Organisations outline next step in plans to strengthen CCPs

International standard-setters have unveiled the latest stage of plans to improve the resilience of central counterparties (CCPs), in a pair of documents published on September 22.

Jointly released by the Basel Committee on Banking Supervision (BCBS), the Committee on Payments and Market Infrastructures (CPMI), the Financial Stability Board (FSB) and the International Organization of Securities Commissions (Iosco), the progress report and workplan outline the ongoing analysis of risks stemming from the actions of CCPs.

Having moved ahead with 2009 plans by the G20 to ensure all standardised over-the-counter derivatives are cleared centrally, the organisations now face the prospect of making sure CCPs themselves are sufficiently resilient. Although CCPs maintain multiple lines of defence via their "default waterfalls", a failure could be catastrophic.

The workplan for 2015 sets out four main priority areas, leaving open the possibility for new avenues of research in the future. For now the organisations are concentrating on resilience, namely loss absorbency, liquidity and stress-testing; recovery, particularly loss-allocation tools; resolution planning and provisioning; and a "global map" of interconnections and possible contagions.

Work so far this year has focused mainly on information gathering and planning, particularly discussions with CCPs to pin down areas of concern, and compiling survey data.

Work on stress-testing is "well advanced", the organisations say, with survey responses to a questionnaire received and currently under review. Other aspects of resilience such as margins and "skin in the game" are also being surveyed, with deadlines for responses this month.

CPMI-Iosco are working on implementation monitoring, with the "first wave" review concentrating on financial risk management including governance, stress-testing, margin, liquidity, collateral and recovery planning, with the aim of comparing the progress of different CCPs.

CPMI-Iosco are also leading the recovery phase of the work, starting with a "stock-take" of existing recovery mechanisms, and then considering the need for "more granular standards of guidance".

On resolvability, the FSB Resolution Steering Group is also conducting a stock-take and considering the possibility of more granular standards.

Finally, a joint BCBS, CPMI, FSB and Iosco study group was formed in July this year to take on the problem of mapping out interdependencies between CCPs. The work will focus on the largest CCPs and the connections with the most potential to cause financial instability.

The majority of the analysis will be completed in 2016, with a report on recovery and resilience issues expected to be published for consultation in mid-2016, along with CPMI-Iosco's "level 3" assessments of the consistency of implementation of principles for financial market infrastructures. A report on interdependencies is due by the end of 2016.