CPMI-Iosco reports push CCP regulatory agenda

CPMI-Iosco reports push CCP regulatory agenda

Derivatives central counterparties (CCPs) have made meaningful progress in boosting their resilience in recent years but more work is needed to ensure consistency around the world, according to new reports from major global bodies.

A report (PDF) put together by the Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (Iosco), looks at how 10 derivatives CCPs have been implementing new standards pushed since the 2008 economic crash.

"Although the risk of default cannot be entirely eliminated from the global financial system, we aim to limit potential systemic risks arising from any default by a central counterparty member as much as possible by applying a robust but balanced approach to reinforce financial buffers and risk control," said Iosco board chair Ashley Alder.

The report focuses on the Principles for financial market infrastructures (PFMI), as they relate to financial risk management and recovery practices in case a member defaults.

It finds that CCPs have made "important and meaningful progress" but warns that some gaps and shortcomings are identified, notably in the areas of recovery planning and credit and liquidity risk management. 

There are also differences in implementation of standards across the CCPS, which the report suggests may reveal differences in interpretation or approach "that could materially affect resilience".

To tackle this and achieve a "level playing field" the two bodies have also published a consultative report (PDF) that will help to develop more granular descriptions of how CCPs are expected to implement key parts of PFMI and boost their resilience and recovery planning.

In conjunction, the Financial Stability Board (FSB) has published its own discussion note (PDF) on the issue, as it seeks to clarify how tools are used by authorities to ensure effective resolution regimes.

Says the FSB: "With CCPs being an increasingly important part of the financial system through their ability to mitigate and manage counterparty credit risk, particularly following post-crisis reforms to mandate central clearing of certain standardised over-the-counter derivatives, it is vital that CCPs do not themselves become a new source of too-big-to-fail risk."

Comments can be submitted on the CPMI-Iosco guidance until 18 October. Responses to the FSB discussion note should be submitted by 17 October.

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