision) Act 2015.

The Regulation will allow trustees of regulated superannuation entities and life companies to grant security in the manner required to access certain international capital markets and liquidity.

¹These policy efforts include the Margin Requirements for Non-Centrally Cleared Derivatives published by the Basel Committee on Banking Supervision and the Board of the International Organization of Securities Commissions, the Key Attributes of Effective Resolution Regimes for Financial Institutions published by the Financial Stability Board and the ISDA 2014 Resolution Stay Protocol published by the International Swaps and Derivatives Association, Inc.