The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) have published two reports that are intended to enhance the resilience of central counterparties (CCPs).
The first report is a consultative report, Resilience and recovery of central counterparties: Further guidance on the PFMI. The purpose of the report is to provide guidance on the principles and key considerations in the CPMI-IOSCO Principles for financial market infrastructures (PFMI) regarding financial risk management for CCPs. The guidance is not intended to create additional standards for CCPs beyond those set out in the PFMI but rather aims to provide increased clarity and granularity on several key aspects. These are governance, credit and liquidity stress testing, margin, a CCP’s contribution of its financial resources to losses, and coverage.
The second report sets out the results of a review of a selected set of derivatives CCPs’ implementation of the PFMI with respect to their financial risk management and recovery practices. Some gaps and shortcomings have been identified in the report, notably in the areas of recovery planning and credit and liquidity risk management. The report also identifies a number of other differences in the outcomes of implementation across CCPs. In particular they reveal differences in interpretation or approach that could materially affect resilience. The CPMI-IOSCO are committed to conducting a follow up review. In the first half of 2017, it will conduct a targeted review of CCPs’ progress in addressing the most serious issues of concern identified in the report, i.e. in the areas of recovery planning, coverage of financial resources on an on-going basis and the development of liquidity specific scenarios in their stress testing frameworks. Where there are issues of concern, the CPMI-IOSCO expects the CCPs to make “rapid progress” in addressing them and are expected to have achieved outcomes of implementation that are consistent with the PFMI by 31 December 2016.
View Reports from CPMI-IOSCO advance regulatory agenda on central counterparties, 16 August 2016