International Organization of Securities Commissions and CPMI identify six serious gaps in FMIs’ implementation of PFMI general business risk standards

The International Organization of Securities Commissions (IOSCO), together with the BIS Committee on Payments and Market Infrastructures (CPMI), published a Level 3 peer benchmarking assessment of the consistency of financial market infrastructures’ (FMIs) implementation of the Principles for financial market infrastructures (PFMI) requirements on general business risk. Based on a voluntary survey of 34 FMIs across 27 jurisdictions, the report flags six serious issues of concern and one additional issue of concern spanning LNAFE sizing and composition, recovery and orderly wind-down planning, and contingency equity-raising arrangements. Key serious issues include FMIs not sizing liquid net assets funded by equity (LNAFE) to their general business risk profile, not factoring resources needed to implement recovery or orderly wind-down plans into LNAFE needs, and not holding LNAFE in addition to resources held for participant default and other risks. The assessment also identifies gaps where some FMIs lack a recovery plan, lack an orderly wind-down plan addressing general business risk, or do not maintain an explicit board-approved plan to raise additional equity in a capital shortfall; an additional issue of concern relates to some FMIs not comprehensively identifying, monitoring and managing all relevant sources of general business risk. Observations highlight material cross-FMI differences in controls and scenario analysis, interpretations and recalibration processes for LNAFE (including calculation of the six-month operating expense minimum), identification of critical operations and services, the specificity and analysis underpinning recovery tools and triggers, the design and transparency of wind-down planning, and the quality, liquidity and monitoring of assets held as LNAFE.