August 4, 2022

CPMI-IOSCO Reviews CCP Non-Default Loss Recovery Practices

The Committee on Payments and Market Infrastructures and IOSCO ("CPMI-IOSCO") assessed the practices that central counterparties ("CCPs") utilize when managing potential losses caused by non-default events, specifically in the context of recovery or orderly wind-down.

The discussion paper reviews processes that CCPs use to manage non-default losses ("NDLs") and identifies areas of improvement. The paper evaluates the underlying analysis conducted by CCPs to develop plans to address NDLs, noting that the analysis helps identify and quantify NDL scenarios, as well as determine a CCP's readiness to address NDLs. Based on that analysis, CPMI-IOSCO identified practices to promote the operational effectiveness of a CCP's plans to address NDLs, which includes (i) taking steps to ensure that participants and relevant third parties are prepared for the processes that are triggered by an NDL scenario and (ii) other plans and tools to address NDLs in CCP rules and other contracts.

In a statement, the Futures Industry Association applauded the paper's publication and said that "[t]he guiding principle for allocating non-default losses should be who manages the risk."

Comments on the discussion paper may be submitted until October 4, 2022. CPMI-IOSCO requested comment on the paper as a whole, but also specified a list of questions on which it is seeking comment.

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