Global regulators issue new standards for financial market infrastructures

The CPSS and IOSCO say the principles, which replace three existing sets of international standards, impose new and more demanding international standards for payment, clearing and settlement systems, including central counterparties. The new standards will raise minimum requirements, provide more detailed guidance, and broaden the scope of the standards to cover new risk-management areas and new types of FMIs.

“The new principles are designed to ensure that the infrastructure supporting global financial markets is robust and thus well placed to withstand financial shocks. They apply to all systemically important payment systems, central securities depositories, securities settlement systems, central counterparties and trade repositories,” they say.

Compared with the old standards, the new principles introduce new or more demanding requirements in a number of areas including: the financial resources and risk management procedures an FMI uses to cope with the default of participants; the mitigation of operational risk; the links and other interdependencies between FMIs through which operational and financial risks can spread; achieving the segregation and portability of customer positions and collateral; tiered participation; and general business risk.

The regulators indicate that financial market infrastructure firms are expected to observe the standards as soon as possible, and CPSS and IOSCO members are to strive to adopt the new standards by the end of 2012.

“FMIs performed well during the financial crisis and we gained a deeper understanding of their true importance. Robust FMIs help markets to continue functioning even in conditions of great uncertainty, making them a fundamental element of financial stability,” said Masamichi Kono, vice commissioner for international affairs at Japan’s Financial Services and chairman of IOSCO’s technical committee.

Paul Tucker, deputy governor, financial stability, at the Bank of England and CPSS chairman, added that, “With these new principles, authorities have a good basis on which to ensure a safe and stable financial infrastructure. It is essential that authorities adopt the principles, and FMIs observe them, as soon as possible.”

Along with the new principles, the regulators also published consultation papers concerning an assessment methodology for these new standards, and a disclosure framework for the standards. Comments on those papers are due by June 15, and those areas are to be finalized later this year. Additionally, the CPSS, IOSCO, and the Financial Stability Board, are also working on guidance for designing resolution regimes for FMIs. This work will be published in the coming months.