03 December 2013

IMF publishes Financial Sector Assessment Programme documentation—Detailed assessment of observance of the CPSS-IOSCO Principles for FMI

According to this report, Euroclear Bank and the NBB should accord a high priority to being operationally ready for the full implementation of recovery plans and plans for the orderly winding down of operations.

IMF’s Publication of Financial Sector Assessment Programme Documentation—Detailed Assessment of Observance of the CPSS-IOSCO Principles for Financial Market Infrastructures found that though Euroclear Bank’s operational risk is significant, it appears to be well-controlled through appropriate risk measures such as contingency plans and back-up facilities allowing for timely completion of settlement processes. In anticipation of the emerging international regulatory standards and frameworks on recovery and resolution of FMIs, it has developed recovery plans and plans for the orderly winding down of its operations. It should now, in particular, take measures to be operationally ready for their full implementation: “Euroclear Bank and the NBB should accord a high priority to addressing this issue, as the disorderly failure of Euroclear Bank would likely lead to systemic disruptions to the institutions and the markets it supports, linked payment systems, CSDs and CCPs, and to the financial system more broadly", the report states.

Euroclear Bank has recently improved the quality of its collateral and liquidity management frameworks. Credit risks are apparent in the current practices for asset servicing. EB should address this credit risk for its normal settlement activities and should also adopt measures to mitigate similar credit risks for settlements done via the bridge with Clearstream Banking Luxembourg (CBL) which necessitates a review of the link agreement with CBL. Also, EB has no tools in place to identify, monitor and measure risks from tiered participation - a requirement of the new international standards.

Another necessary improvement relates to the frequency of the reconciliation of positions. Eurobonds, representing more than half of the deposited value, are reconciled on a daily basis. For other securities positions are reconciled on a weekly or monthly basis, which can be a potential source of uncertainty related to the integrity of the securities issues. EB should introduce daily reconciliations of positions for all securities.

The national securities depositories of Belgium, France and the Netherlands, that share a common IT platform provided by the Euroclear Group, are subject to effective regulation, supervision and oversight of the Belgian (NBB and FSMA), Dutch (DNB and AFM), and French (BDF and AMF) authorities, despite the fact that the legal frameworks differ between the three countries. The cooperation between the different authorities is effective and contributes to the financial stability in Belgium, France, and the Netherlands.

Full report

© International Monetary Fund