The BIS Committee on Payments and Market Infrastructures (CPMI) as well as the International Organization of Securities Commissions (IOSCO) have recently released an updated implementation monitoring report on general business risks along with a consultative report on financial market infrastructures‘ (FMIs) management of “general business risks and general business losses.”
As noted in an update shared by the BIS, the latest assessment report identifies a number of potentially serious issues of concern as they pertain “to FMIs’ management of general business risks and the liquid net assets funded by equity they hold to cover potential losses.”
As mentioned in the update from BIS, the consultative research report sets out guidance for public consultation “that addresses these findings and provides supplemental guidance to the CPMI-IOSCO Principles for financial market infrastructures (PFMI). ”
The CPMI and IOSCO shared the two reports on the “subject of management of general business risks and general business losses by FMIs.”
The Level 3 assessment report reviews the ongoing “implementation the PFMI Principle 15 on general business risk at a sample of 34 FMIs and identifies a number of serious issues of concern.”
According to the report, these are said to relate to areas which include determining the “amounts of liquid net assets funded by equity to cover potential losses from different sources of risks, recovery and orderly wind-down planning, and plans for raising additional equity.”
The consultative report shared by the Bank for International Settlements sets out suggested guidance for FMIs as well as the relevant authorities relating to FMIs’ management of “general business risks and general business losses, including in the context of recovery and orderly wind-down.”
The BIS update concluded that this proposed guidance, which supplements the PFMI, “takes into account the findings of the assessment report.”
General business losses are losses that are “neither related to participant default nor separately covered by financial resources under the credit and liquidity risk principles.”
General business losses may arise from business risks “related to the operation of an FMI as a business enterprise.”
They may also arise from risks faced by the FMI related to other principles under the PFMI, for example “legal risk (Principle 1), custody and investment risks (Principle 16) and operational risk (Principle 17).”
General business losses may be “one-time or recurring losses.”
As covered, The Bank for International Settlements (BIS) is a forum and bank for central banks that aims to promote international monetary and financial stability.
It serves as a bank for central banks by “providing financial services, conducting economic research, and fostering cooperation and dialogue on global financial issues.”
As clarified before, the BIS is not actually “a commercial bank and does not provide services to private individuals or corporations.”
