What Principles for financial market infrastructures requires
These principles establish international standards for financial market infrastructures (FMIs) that facilitate the clearing, settlement, and recording of monetary and other financial transactions. The standards apply to systemically important payment systems (PSs), central securities depositories (CSDs), securities settlement systems (SSSs), central counterparties (CCPs), and trade repositories (TRs). The presumption is that all CSDs, SSSs, CCPs, and TRs are systemically important. If not properly managed, FMIs can be sources of financial shocks, such as liquidity dislocations and credit losses, or a major channel through which these shocks are transmitted across financial markets. The core obligation for FMIs is to enhance safety and efficiency, limit systemic risk, and foster transparency and financial stability. FMIs must have a well-founded, clear, transparent, and enforceable legal basis; clear governance arrangements; and a sound risk-management framework for comprehensively managing legal, credit, liquidity, operational, and other risks. The principles address specific minimum requirements for managing these risks, such as maintaining sufficient financial resources to cover credit exposures from participant defaults under extreme but plausible market conditions. The report outlines 24 principles covering general organization, credit and liquidity risk management, settlement, default management, business and operational risk, access, efficiency, and transparency, which are designed to be applied holistically as a set.
Pillar: Banking & Global Finance · Authority: Committee on Payment and Settlement Systems and Technical Committee of the International Organization of Securities Commissions · Version: 1.0.0 · Last updated:
Primary source: https://www.bis.org/cpmi/publ/d101a.pdf
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Primary Citations — 8 traced to source
- Principle 1: An FMI should have a well-founded, clear, transparent, and enforceable legal basis for each material aspect of its activities in all relevant jurisdictions.
- Principle 3: An FMI should have a sound risk-management framework for comprehensively managing legal, credit, liquidity, operational, and other risks.
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