CLS Bank International (CLS), the market infrastructure that enhances financial stability through the mitigation of FX settlement risk globally, today announced it has been designated a systemically important Financial Market Utility (FMU) by the Financial Stability Oversight Council (FSOC).
The notification confirms CLS' status as an institution critical to the stability of the US financial system as determined by the FSOC, which was established as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). Dodd-Frank was enacted in 2010 with the intention of significantly restructuring the regulatory framework for the US financial system.
CLS plays a fundamental role in the FX market - it operates the largest multicurrency cash settlement system to mitigate settlement risk for the FX transactions of its Members and their customers. Owned by 73 of the world's leading financial institutions, CLS settles payment instructions related to underlying FX transactions in 17 currencies.
The FSOC was authorized by Title VIII of Dodd-Frank to designate an FMU as systemically important to the US financial system. An FMU is typically a payment system, securities depository, or central counterparty that provides the essential infrastructure to clear and settle payments and other financial transactions, upon which the financial markets and broader economy rely to function effectively.
The designation follows a two-stage process of evaluation by the FSOC over recent months prior to the vote of determination. It is expected that systemically important FMUs will be subject to heightened risk management rules and standards and reporting requirements necessary to mitigate systemic risk and promote financial stability.
"In our role as the predominant settlement system for FX, CLS acknowledges its designation as 'systemically important' to the U.S. financial system," Gerard Hartsink, CLS' interim Executive Chairman said. "We take this responsibility very seriously and understand how important it is for us to continue doing our job at the highest level of competency."