It has been two and a half years since the Financial Stability Oversight Council designated select financial market utilities (FMUs) as “systemically important.” As a result, systemically important FMUs (SIFMUs) have been challenged by a significant increase in regulatory on-site presence, data requests, and overall supervisory expectations. Further, they are now subject to heightened and often entirely new regulatory requirements.
Given the breadth and evolving nature of these requirements, regulators have prioritized compliance with requirements deemed most critical to the safety and soundness of financial markets. These include certain areas within corporate governance and risk management such as liquidity risk management, participant default management, and recovery and wind-down planning.
Of the three supervisory agencies charged with regulating SIFMUs – the FRB, SEC, and CFTC – the FRB has thus far had the most impactful role. Our market observations indicate that a number of SIFMUs still need considerable infrastructure changes, process enhancements, and more skilled resources to meet the FRB’s expectations.
This A closer look provides (a) background information on the regulatory framework for SIFMUs, (b) our observations of the practical impact these regulations are having on SIFMUs, and (c) our view on what SIFMUs should be doing now.