CPSS IOSCO Report on Principles for Financial Market Infrastructures

The Committee on Payment and Settlement Systems (CPSS) and the Technical Committee of the
International Organization of Securities Commissions (IOSCO) issued final version of their new Principles for financial market infrastructures (PFMI report).

The PFMI report replaces the CPSS and IOSCO’s previous standards for systemically important payment systems, central securities depositories, securities settlement systems (SSSs), central counterparties (CCPs) and trade repositories (TRs) (collectively FMIs), namely:

- Core principles for systemically important payment systems (CPSIPS), issued in 2001;
- Recommendations for securities settlement systems (RSSS), also issued in 2001; and
- Recommendations for central counterparties (RCCP), issued in 2004.

In March 2011, CPSS and IOSCO published a draft version of the new principles in a consultative document. CPSS and IOSCO received 120 comment letters on the consultative document. The comments were detailed and constructive and were generally supportive of the principles. However some noted various areas for potential improvement, including greater clarity in some areas and more specificity on the application of the principles to certain types of FMI.

The PFMI report harmonises and, where appropriate, strengthens the previous international standards. It also incorporates additional detailed guidance for over-the-counter (OTC) derivatives CCPs and TRs. In general, these new standards are expressed as broad principles in recognition of FMIs’ differing organisations, functions and designs and the range of ways potentially available in relation to some issues to achieve a particular result.

In some cases, however, the PFMI report does incorporate a specific quantitative minimum requirement (such as in the credit, liquidity and general business risk principles) to ensure a common base level of risk management across FMIs and countries.

In addition to the new principles themselves, the PFMI report also outlines the general responsibilities of relevant authorities for FMIs in implementing these standards. CPSS and IOSCO members will strive to adopt the new principles by the end of 2012 and put them into effect as soon as possible. FMIs are expected to observe the principles as soon as possible.