On 26 June 2012, the FSA published a speech on the issue of derivatives reform given by David Lawton, Acting Director of Markets, to the IDX International Derivatives Expo in London.
Mr Lawton noted that good progress had been made in reforming derivatives markets, but that issues were outstanding in four main areas:
- rules for bilateral collateralisation of uncleared trades;
- recovery and resolution plans for central counterparty clearing houses (CCPs);
- promoting consistent cross-border application of requirements; and
- ensuring the readiness of firms, both financial and non-financial, which are not currently clearing OTC derivative trades.
Mandatory clearing will increase the amount of risk concentrated in CCPs. In turn, this brings into focus the importance of effective recovery and resolution planning for CCPs, which will be the subject legislation at an EU level before the end of 2012. In addition, the Committee on Payment and Settlement Systems (CPSS) and International Organisation of Securities Commissions (IOSCO) are due to publish a consultation paper on this issue. This is likely to be based on the FSB’s “Key Attributes of Effective Resolution Regimes for Financial Institutions”, which were published in October 2011. The consultation paper will seek to identify whether and how each Key Attribute applies to a Financial Market Infrastructure (FMI) and what special guidance may be needed for FMIs, authorities and other parties.
The text of the speech is available here.