Recovery and Resolution of Financial Market Infrastructures

August 01, 2012 /

The Committee on Payment and Settlement Systems (CPSS) and the International Organization of Securities Commissions (IOSCO) have published for public comment a consultative report on the Recovery and resolution of financial market infrastructures.

Financial market infrastructures (FMIs) play an essential role in the global financial system. The disorderly failure of an FMI can lead to severe systemic disruption if it causes markets to cease to operate effectively. Accordingly, all types of FMIs should generally be subject to regimes and strategies for recovery and resolution.

The CPSS-IOSCO Principles for financial market infrastructures published in April 2012 require that FMIs have effective strategies, rules and procedures to enable them to recover from financial stresses.

The Financial Stability Board’s Key Attributes of Effective Resolution Regimes for Financial Institutions published in 2011 further require that jurisdictions establish resolution regimes to allow for the resolution of a financial institution in circumstances where recovery is no longer feasible.

An effective resolution regime must enable resolution without systemic disruption or exposing the taxpayer to loss. To achieve this in the context of FMIs, relevant authorities must have powers to maintain an FMI’s critical services.

The purpose of the report released today is to outline the issues that should be taken into account for different types of FMIs when putting in place effective recovery plans and resolution regimes that are consistent with the Principles and Key Attributes. The report also seeks consultees’ views 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, Financial Services Agency, Japan and Chairman of the IOSCO Board.

Amongst its conclusions, the report states that the Key Attributes will provide a framework for resolution of FMIs under a statutory resolution regime.

Published alongside the report is a cover note that lists the specific issues on which the committees seek comments during the public consultation period.

Comments on the report should be sent by 28 September 2012 to both the CPSS secretariat (cpss@bis.org) and the IOSCO secretariat (fmiresolution@iosco.org). The comments will be published on the websites of the BIS and IOSCO unless commentators have requested otherwise.

 

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