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Monday, 2 May 2016
Page: 4029

Mr PITT (HinklerAssistant Minister to the Deputy Prime Minister) (17:52): I would like to thank those members who have contributed to this debate on the Financial System Legislation Amendment (Resilience and Collateral Protection) Bill 2016, in particular the member for Solomon. Following the global financial crisis, the GFC, G20 leaders agreed to 'implement sweeping reforms to reduce the risk that financial excesses will again destabilise the global economy'. Imposing margin requirements for non-centrally cleared derivatives is central to this agenda. Margin requirements are the next significant wave of regulatory reform in over-the-counter derivatives markets. They are designed to reduce the kind of contagion and spillover effects seen in the GFC by ensuring that collateral is available to offset losses caused by the default of a derivatives counterparty.

This bill allows financial institutions operating in Australia to meet international margin requirements for trade in over-the-counter derivatives, which are due to be phased in from September 2016. It removes impediments in current Australian law which may otherwise prevent our institutions from transacting with international counterparties. This bill will also resolve an inconsistency in Australian law which arose in 2008 by clarifying the way in which certain rights—particularly early termination rights, or 'close-out rights'—may be exercised by counterparties against an Australian regulated financial entity when it becomes subject to resolution measures such as authorised deposit-taking institution statutory management or judicial management. This amendment will clarify domestic legislation to support globally coordinated policy efforts and provide certainty about its operation. This bill proposes an approach which is broadly consistent with international best practice, as set out in the Financial Stability Board's Key attributes of effective resolution regimes for financial institutions and International Swaps and Derivatives Association Inc.'s ISDA 2015 Universal Resolution Stay Protocol. Finally, this bill also enhances the stability of the financial system by providing legal certainty for the operation of approved real-time gross settlement systems, approved netting arrangements and netting markets—more specifically, market netting contracts—in all market conditions. These systems, arrangements and markets are vital to the smooth functioning of the Australian financial system.

The bill is the product of careful and rigorous consultation with the Council of Financial Regulators—the Reserve Bank of Australia, the Australian Prudential Regulation Authority, the Australian Securities and Investments Commission and the Australian Treasury—and a range of market participants, industry associations, and professional advisers. The submissions received during the consultation process broadly supported the reforms set out in this bill. I commend the bill to the House.

Question agreed to.

Bill read a second time.