The world of financial market infrastructures (FMIs) is about to get a much-needed update! The Bank for International Settlements (BIS) and the International Organization of Securities Commissions (IOSCO) are taking a stand to ensure the stability and resilience of our global financial system. But here's where it gets controversial... they're focusing on general business risks and losses, which are often overlooked yet critical aspects of FMIs' operations.
FMIs, including payment systems and securities settlement systems, are the backbone of our financial world. They ensure that money moves smoothly and securely across borders, and that transactions are settled efficiently. But these systems are not immune to risks and losses that can arise from various business operations.
The BIS and IOSCO have published a consultative report, aiming to provide further guidance on managing these general business risks and losses. This report is a call to action for FMIs and relevant authorities to enhance their practices and ensure the smooth functioning of the global financial system.
The guidance, built upon established principles in the Principles for Financial Market Infrastructures (PFMI), aims to elaborate on these principles and provide clarity. It considers findings from previous assessments and reports, such as the CPMI-IOSCO Level 3 assessment on general business risks and their work on addressing non-default losses.
General business losses are losses that are not tied to participant defaults or covered by specific financial resources. These losses can arise from various business risks, such as legal, custody, investment, and operational risks. They can be one-time events or recurring issues, impacting the stability and reputation of FMIs.
The report goes beyond defining these risks; it provides practical guidance on identifying, monitoring, and managing them effectively. It also offers insights into determining the minimum liquid net assets funded by equity and emphasizes the importance of governance and transparency in these processes.
This initiative is a step towards a more robust and resilient financial system. By addressing these general business risks, FMIs can better protect themselves and the global economy from potential shocks.
The BIS and IOSCO are inviting comments and feedback on this report until February 6, 2026. This is your chance to contribute to shaping the future of financial market infrastructures. Will you take this opportunity to voice your thoughts and ideas? The floor is open for discussion!
