interfere with the competitive and commercial responses of central counterparties, clearing participants and other service providers. a flexible approach should allow for the transition to occur with maximum choice available to participants on issues such as the commercial terms of agreements, the choice of counterparties and central counterparties, and operational changes that might be needed. the council ’ s assessment was that higher capital requirements for non - centrally cleared transactions, as well as the implementation of emerging international standards for margin requirements on non - centrally cleared otc derivatives, should create a sufficiently strong economic incentive to channel trades through a central counterparty. once a critical mass of market participants have begun to clear centrally, it is likely that other market participants will follow, so as to be able to trade with counterparties who have already shifted to central clearing. the policy responses of other jurisdictions are also important in this regard. to the extent that financial institutions headquartered in other jurisdictions are required to centrally clear by their local regulators, they are likely to – or, in some cases, may have to – also centrally clear transactions executed in the australian market. 2. a qualifying central counterparty may be either domestic or overseas - based a central counterparty operating in australia must have either an australian clearing and settlement facility licence or a valid exemption. the regulatory regime in australia specifically permits an overseas - based central counterparty to operate in this jurisdiction, as long as its home regulatory regime is deemed to be sufficiently equivalent to that in australia. the consultation last year sought views on whether it should be mandated that any central counterparty clearing otc derivatives markets of systemic importance to australia be located in australia. having given this further consideration during the consultation process, the council agencies concluded that to do so would unduly constrain market participants ’ choices, reduce the effectiveness of economic incentives in driving outcomes, and potentially have other unintended consequences. in the council ’ s view, any additional risks associated with reliance on an overseas - based central counterparty may be managed through implementation of the financial stability board ’ s four safeguards. in the spirit of these safeguards, the council has developed a framework for regulatory influence over cross - border clearing and settlement facilities. bis central bankers ’ speeches specific requirements would be expected to be applied in a graduated and proportional manner and would include the following : • all licensed ccps must demonstrate legal compatibility of the facility ’ s rules with australian regulatory objectives, and have adequate mechanisms to demonstrate compliance with all licence obligations ; • where licensed ccps have material australian

they need to have a proportionately greater supervisory focus. the strengthening of capital and liquidity standards post crisis, and the use of proactive and intensive supervision, has certainly improved the resilience of the major banks in australia, and the financial system more broadly. the success of other global initiatives to address the issues that arise when a bank fails, however, remain to be seen. thank you. references rba ( reserve bank of australia ) ( 2014 ), ‘ submission to the financial system inquiry ’, submission to the financial system inquiry, 2 april. davis k ( 2007 ), ‘ banking concentration, financial stability and public policy ’, in kent c and j lawson ( ed ), the structure and resilience of the financial system, proceedings of a conference, reserve bank of australia, sydney, pp 255 – 284. byres w ( 2017 ), ‘ opening statement ’, opening statement at the roundtable hearing for the productivity commission inquiry into the state of competition in the australian financial system ', 29 june. byres w ( 2017 ), ‘ fortis, fortuna, adiuvat : fortune favours the strong ’, keynote address at the 8 / 9 bis central bankers'speeches afr banking and wealth summit 2017, 5 april. fsb ( financial stability board ) ( 2014 ), key attributes of effective resolution regimes for financial institutions, october. 9 / 9 bis central bankers'speeches