Hot on the heels of the first implementation date for the European Market Infrastructure Regulation (EMIR), the Bank of England has released its approach to the supervision of Financial Market Infrastructures.
It is the systemic risk of clearing houses, securities settlement systems and payment systems that the bank will seek to monitor. To do that, there will be strict prudential, transparency and operational requirements that may go beyond the groundwork laid by CPSS/IOSCO’s ‘Principles for Financial Market Infrastructures’:
“The UK regulatory framework, and requirements and rules set within it, will be consistent with the minimum standards in the Principles. They will go beyond the minimum standards if the Bank judges this necessary to address systemic risk.”
All FMIs should be aware of one potentially troublesome statement: “FMIs should expect the volume of data required from them to increase”. Whilst the details of new reporting requirements remain vague, it is a clear indicator that the BoE is will be placing new and enhanced obligations on FMIs that are proportionate to their systemic importance.
With the separation of the supervisory structure into the FCA and PRA, it may seem odd that FMI’s will be supervised by the Bank itself, but they are at pains to point out that FMIs’ systemic importance requires the responsibility to lie with them:
“The focus of Bank supervision goes beyond assessing compliance with rules and requirements. The Bank seeks to reach forward-looking judgements on whether an FMI’s governance, operational design, policies or actions pose unacceptable risks to financial stability objectives.”
It is still unclear, however, just what the mechanism is to remediate these ‘unacceptable risks’, or how they will be measured.
The Bank of England took over responsibility for FMIs on April 1st, but FMIs will have to wait and see for the concrete details of the new regime.