On 8th May 2018, CPMI-IOSCO released anonymised updates on the three critical risk areas where central clearing houses are scrambling to meet the business and regulatory demands as set forth in the 2014 Principles for Financial Market Infrastructures (‘PFMIs’). These three are recovery, coverage of financial resources, and liquidity stress testing.

In April, the global banking and capital markets authorities together announced a mid-course correction to their work transforming central counterparty clearing of OTC derivatives contracts. In their search in 2009 for the answer to the ‘OTC counterparty risk problem’ that had so brutally hit the world’s financial system and economy, the authorities grasped at a notion then circulating in central banking circles: if clearing houses had proven themselves able to manage the risk of on-exchange transactions during the market turmoil of 2008 and the failure of Lehman Brothers, then they ought to be called upon to do the same for the off-exchange business that had gone off the rails.

The time, money and effort diverted to re-regulation of the financial services industry since 2008 has dismayed bankers everywhere. But it has caused a special brand of irritation on a continent which made no contribution to the financial crisis, and whose main priority is not to tame excesses but to build capital markets attractive to foreign portfolio investors.

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