“Ensuring that central counterparties are safe and resilient is an important priority for the G20 and these reports deliver on key goals set by the Chinese presidency,” said CPMI chair Benoît Coeuré.
"Although the risk of default cannot be entirely eliminated from the global financial system, we aim to limit potential systemic risks arising from any default by a central counterparty member as much as possible by applying a robust but balanced approach to reinforce financial buffers and risk control,” said IOSCO board chair Ashley Alder.
The first report, Implementation monitoring of PFMI – Level 3 assessment – Report on the financial risk management and recovery practices of 10 derivatives CCPs, looks at the implementation of the key standards for the industry, the Principles for financial market infrastructures (PFMI), as they relate to financial risk management and recovery practices (ie the procedures to follow in case a member defaults).
The report reviews measures in place at a selected set of derivatives CCPs and finds CCPs have made important and meaningful progress in implementing arrangements consistent with the standards. Some gaps and shortcomings have nevertheless been identified, notably in the areas of recovery planning and credit and liquidity risk management. The report also identifies a number of other differences in the outcomes of implementation across CCPs.
The consultative report, Resilience and recovery of central counterparties (CCPs): Further guidance on the PFMI, proposes more granular descriptions of how CCPs are expected to implement key parts of the PFMI to further improve their resilience and recovery planning.
In particular, the report provides proposed guidance on the following key aspects of a CCP’s financial risk management framework: (i) governance and disclosure relating to the CCP’s risk management framework; (ii) credit and liquidity stress testing; (iii) coverage of credit and liquidity resource requirements; (iv) margin; (v) a CCP’s contribution of its own financial resources to losses; and (vi) recovery planning.
Comments on the guidance proposed in the report should be submitted by 18 October 2016.
Implementation monitoring of PFMI – Level 3 assessment – Report on the financial risk management and recovery practices of 10 derivatives CCPs report
Resilience and recovery of central counterparties: Further guidance on the PFMI report
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