On 23 August 2023, the Committee on Payments and Market Infrastructures (CPMI) and the Board of the International Organization of Securities Commissions (IOSCO) published a report and accompanying cover note on current central counterparty (CCP) practices to address non-default losses (NDLs).
The purpose of the report is to present current practices among CCPs in addressing potential losses arising from non-default events (i.e. NDLs) in order to facilitate the sharing and common understanding of existing practices and to advance industry efforts and foster dialogue on CCPs’ management of potential losses arising from NDLs, in particular in the context of recovery or orderly wind-down. It is not intended to create additional standards for financial market infrastructures (FMIs) or to provide guidance on existing standards.
In light of the range of current practices reported by CCPs and some divergent views reported by the industry through the consultation, CPMI and IOSCO believe that there may be room for further guidance or recommendations under the Principles for Financial Market Infrastructure (PFMI), in order to help CCPs and other FMIs fully implement the PFMI and improve overall resilience. Accordingly, CPMI and IOSCO will consider particular areas where further guidance or recommendation may be useful and the content of any such guidance to clarify expectations on practices to address NDLs and general business risk.
To inform their analysis, CPMI and IOSCO intend to conduct a Level 3 implementation monitoring assessment to evaluate how the general business risk principle and associated principles of the PFMI have been implemented across FMI types. They also plan to publish a consultation on further guidance or recommendations relating to NDLs ‘in the near term’.