WASHINGTON (CN) – The Federal Reserve has adopted risk-management standards for financial market utilities that provide the infrastructure to clear and settle payments and other financial transactions.
The Fed’s rules cover only utilities that the Financial Stability Oversight Council determines are “systemically important” or too-big-to-fail in the parlance of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The basic risks that FMUs must manage include credit risk, liquidity risk, settlement risk, operational risk, and legal risk arising from the settlement of financial transactions.
The Fed’s rule excludes utilities registered as clearing agencies with the Securities and Exchange Commission or as derivatives clearing organizations with the Commodity Futures Trading Commission.
The standards adopted by the Fed are based on the international risk-management standards developed by the Committee on Payment and Settlement Systems and the Technical Committee of the International Organization of Securities Commissions.
The Fed also required utilities to provide 60 days advance notice of any proposed change to their rules, procedures, or operations that could materially affect the nature or level or risks faced by the utility.
The rules go into effect September 14.