FSA looks into risk-management governance at clearinghouses

11 July 2011

Bloomberg reports that clearinghouses are likely to see greater scrutiny of their risk-management governance and organisational structure as the UK financial regulator seeks to cut the risks they pose to the financial system.

The UK Financial Services Authority (FSA) is looking into the model central counterparties use to calculate the funds traders must give them as a buffer, the regulator said today on its website. The FSA, which previously said it will adopt “a more intrusive approach” is reviewing credit risk management practices at central counterparties as their use grows. Scrutiny of clearinghouses has mounted even as European and US regulators promote greater transparency in the over-the-counter derivatives market.

By acting as the central counterparty to every buy and sell order they process, a clearinghouse reduces the risk that could result if a trading firm defaults on its obligation in a transaction. Clearinghouses are funded by their members, who must meet capital requirements and pass operational and technology tests.

Full article

© Bloomberg