FR/2016 Implementation monitoring of PFMI: Level 3 assessment – Report on the financial risk management and recovery practices of 10 derivatives CCPs

Committee on Payments and Market Infrastructures Board of the International Organization of Securities Commissions Implementation monitoring of PFMI: Level 3 assessment – Report on the financial risk management and recovery practices of 10 derivatives CCPs August 2016 This publication is available on the BIS website (www.bis.org) and the IOSCO website (www.iosco.org). © Bank for International Settlements and International Organization of Securities Commissions 2016. All rights reserved. Brief excerpts may be reproduced or translated provided the source is stated. ISBN 978-92-9197-625-6 (online) ISBN 978-92-9197-626-3 (print) Implementation monitoring of PFMI: Level 3 assessment iii Abbreviations ................................................................................................................................................................................... viii 1. Executive summary ......................................................................................................................................................... 1 1.1 Scope of the assessment ........................................................................................................................... 2 1.2 Key changes to CCPs’ risk frameworks since implementation of the PFMI .......................... 2 1.3 Key findings of the assessment ............................................................................................................... 3 1.3.1 Governance of risk management ........................................................................................................... 4 1.3.2 Credit risk management ............................................................................................................................ 4 1.3.3 Liquidity risk management ....................................................................................................................... 5 1.3.4 Margin ............................................................................................................................................................... 5 1.3.5 Collateral policy and investments .......................................................................................................... 6 1.3.6 Default management and recovery planning ................................................................................... 6 2. Introduction ...................................................................................................................................................................... 8 2.1 Broader context of the Level 3 assessments ...................................................................................... 8 2.2 Objective of L3 assessments .................................................................................................................... 8 2.3 Scope of this review .................................................................................................................................... 9 3. Process and methodology ........................................................................................................................................ 11 3.1 Jurisdictional/CCP coverage ................................................................................................................... 11 3.2 Data collection and analysis ................................................................................................................... 13 3.3 Review of assessment findings by CCPs, relevant authorities and the parent committees 13 4. CCP risk frameworks .................................................................................................................................................... 14 4.1 Role of a CCP ................................................................................................................................................ 14 4.2 Sources of CCP risk and mitigation ..................................................................................................... 14 4.3 Key changes to CCPs’ risk frameworks .............................................................................................. 18 5. Key findings ..................................................................................................................................................................... 20 5.1. Governance of risk management ......................................................................................................... 20 5.1.1 Overview of implementation measures and consistency of implementation outcomes with the PFMI and across CCPs ............................................................................................................. 21 5.1.2 Key findings ................................................................................................................................................