The Financial Stability Board (FSB) unveiled new global standards for winding up clearing and settlement firms.
The global group said the new standards aim to ensure regulators can resolve a central counterparty (CCP) that runs into financial trouble without spreading stress to other parts of the market.
“The availability of adequate resources and tools for CCP resolution remains critical for financial stability and for ensuring confidence in the financial system,” the FSB said.
Global policymakers pushed for increased reliance on central clearing in the wake of the global financial crisis, which increased the systemic importance of CCPs, the FSB added.
Among other things, the new standards require that resolution authorities have tools related to liquidity, loss absorption and recapitalization to maintain the critical functions of a failing CCP, while also minimizing the negative effects on financial stability.
Additionally, the existence and availability of these tools should be transparent to the market, the FSB said.
The new standards were developed in the wake of work to assess the potential impact of CCP resolution on financial stability done by the FSB, the Committee on Payments and Market Infrastructures, the International Organization of Securities Commissions and the Basel Committee on Banking Supervision.
That work concluded that resolution authorities need a variety of tools to deal with a failing CCP.
“This approach enables authorities to flexibly select which resources and tools to implement in their jurisdiction, as needed,” the FSB said, adding that variety reduces the risk of relying on a single tool to deal with a potentially systemic failure.