Treasury has published an exposure draft Financial Sector Legislation Amendment (Close-out Netting Contracts) Bill 2011 which will amend the Banking Act 1959, the Insurance Act 1973, the Life Insurance Act 1995 and the Payment Systems and Netting Act 1998 to address an inconsistency between the Acts related to the effect of statutory management or judicial management on the enforceability of close-out netting contracts.

The Discussion Paper states that the policy intention is to make it clear that close-out netting contracts cannot be terminated by counterparties solely on the grounds that a statutory or judicial manager has taken control of the ADI or insurer.

The proposed solution seeks to ensure that close-out netting contracts can be maintained in statutory or judicial management where this is considered necessary, such as where there is a desire to preserve currency and interest rate hedges, to avoid exposing depositors and policyholders to excessive risks, and to maintain flexibility of resolution.