Consultative report on regulation of FMIs issued by CPSS and IOSCO

31 July 2012

The Committee on Payment and Settlement Systems (CPSS) and the International Organisation of Securities Commissions (IOSCO) have published a consultative report on the recovery and resolution of financial market infrastructures (FMIs).

Commenting on the publication, the Bank for International Settlements (BIS) said that FMIs play an essential role in the global financial system. The disorderly failure of an FMI can lead to severe systemic disruption if it causes markets to cease to operate effectively. Accordingly, all types of FMIs should generally be subject to regimes and strategies for recovery and resolution.

The BIS added that the purpose of the latest report is to outline the issues that should be taken into account for different types of FMIs when putting in place effective recovery plans and resolution regimes that are consistent with two previously-published sets of guidelines. The report also seeks consultees’ views on a number of technical points related to these issues.

The CPSS-IOSCO ‘Principles for Financial Market Infrastructures’, originally published in April 2012, require that FMIs have effective strategies, rules and procedures to enable them to recover from financial stresses. The Financial Stability Board’s (FSB) ‘Key Attributes of Effective Resolution Regimes for Financial Institutions’, published in 2011, further require that jurisdictions establish resolution regimes to allow for the resolution of a financial institution in circumstances where recovery is no longer feasible. An effective resolution regime must enable resolution without systemic disruption or exposing the taxpayer to loss. To achieve this in the context of FMIs, relevant authorities must have powers to maintain an FMI’s critical services.

Amongst its conclusions, the latest report states that the Key Attributes highlighted earlier will provide a framework for resolution of FMIs under a statutory resolution regime. Comments on the report are invited from all interested parties and should be sent by 28 September 2012.

Paul Tucker, deputy governor, financial stability of the Bank of England (BoE) and CPSS chairman said: “The vital role of the financial system’s infrastructure makes it essential that credible recovery plans and resolution regimes exist. FMIs need to be a source of strength and continuity for the financial markets they serve.”

“This is even more important as a safeguard given the commitment made by G20 Leaders in 2009 that all standardised over-the-counter (OTC) derivatives should be cleared through central counterparties,” added Masamichi Kono, vice commissioner for international affairs, Financial Services Agency, Japan and chairman of the IOSCO board.

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