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Central counterparty (CCP) resilience, recovery and resolvability

CCP resilience, recovery and resolvability

The Financial Stability Board (FSB), the Committee on Payments and Market Infrastructures (CPMI), the International Organization of Securities Commissioners (IOSCO) and the Basel Committee on Banking Supervision have published three guidance documents and two reports as part of their joint workplan on central counterparty (CCP) resilience, recovery and resolvability.

Michelle Adcock

Banking prudential, EMA FS Risk & Regulatory Insight Centre

KPMG in the UK


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The three guidance documents cover:

CCP resilience guidance – CPMI and IOSCO have issued further guidance on the Principles for Financial Market Infrastructures relating to financial risk management for CCPs. This focuses on governance, credit and liquidity stress testing, coverage, margin, and contributions from a CCP’s own financial resources to meet losses.

CCP recovery guidance – CPMI and IOSCO have updated their 2014 guidance on recovery for financial market infrastructures. This focuses on making recovery plans operational; the replenishment of financial resources; dealing with non-default related losses; and transparency with respect to recovery options and how they would be applied.

CCP resolution guidance – following a discussion note on essential aspects of CCP resolution planning in August 2016, and a consultation on draft guidance in February 2017, the FSB has finalised its guidance on implementing the Key Attributes of Effective Resolution Regimes in resolution arrangements for CCPs. The guidance covers the powers that resolution authorities should have in place to maintain the continuity of critical CCP functions; the use of loss allocation tools; and the steps that authorities should take to develop resolution plans and to establish crisis management groups for relevant CCPs.

The FSB will undertake further work on financial resources for CCP resolution and, based on further analysis and experience gained in resolution planning, determine by end-2018 whether it should develop further guidance on CCP resolution.

The joint reports published by the FSB, IOSCO, CPMI and the Basel Committee are:

Interdependencies study – this report analyses the interdependencies between CCPs and their clearing members and other financial service providers. It is based on data collected from 26 CCPs from 15 jurisdictions. The network relationships analysed in this report show a core of highly connected CCPs and financial institutions, together with a periphery of less highly connected CCPs and financial institutions. Exposures to CCPs within the core are concentrated among a small number of financial institutions, so the failure of one or more of these institutions would result in losses at a number of CCPs.

The largest 20 out of 307 clearing members included in this analysis account for approximately 75 per cent of total financial resources (initial margin and default fund) provided to CCPs by those members. The default of a CCP’s top two clearing members could result in defaults of the same entity or affiliates in up to 23 other CCPs.

Implementation report – this report provides an update on the work undertaken to complete the key priorities set out in the joint workplan, and reports on the establishment of crisis management groups for CCPs that are systemically important in more than one jurisdiction.

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