Counterparty Risk Explained: A 2025 Guide for Australian Investors

Counterparty risk has become a key topic for Australian investors and finance professionals in 2025. From banking to crypto, the parties you transact with matter more than ever. As markets grow increasingly complex and interconnected, understanding counterparty risk—and how to manage it—can make or break your financial strategy.

What Is Counterparty Risk?

At its core, counterparty risk is the possibility that the other party in a financial transaction will default on their obligations. This risk is present in everything from a simple bank deposit to derivatives contracts and peer-to-peer lending platforms. In recent years, high-profile collapses—like the 2023 default of several global crypto exchanges and the 2024 liquidation of a major Australian property syndicate—have pushed counterparty risk to the forefront.

Key scenarios where counterparty risk arises include:

• Deposits: When you deposit money with a bank, you’re exposed to the risk that the bank may fail.

• Derivatives: In futures, swaps, and options, you rely on your counterparty to fulfil their side of the contract.

• Bonds and Loans: Bondholders and lenders face the risk of borrower default.

• Trading Platforms: Crypto, forex, and share trading platforms may themselves become insolvent.

2025 Regulatory Shifts: How Policy Is Responding

Australian regulators have responded to recent global turmoil by tightening rules around counterparty exposures. The Australian Prudential Regulation Authority (APRA) rolled out updated capital adequacy standards in early 2025, requiring banks and insurers to hold more capital against exposures to non-bank counterparties. This follows the Basel III endgame reforms, with a special focus on derivatives and off-balance-sheet items.

Key 2025 updates include:

• Stricter Reporting: All Australian financial institutions must now provide real-time updates on their largest counterparty exposures to APRA.

• Mandatory Central Clearing: Many derivatives must be centrally cleared, reducing bilateral risk between counterparties.

• Crypto Regulation: ASIC’s new Digital Asset Service Provider regime mandates minimum capital requirements for crypto exchanges, following several 2023-24 failures.

• Deposit Guarantee Scheme Review: The government’s 2025 review of the Financial Claims Scheme is considering raising the $250,000 cap for protected deposits amid rising bank competition.

For investors, these changes mean greater transparency and potentially lower systemic risk, but also new due diligence requirements when choosing counterparties or platforms.

How to Assess and Manage Counterparty Risk

Whether you’re managing a portfolio, running a business, or simply parking cash, here’s how to get proactive about counterparty risk in 2025:

• Check Credit Ratings: Use agency ratings (Moody’s, S&P, Fitch) to assess bank and corporate counterparties, but look deeper for recent downgrades or negative outlooks.

• Understand Guarantee Schemes: Know which assets are covered by government guarantees, such as the Financial Claims Scheme for bank deposits.

• Diversify Counterparties: Spread risk by using multiple banks, brokers, or trading platforms, especially for larger balances.

• Review Margin Requirements: In trading, ensure you understand how margin calls are handled and whether your positions are protected by a central counterparty.

• Monitor Regulatory News: Stay up to date on APRA, ASIC, and Treasury announcements regarding financial institution stability and regulation.

Real-world example: After the 2024 collapse of a non-bank lender, several Australian SMSFs faced delays in accessing their cash. Those who had diversified across multiple platforms or stuck to APRA-regulated banks were able to access their funds much faster, highlighting the practical impact of counterparty choices.

Counterparty Risk in the Age of Crypto and Fintech

The rapid growth of decentralised finance (DeFi) and digital assets in Australia has changed the counterparty risk landscape. In DeFi, smart contracts replace traditional intermediaries, but this doesn’t eliminate risk—it shifts it to code vulnerabilities and platform solvency. ASIC’s 2025 regulatory regime means more oversight for local crypto exchanges, but users should still:

• Keep assets in private wallets when possible, rather than leaving large balances on exchanges.

• Check exchange solvency reports and proof-of-reserve audits.

• Understand the terms and conditions of platform failures, including how customer funds are segregated.

As the financial world continues to digitise, assessing counterparty risk is no longer just for professionals—it’s essential knowledge for anyone participating in markets, banking, or even using new payment apps.

Conclusion

In 2025, counterparty risk is a dynamic, evolving challenge for Australian investors, businesses, and everyday savers. With regulatory changes, new asset classes, and lessons from recent failures, being vigilant about who you trust with your money is more important than ever. Review your exposures, diversify your relationships, and stay informed to protect your financial future.