23 July 2012

Report to the Executive Boards of the IMF and the World Bank on the New CPSS-IOSCO Principles for Financial Market Infrastructures

New and revised international standards for safe and efficient Financial Market Infrastructures (FMIs) were published in April 2012. The Committee on Payment and Settlement Systems (CPSS) and the International Organisation of Securities Commissions (IOSCO) reviewed the existing sets of standards for FMIs and replaced them by one new set of Principles for Financial Market Infrastructures. Appendix I outlines the 24 new Principles for FMIs as well as the five responsibilities for authorities.

FMIs facilitate the clearing, settlement, and recording of monetary and other financial transactions, such as payments, securities and derivatives contracts. The term FMI refers to payment systems (PSs) that are systemically important, central securities depositories (CSDs), securities settlement systems (SSSs), and central counterparties (CCPs). The revised standards also incorporate additional guidance for over-the-counter (OTC) derivatives CCPs and trade repositories (TRs).

They also accommodate the G20/FSB recommendations to strengthen core financial infrastructure and markets. Although FMIs performed well during the recent financial crisis, events highlighted important lessons for effective risk management. While safe and efficient FMIs contribute to maintaining and promoting financial stability and economic growth, FMIs also concentrate risk. If not properly managed, FMIs can be sources of financial shocks, such as liquidity dislocations and credit losses, or a major channel through which these shocks are transmitted across domestic and international financial markets.

The assessment methodology and the disclosure framework for financial market infrastructures are expected to be finalised later in 2012. CPSS and IOSCO have published for consultation the proposed assessment methodology and disclosure framework and expect to finalise them in the second half of 2012. The assessment methodology was produced by a CPSS-IOSCO working group under the leadership of the World Bank (Bank) and the IMF (Fund). Pilots have taken place to verify the usefulness of the draft assessment methodology, for example during the FSAP assessment in Brazil. Furthermore, the CPSS and IOSCO are engaged in additional work on the resolution of FMIs. This work aims to provide guidance for designing recovery and resolution regimes for FMIs consistent with the FSB’s Key attributes of effective resolution regimes for financial institutions while taking account of the special characteristics of FMIs.

It is proposed that the existing sets of standards for FMIs be replaced by the new Principles for FMIs in assessing the safety and efficiency of FMIs under the Financial Sector Assessment Programme (FSAP) and the Reports on Observance of Standards and Codes (ROSCs). The Bank and the Fund intend to use the new Principles in upcoming assessments starting on or after January 1, 2013. In the interim, the new Principles will be used only upon explicit request of the authorities; otherwise the existing standards will be used. For assessments starting on or after January 1, 2013, only the new Principles will be used, since all CPSS and IOSCO members have committed to endorse the updated standards in their jurisdictions by the end of 2012. Also, the G20 requested to have regulation for OTC derivatives clearing in place by the end of 2012.

The purpose of this note is to inform the Executive Boards of the Bank and the Fund of  the main changes in the Principles for FMIs, as well as the intended approach in case of resource constraints. Due to differences in internal procedures and practices, this Note is  being submitted by the Bank staff to its Board for information purposes only. In the case of the Fund, Fund staff are also seeking the endorsement of the Board for the use of the revised Principles for future assessments.

Full paper

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