Interview with Benoît Cœuré, Member of the Executive Board of the European Central Bank (ECB) and Chairman of the Committee on Payments and Market Infrastructures (CPMI)
What was the outcome of the questionnaires that the CPMI and the International Organization of Securities Commissions (Iosco) sent to central counterparties (CCPs) in 2015?
To answer your question, yes, CPMI-Iosco sent a series of questionnaires to several CCPs last year which covered both recovery planning and risk management practices more generally. It was a way to assess their compliance with the PFMI and the recovery guidance released in 2014 by CPMI-Iosco. We have looked at the responses in depth and this has given us a good insight into how CCPs have implemented the PFMI. We are now taking stock of this material and we are also working with the Financial Stability Board (FSB). The outcome of this work will appear in two “twin” reports that will be published in early summer, presumably in July. Those reports will come right in time for the G20 summit in Hangzhou on 4 and 5 September.
Are there any areas that require further guidance?
The first report will review the implementation of the PFMI across 10 derivatives CCPs. We are very positive about the work that has been conducted by CCPs, but we’ve identified shortcomings when it comes to addressing certain topics, including financial resources and liquidity resources. We have also found a number of shortcomings in terms of recovery planning.
This is not about rewriting the PFMI – there is unanimity that the PFMI are the right approach as they stand. It’s about making sure that the PFMI are implemented fully and consistently across all jurisdictions. And the outcome of this work will show there is still more to be done.
This is why we will publish a second report, which will provide additional guidance to support the implementation of both the PFMI and the recovery guidelines released in 2014. There will be a public consultation process on this second report in order to gather input from the industry, and the final guidance will be published at a later stage, either late this year or in early 2017.
Some regulators say that, regardless of the problems with initial margin haircutting, this tool should still be made available to CCPs in case they need to gain quick access to liquidity to replenish their default waterfall. Do you have sympathy for this argument?
I don’t want to prejudge the outcome of the discussion. There are a number of shortcomings that we still need to investigate more deeply, especially around the legal issue of bankruptcy remoteness and the kind of uneven playing field that we will create if we have an instrument that has a different legal treatment in different jurisdictions. One major concern for us is to be internationally consistent. So if an instrument happens to create an uneven playing field across jurisdictions, it’s probably not the right instrument.
Stress testing for CCPs is also high on the regulatory agenda. The CPMI is conducting some work on this. How is it progressing?
The CPMI has already expressed public support for exploring a framework for regulatory stress testing, and this is part of the CCP work plan that was released in September 2015. This work plan is a joint endeavour by different standard-setting committees, including Iosco, the FSB, and the Basel Committee on Banking Supervision. A framework for consistent and comparable stress testing could serve two key objectives: it could help authorities better understand the macro-prudential risks that could materialise, and it could help them assess the financial resources of individual CCPs.
The outcome of the EU stress test showed that the daily stress testing CCPs were conducting on themselves was not as tough as the minimum shocks set out by ESMA. Is this surprising or even worrying?
When it comes to compliance with the regulatory requirements, this is the kind of thing we have been looking into within CPMI-Iosco and it’s what the first of the “twin” reports I mentioned earlier will be about. The experience shows that there are some shortcomings with regards to regulatory expectations. There has been room for interpretation of the PFMI, which in some cases may create an uneven playing field. That’s why we need additional guidance. This additional guidance is not about raising the bar. It’s about making it clear where the bar is. [...]
Full interview
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