Canada falls short on FMI oversight warns CPMI-IOSCO study

The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) on Monday published a report that reviews the compliance of 28 jurisdictions with the CPMI-IOSCO principles for financial market infrastructure (FMIs). Overall, the assessment revealed that a majority of the jurisdictions had achieved “a high level of observance” of the principles.

Of the 28 jurisdictions assessed, 16 fully observed the principles for all types of FMI; and two others either fully, or broadly, observed all the principles. The area where regulators most frequently fell short involves trade repositories (TRs). The report found that five of the participating jurisdictions are still developing trade repository regimes, and several others lacked clear criteria and/or fully disclosed policies to support their regulation, supervision and oversight of these organizations.

The report also found shortcomings involving regulators’ arrangements for co-operating with other authorities. “This was due partly to the fact that many co-operative arrangements are new, but may in some cases also reflect different interpretations among authorities of the expectations in this area,” the CPMI-IOSCO report says.

The CPMI and IOSCO say they will review the principles in the light of the findings and consider the need for additional guidance. Additionally, as jurisdictions gain greater experience with co-operative arrangements, particularly cross-border arrangements for central counterparties (CCPs) and TRs, the CPMI and IOSCO expect to consider new developments as part of a follow-up exercise to this report.

For Canada, the report found that the authorities are adhering to the principles for most types of infrastructure, but they are not fully compliant with all principles for all firms. “The Canadian authorities apply clear criteria to identify FMIs that should be subject to regulation, supervision and oversight,” the CPMI-IOSCO report notes. “However, since FMIs in Canada are usually subject to regulation, supervision and oversight by more than one authority with differing approaches to their regulatory responsibilities, the varying clarity of these approaches reduces the overall transparency of the applicable regime.”

“The number of domestic authorities involved in the supervision heightens the need for co-operation and clarity in the arrangements,” the CPMI-IOSCO report says.

Moreover, the report found that some additional measures are required to complete implementation for certain firms. At the time of the assessment, no timeframe had been set for adopting the remaining principles, the report notes

There is work underway to improve coordination, the CPMI-IOSCO report notes. “While securities regulators already coordinate their oversight of regulated entities on a day-to-day basis, they are also developing an MOU to formalize and increase the efficiency of these co-operative arrangements,” the CPMI-IOSCO report says. “Moreover, the Bank of Canada and the Department of Finance are planning to update the agreement governing their shared responsibility for the oversight of payment systems by end-2016 … This will address the minor gaps identified by the review team for payment systems.”

In the year ahead, the CPMI and IOSCO also plan to finish the first detailed thematic assessment of outcomes achieved by the implementation of these principles. They aim to publish a report on the findings of this exercise by mid-2016.