Imagine a financial system teetering on the brink because the very infrastructure designed to stabilize it – the Financial Market Infrastructures (FMIs) – isn't prepared for its own business hiccups. That's the core issue addressed in a recent consultative report from the Bank for International Settlements' Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO). These bodies are seeking public feedback on proposed guidelines to bolster how FMIs manage their general business risks and potential losses.
FMIs are the unsung heroes of global finance. Think of them as the plumbing system that keeps the financial waters flowing smoothly. They encompass a range of entities, from payment systems that facilitate everyday transactions to central counterparties (CCPs) that stand between buyers and sellers in complex derivatives markets, reducing systemic risk. Other crucial FMIs include securities settlement systems, central securities depositories, and trade repositories. These systems are so vital that any disruption can send ripples throughout the entire financial world.
The consultative report offers supplementary guidance for FMIs and the regulatory bodies that oversee them. It focuses on key considerations and principles for managing general business risks and losses, especially during recovery and wind-down scenarios. And this is the part most people miss: This guidance isn't about creating new rules. Instead, it's about providing greater clarity and depth to the existing "Principles for Financial Market Infrastructures" (PFMI), a set of internationally recognized standards. The report also draws upon findings from previous CPMI-IOSCO assessments, including a Level 3 assessment report on general business risks and prior work on how CCPs should handle losses not related to member defaults.
But what exactly are "general business losses"? They are losses that don't stem from a participant's default or from areas already protected by specific financial resources designed to cover credit and liquidity risks. These losses can arise from the inherent risks of running an FMI as a business. For example, a new technology implementation could run significantly overbudget, or a major lawsuit could result in a hefty fine.
And here's where it gets controversial... General business losses can also be indirect consequences of other risks outlined in the PFMI itself. Think about legal risk (Principle 1), the potential for losses due to faulty contracts or regulatory changes; custody and investment risks (Principle 16), losses incurred while safeguarding assets; or operational risk (Principle 17), losses stemming from failures in internal processes, systems, or human error. These general business losses can be one-off events or recurring issues that slowly erode an FMI's capital base.
The report delves into several important areas. First, it clarifies what falls under the umbrella of "general business risk" and how these risks interact with other principles within the PFMI. Second, it offers concrete guidance on how FMIs should identify, monitor, and manage these risks. Third, it addresses the critical question of how to determine the minimum amount of liquid net assets, funded by equity, that an FMI should hold to absorb potential losses. Finally, it emphasizes the importance of strong governance and transparency in managing general business risks.
The CPMI and IOSCO are actively seeking feedback on this consultative report. All comments should be sent to both the CPMI Secretariat (cpmi@bis.org) and the IOSCO Secretariat (GBR-CP@iosco.org) by February 6, 2026. Unless explicitly requested otherwise, all comments will be published on the BIS and IOSCO websites. It's crucial to avoid including any confidential commercial or other sensitive information in your submissions. If you must include such information, clearly indicate which portions should be redacted before publication.
Now, here's a question for you: Do you believe the proposed guidance strikes the right balance between strengthening FMI resilience and avoiding excessive regulatory burden? Could these new guidelines inadvertently stifle innovation or create unintended consequences within the financial system? Share your thoughts and concerns in the comments below! Let's discuss the potential benefits and drawbacks of these proposed changes.
