IOSCO, CPMI report examines central counterparty risks

By James Langton | August 23, 2023 | Last updated on August 23, 2023
2 min read

In the wake of the global financial crisis, policymakers pushed for greater use of central counterparties (CCPs) in the global derivatives markets. Now, they’re calling on CCPs to ensure that they have adequate resources to deal with risks such as investment losses and cyberattacks.

In a joint report, the International Organization of Securities Commissions (IOSCO) and the Bank for International Settlements’ Committee on Payments and Market Infrastructures (CPMI) stressed the need for CCPs to ensure they can handle losses triggered by events other than trading-firm defaults.

According to the report, CCPs have become increasingly important for managing counterparty risk in the global financial system, particularly since the financial crisis prompted policymakers to adopt central clearing requirements for standardized OTC derivatives.

“The financial resilience of CCPs in case of losses and liquidity shortfalls is critical for financial stability — whether these losses arise from the default of CCP clearing members or from events other than clearing member defaults, such as investment risk or cyber-attacks,” it said.

The policymakers noted that the potential for losses due to defaults is “well understood,” but there is limited consensus on how CCPs deal with non-default losses.

“If not managed properly, [non-default losses] can threaten a CCP’s viability as a going concern and its ability to continue providing critical services to its participants and the markets it serves,” they warned.

In their report, IOSCO and the CPMI detail how various CCPs are dealing with these risks, in an effort to improve industry understanding in this area.

The regulators said the report doesn’t create new standards or introduce new guidance for CCPs or other financial market infrastructure firms. It is intended, they said, to inform other policymakers about CCPs’ practices, and “to facilitate the sharing and understanding of these practices and to improve CCPs’ plans for managing [non-default losses].”

“Given the wide range of practices reported and the different views expressed by industry, CPMI and IOSCO intend to undertake additional work on [non-default losses],” they said. “Further engagement with industry stakeholders will also be undertaken to inform a public consultation in the near term on further guidance or recommendations.”

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James Langton

James is a senior reporter for and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.