Regulation is not sufficient for systemically important markets, institutions and infrastructures, Tumpel-Gugerell said. Public authorities must take appropriate measures to regulate, supervise and oversee.
Regulation is not sufficient for systemically important markets, institutions and infrastructures, Gertrude Tumpel-Gugerell, Member of the Executive Board of the ECB said. Public authorities must take appropriate measures to regulate, supervise and oversee systemically important markets, institutions and infrastructures in order to prevent systemic risks spreading and safeguard the financial stability of the system.
For market infrastructures there is no room for complacency given their crucial role in financial stability, she underlined. Overseers and regulators need to increase their efforts towards ensuring safer and more secure market infrastructures and also to further strengthen EU market infrastructures.
Specific areas include general crisis management arrangements, particularly on disseminating information and increasing awareness about default arrangements of market infrastructures, measures for building market infrastructures for OTC derivatives, and the need for a more integrated and harmonised retail payments structure.
As for the crisis management arrangements the notification procedures have to be improved to foster the exchange of standardised information, she said. Also, further measures are needed to ensure close co-operation with the authorities regarding the relationship with the defaulting participant and the co-ordination of measures to limit the impact of the default.
Furthermore, the current turmoil has reminded us that default rules need to be not only sufficiently clear and comprehensive for the infrastructure participant, but also that they should not cause any conflict between infrastructures, she said. As infrastructures are becoming increasingly interlinked, more co-ordination in the implementation of the default rules is vital for further mitigating risks at the systemic level.
Looking at the OTC markets, Tumpel-Gugerell noted that the forthcoming ESCB-CESR recommendations for central counterparties have already been revised to include specific guidance on their application to CCPs for OTC derivatives. “It is now also crucial to achieve such a common understanding at the global level as well”, she said. “In this respect, we look forward to the recently initiated joint efforts of the CPSS and IOSCO to review the CPSS-IOSCO recommendations for central counterparties issued in 2004.”
However, Tumpel-Gugerell also called for “complementary action” to ensure better risk management and transparency for those products that are not yet sufficiently standardised to be eligible for central clearing. “Sound post-trading needs to be complemented by enhanced trading, pre-clearing and lifecycle management of OTC derivatives”, she said.
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