Regulators launch global effort to strengthen clearinghouses
Three high-level groups of international regulators issued a coordinated package of reports on Aug. 16 that are aimed at strengthening the safety and resiliency of derivatives clearinghouses worldwide.
In response to the announcement, FIA issued a statement highlighting its work on this issue and emphasizing the importance of global consistency in clearinghouse standards. "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,” said FIA President and Chief Executive Officer Walt Lukken.
Two of the reports came from the Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions. The first report assessed financial risk management practices and recovery planning at a sample group of 10 central counterparties in nine jurisdictions. The assessment focused on the implementation of certain parts of the Principles for Financial Market Infrastructures, a set of global standards issued in April 2012.
The report found that CCPs have made "important and meaningful progress" in implementing arrangements consistent with the standards, but identified "gaps and shortcomings" in several areas and called for "prompt action" by CCPs to address these issues. Three areas were identified as "serious issues of concern" that need to be addressed by the end of 2016: recovery planning, the level of financial resources and stress testing frameworks.
CPMI-IOSCO also published a consultative report that proposes “more granular” guidance on six "key aspects" of financial risk management and recovery planning:
- Governance and disclosure
- Credit and liquidity stress testing
- Coverage of credit and liquidity resource requirements
- Margin
- CCPs’ contribution of their own financial resources to losses
- Development of recovery plans
The regulators set a mid-October deadline for feedback on the consultation and said they expect to issue a final report in the first half of 2017.
Two other reports related to clearinghouse standards were issued by the Financial Stability Board, the international body established by the Group of 20 to monitor the global financial system. First, the FSB issued a "discussion note" that identified questions and considerations related to the development of "effective resolution strategies" for CCPs that have gone past the point of recovery. The FSB explained that although it already has guidance for managing the failure of a financial institution, more specific guidance is needed to ensure that any CCP can be resolved without resulting in a government bailout or contagion to other parts of the financial system. The FSB said responses to the discussion note will help inform the development of guidance on CCP resolution, and added that it expects to propose that guidance early next year and finalize it by July.
The FSB also released a progress report on the “CCP Workplan” developed by international regulators to coordinate their efforts to enhance CCP resilience, recovery and resolution. The progress report summarizes several other initiatives now under way or coming soon, including an analysis of clearing incentives, a follow-up review of financial risk management practices, a framework for supervisory stress testing and an analysis of “interdependencies” within the clearing system.
