Global financial regulators have issued a paper that examines how to plan for the possible failure of firms that comprise the financial market infrastructure.
The Committee on Payment and Settlement Systems (CPSS) and the International Organization of Securities Commissions (IOSCO) Tuesday published a consultation paper that focuses on the recovery and resolution of financial market infrastructure firms (FMIs), such as clearing and settlement agencies. It says that, as the disorderly failure of one of these sorts of firms could lead to “severe systemic disruption”, they should be subject to regimes for recovery and resolution.
The CPSS-IOSCO principles for financial market infrastructures, which were published in April, also requires that FMIs have effective strategies, rules and procedures to enable them to recover from financial stresses. And, the Financial Stability Board requires jurisdictions to establish resolution regimes to allow for the resolution of a financial institution in circumstances where recovery is no longer feasible.
The purpose of the report is to outline the issues that should be taken into account when adopting recovery plans and resolution regimes for different types of firms. It is also looking for input on a number of technical points related to these issues.
Paul Tucker, deputy governor, financial stability of the Bank of England, 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 OTC derivatives should be cleared through central counterparties,” added Masamichi Kono, vice commissioner for international affairs with Japan’s Financial Services Agency and chairman of the IOSCO board.
Comments on the report are due by September 28.