FIA welcomes today’s publication of reports from the Committee on Payments and Market Infrastructures (CPMI), the International Organization of Securities Commissions (IOSCO), and the Financial Stability Board (FSB) as an important step in ensuring the safety and resilience of the derivatives clearing infrastructure globally (CPMI-IOSCO consultative document available here, FSB discussion paper available here).
“The health and stability of the clearing system is a global priority, so we are pleased to see proactive leadership from CPMI-IOSCO and FSB, and we look forward to reviewing these recommendations in more detail,” said Walt Lukken, president and CEO of FIA. “Since the G20 committed to clearing all standardized over-the-counter derivatives in 2009, central counterparties have grown in their systemic importance. Developing clear and effective global standards for managing CCP risk helps promote the health, resiliency and stability of the central clearing system. We’re pleased that these regulatory efforts echo FIA’s goal of ensuring that the risks of central clearing are both transparent and effectively managed.”
As the principal members of derivatives clearinghouses worldwide, FIA's clearing members play a critical role in the reduction of systemic risk in global financial markets. This unique perspective informed FIA’s recommendations for managing the risks that arise from CCP clearing. High-level principles from FIA’s CCP Risk Position Paper, published in April 2015, included:
- Enhancing participants’ ability to assess CCP risk through consistent and transparent CCP disclosures.
- Ensuring initial margin requirements are effective, transparent and predictable to all participants, and requiring CCPs to increase margin levels where they are determined to be inadequate.
- Avoiding wind-downs and liquidations by prioritizing the continued operations of CCPs using clearly-defined loss allocation tools and effective resolution plans.
- Reducing conflicts of interest, aligning incentives, and improving risk management through enhanced CCP governance.
“A core component of FIA’s mission is protecting and enhancing the integrity of the financial system, and we look forward to reviewing today’s consultation documents and working with our membership to provide thoughtful feedback that helps regulators work towards this goal,” Lukken said.
Today, CPMI-IOSCO released a consultative report for public comment, Resilience and recovery of central counterparties (CCPs): Further guidance on the PFMI, which proposes more granular descriptions of how CCPs are expected to implement key parts of the PFMI to further improve their resilience and recovery planning. FSB also published a discussion note on Essential Aspects of CCP Resolution Planning, which seeks comment on aspects of CCP resolution that are considered core to the design of effective resolution strategies.
Concurrently, CPMI-IOSCO released a report on Implementation monitoring of PFMI – Level 3 assessment – Report on the financial risk management and recovery practices of 10 derivatives CCPs, which looks at the implementation of the key standards for the industry, the Principles for financial market infrastructures (PFMI), as they relate to financial risk management and recovery practices.
Finally, the Basel Committee on Banking Supervision (BCBS), CPMI-IOSCO, and the FSB released a progress report on the April 2015 joint workplan to enhance the resilience, recovery planning and resolvability of CCPs.
FIA has been actively engaged on this issue, publishing a position paper on CCP risk in 2015, taking part in regulatory roundtables, holding educational events for market participants, and publishing the CCP Risk Review, an interactive tool that helps market participants analyze and compare the rules and procedures of CCPs worldwide.
