The Bank for International Settlements (BIS) Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) published a monitoring report on outcomes of financial market infrastructures’ (FMIs’) implementation of the Principles for Financial Market Infrastructures (PFMI).
Serious issues of concern:
- Some FMIs do not consider their general business risk profile in determining the amount of liquid net assets funded by equity (LNAFE), which calls into question whether those FMIs are holding sufficient LNAFE.
- Some FMIs do not consider the amount of resources needed to implement their recovery or orderly wind-down plans in determining their LNAFE requirement.
- A few FMIs do not hold LNAFE in addition to resources held to cover participant defaults or other risks covered under the financial resources principles.
- A few FMIs do not have a recovery plan at all and therefore also do not have a recovery plan addressing general business risk.
- Some FMIs do not have an orderly wind-down plan that addresses general business risk.
- Some FMIs do not maintain an explicit plan for raising additional equity in case of capital shortfalls.
- A few FMIs do not comprehensively identify, monitor, and manage all sources of general business risk.
“The above (serious) issues of concern highlight significant shortcomings in FMIs’ approaches to effectively addressing general business risk. While all issues of concern identified in this assessment constitute gaps vis-à-vis the PFMI that should be addressed, serious issues of concern should be dealt with as matters of highest priority,” the BIS wrote.