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Robust Fallbacks Required for BBSW Securities

Summary:
The Reserve Bank is introducing new eligibility criteria for securities to be accepted as collateral in the Reserve Bank's market operations. Floating rate notes (FRNs) and marketed asset-backed securities issued on or after 1 December 2022 that reference BBSW must include robust fallback provisions All self-securitisations, regardless of the date of issue, must include robust fallback provisions. The Reserve Bank will engage directly with self-securitisation issuers and give at least 12 months' notice before enforcing this requirement. Eligibility criteria for FRNs and marketed asset-backed securities issued before 1 December 2022 are unchanged. However, issuers should strongly consider including robust fallbacks for such securities,

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The Reserve Bank is introducing new eligibility criteria for securities to be accepted as collateral in the Reserve Bank's market operations.

  • Floating rate notes (FRNs) and marketed asset-backed securities issued on or after 1 December 2022 that reference BBSW must include robust fallback provisions
  • All self-securitisations, regardless of the date of issue, must include robust fallback provisions. The Reserve Bank will engage directly with self-securitisation issuers and give at least 12 months' notice before enforcing this requirement.

Eligibility criteria for FRNs and marketed asset-backed securities issued before 1 December 2022 are unchanged. However, issuers should strongly consider including robust fallbacks for such securities, depending on their length of time to maturity, as a matter of prudent risk management.

For full details of the new eligibility requirements see the Eligible Securities Criteria.

These requirements are being introduced as part of global reforms to strengthen financial benchmarks and ensure they are used appropriately in the financial system. Financial regulators globally have been urging market participants to make financial products more robust by including fallback provisions to apply if the referenced benchmark rate is discontinued.

The Reserve Bank thanks market participants and industry bodies, including the Australian Financial Markets Association and Australian Securitisation Forum, who have engaged with the Reserve Bank and provided feedback on this work.

RBA Assistant Governor (Financial Markets) Christopher Kent said, ‘These new requirements – which have been flagged for some time – are an important step the RBA is taking to encourage further benchmark reform. Fallbacks provide important insurance when using any benchmark. If there's one thing that LIBOR has shown us, it's that we shouldn't take existing benchmarks for granted. Although BBSW is currently a robust benchmark, this could change in the future so it is important that robust fallbacks are in place.’

Reserve Bank Australia
The Reserve Bank of Australia (RBA) came into being on 14 January 1960 as Australia's central bank and banknote issuing authority, when the Reserve Bank Act 1959 removed the central banking functions from the Commonwealth Bank. The bank has the responsibility of providing services to the Government of Australia in addition to also providing services to other central banks and official institutions. It currently consists of the Payments System Board, which governs the payments system policy of the bank, and the Reserve Bank Board, which governs all other monetary and banking policies of the bank.

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