The effectiveness of the new system to be introduced by the Reserve Bank for the settlement of high-value wholesale payments (the Real Time Gross Settlement (RTGS) system) would be enhanced under draft legislation released for public comment today by the Treasurer, Peter Costello.
"The legislation will also provide greater assurance for netting arrangements for low-value retail payments in the payments system and facilitate the turnback of cheques," Mr Costello said.
The Reserve Bank has indicated that it is working towards having the new system fully in place by around mid-1998. This will allow high-value payments, accounting for more than two-thirds of the value of cleared payments in Australia, to be settled on an RTGS basis. RTGS will ensure that each high-value payment is settled as it occurs, rather than being deferred. Existing deferred multilateral netting arrangements will continue to apply to low-value retail payments.
"The draft legislation released today will address the legal uncertainties that could attach to the effectiveness of those arrangements", the Treasurer said.
In particular, the draft Payment and Settlement Systems Bill will:
- protect from the operation of the Zero Hour Rule transactions settled through the RTGS system if a participant in the system were to go into external administration; and
- ensure the effectiveness of multilateral netting arrangements in the payments system, again in the event of a participants external administration.
The Cheques and Payment Orders Amendment (Turnback of Cheques) Bill will amend the Cheques and Payment Orders Act to deem unsettled cheques drawn on that participant to be dishonoured. This will enable other participants in the payments system to reverse provisional credits or debits made to customers accounts in respect of those unsettled cheques - or, in other words, turnback the unsettled cheques.
Comments on the draft legislation are invited by 11 March 1998. Copies of the exposure draft legislation and commentary are available from Brenda Berkeley, Department of the Treasury, telephone (02) 6263 3972, Commonwealth Government Infoshops, or on the Treasury web site.