SYDNEY, Dec 15 (Reuters) - Australia will give its central bank new powers to take over and if necessary, wind up, clearing and settlement providers at risk of failure, according to draft legislation released on Friday.

In the event of a major financial crisis or insolvency, the Reserve Bank of Australia (RBA) will be empowered to direct the operations of a distressed clearing and settlement provider to keep markets functioning and even orchestrate a breakup or sale.

Clearing and settlement firms ensure a stock, bond or derivatives trade is safely concluded with ownership and custody swapped for cash.

"The RBA may need to use tools to take control of a body corporate in cases where it does not have confidence that the board and management is capable of resolving a crisis satisfactorily," according to explanatory materials released by Treasury.

The draft legislation open for consultation until February also empowers the RBA to work with foreign regulators if an international firm operating in Australia gets into trouble.

Four systematically important domestic clearing and settlements firms and two international firms currently operate in Australia.

The draft follows legislation passed in September to create more competition in clearings and settlement, which is dominated by stock market operator ASX Ltd.

The Council of Financial Regulators, a body including the RBA, securities regulator, Treasury and the prudential regulator, recommended the changes in 2020 to address financial market risks exposed by the 2008 financial crisis and COVID.

The draft legislation also gives the securities regulator and RBA new licensing, supervisory and enforcement powers over financial market infrastructure, an umbrella term including exchanges, derivative trade repositories and benchmark administrators.

These entities support roughly A$16.5 trillion ($11.05 trillion) in securities transactions and A$160 trillion in derivatives transactions each year. ($1 = 1.4932 Australian dollars) (Reporting by Lewis Jackson; Editing by Jamie Freed)