Effective Oversight of Financial Market Infrastructures

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Tuesday 11 September


The new CPSS-IOSCO "Principles for financial market infrastructures"
Daniela Russo, Director-General of Payments and Markets Infrastructure, ECB and co-chair of the CPSS group

April 2012 saw the publication of the final report on a ground-breaking set of principles. The principles are unprecedented for a number of reasons. They define a new area in financial policy: financial market infrastructures, they combine three sets of existing standards; and they include areas of the market never covered before. While the market impact of the principles remains uncertain, one thing is already clear: these new standards will change the practice of oversight for decades to come. In this session the speaker, co-chair of the CPSS group that produced the report, will discuss the new principles, their origins and aims; taking in the new assessment methodology and disclosure framework.

Financial market infrastructures: a warehouse perspective
Led by the chairman Ron Berndsen, Head of Oversight, The Netherlands Bank

FMIs will change oversight. But how can overseers understand this concept? In this session, the chairman will set out to explain FMIs using a multi-storey warehouse as a metaphor. In the warehouse, payment flows and the clearing and settlement of securities and derivatives are processed on a macroeconomic scale. Also, the interdependencies between FMIs on domestic and cross-border basis, through which operational and financial risks can spread, are highlighted. This session provides the groundwork for the rest of the course and will draw out the changes the oversight function has had to respond to in light the financial crisis. Discussion will touch upon the recently issused CPSS-IOSCO consultative report on the recovery and resolution of financial market infrastructures.

Governance: scheme ownership and operation
Paul Anning, Partner and Head of Financial Institutions Group, Osborne Clarke and Janet Cosier, Adviser on Strategic Planning and Risk Management, Bank of Canada and Chair of the Board of Directors, Canadian Payments Association

The past decade has seen a revolution in retail payments with the separation of the ownership and operation of payment schemes. In the UK, at the heart of this new model of governance sits the Payment Council, an industry body charged with formulating the strategy for UK payments. Similarly, the Canadian Payments Association is tasked with setting an efficient framework for the settling and clearing of retail payments. In this session the two expert speakers will debate the development of the mechanics of retail payment governance and assess the impact the change has had on the market, service providers and customers.

Wednesday 12 September


Lessons learnt from OTC infrastructure
Richard Heckinger, Vice President and Senior Policy Advisor, Financial Markets Group, Federal Reserve Bank of Chicago

In 2009, the G20 agreed that OTC derivatives should be centrally cleared and reported to a repository by the end of 2012. The agreement resulted from the financial crisis. Since 2009, work has begun in the United States, Europe and Japan on clearing solutions and continues today. This session will discuss these developments as well as consider questions of governance, ownership, competition and oversight for this important new infrastructure. More broadly the group will debate what those working in oversight can take from OTC derivatives and their debate over infrastructure.

Operations: ensuring robustness and resilience
Tomáš Hládek, Advisor to the Governor, Czech National Bank

As technologically intensive sectors, payment systems and their support networks are heavily exposed to operational and security risks. The financial crisis underscored, if it was necessary, the importance of systems being available at times of peak market stress. Such a high level of resilience will obviously demand commitment of resources and investment, both in terms of build and maintenance. In this session, the speaker will consider how an overseer can identify the single points of vulnerability in a system. Broader group discussion will address the importance of comprehensive and robust continuity planning for financial sector emergencies.


Foreign exchange: are risks being managed?
Jim Hughes, Director, Business Risk Analysis, CLS Bank and Peter Lightfoot, Head of Positioning and Collateral Management, Money Markets, RBS Global Banking & Markets

More than a decade after it was set up, CLS settles the majority of interbank foreign exchange transactions. However, some uncertainties still remain - has settlement risk been comprehensively mitigated? What of liquidity and credit risks? This session will focus on the developments in the service and plans for future expansion. The speakers, from CLS and the market respectively, will debate the current state of the market and the policy and oversight environment following the financial crisis.


Interlinkages: risk and liquidity management
Peter Lightfoot, Head of Positioning and Collateral Management, Money Markets, RBS Global Banking & Markets

Today, balance sheets of market players are more complex, the instruments they invest in more diverse, and markets more closely linked, rendering liquidity risk more important but more opaque. This session, drawing on private-sector expertise, considers the implications of growing trends such as group-wide liquidity management and central banks broadening the range of collateral they accept, as well as the demands being placed on today's RTGS.

Liquidity saving
Toby Davies, Head of Market Services Division, Bank of England 

The crisis has placed liquidity at the top of the regulatory agendas. At the same time markets and regulators alike are raising the collateral bar both in terms of quality and amounts. It is essential therefore that market infrastructures are designed and operated to manage liquidity efficiently and mitigate liquidity risk effectively within a system. This session will focus on the ways in which different features can tackle this trade-off drawing on specific examples from liquidity-saving mechanisms already in place.

Thursday 13 September


Immediate funds transfer: making real-time retail payments a reality
Chris Dunne, Strategy Director, Vocalink

Payment systems have traditionally been separated by into wholesale and retail silos, with the former settling in real time in central bank money and the latter settling on a net basis over a number of days. Recent years, however, have seen this distinction blur with the introduction of systems for near-real-time or immediate funds transfer. A number of policy questions follow from this development: is the RTGS the best location for all payments or should a new "fast" retail system be built? How should pricing be structured? Who should have access? What new risks does it create? What are the implications for monetary policy?

Mobile phones and payments: still on hold?
Päivi Heikkinen, Head of Oversight, Market Infrastructure Division, Bank of Finland

The use of mobile phones is revolutionising how payments are made and the way consumers manage their money broadly. Today, the technology is there to enable payments to be made in real time from personal mobile devices. Yet, while the technology exists, the introduction and take-up of mobile payments has been patchy at best. Why is this the case? What are the risks and what are the opportunities? What role should authorities be playing here? This session, led by an experienced payment system overseer, will look to draw out experiences from the group to arrive at an idea of emerging good practice for central bank policy towards this important area.

Cards: the emerging framework of oversight and tackling online fraud
Alexandre Stervinou, Deputy Head, Non-Cash Means of Payment Oversight Division, Banque de France and Ross Anderson, Professor of Security Engineering, Cambridge University

As a significant proportion of payments in most economies, card payments have the potential to impact on financial stability and monetary policy and, more broadly, public confidence in payment instruments as online banking fraud threatens the integrity of retail systems. It is for these reasons that central banks are increasingly adopting a more active stance towards oversight and intervention in the market. This session will look at the risks the sector faces, the framework and tools central banks are using to oversee this sector and the particular complications the international nature of the sector brings.


Friday 14 September


Case study: oversight in practice
Knut Sandal, Director, Payment Systems Department, Norges Bank

This session builds on the discussion of the previous days to focus in on the practicalities and challenges of oversight. The speaker, from the Norges Bank, will set out an example of the framework, data and tools required to assess systems before discussing how best to communicate findings. Points for discussion will include how the financial crisis has impacted the function, as well as the differences in overseeing interbank and retail systems, and the challenges of meeting multiple and occasionally conflicting aims.

Workshop: building an oversight framework
Led by the chairman

In this session, delegates will be split into small groups and asked to develop an oversight framework. The framework will focus on how those working within central banks should implement effective oversight for a specific financial market infrastructure. Participants will be challenged to build a framework that captures key elements including payments, clearing and settlement.

Course conclusion
Roundtable discussion led by the chairman

The day and the course will conclude with a session led by the chairman drawing in the main points of the course. Delegates will be encouraged to pool their thoughts and consider lessons to take back to their home institutions.