CPMI and IOSCO Report on Implementation Monitoring of PFMI in US

By Regulatory News

May 31, 2019

CPMI and IOSCO published a Level 2 assessment report on the implementation monitoring of PFMI in United States. The assessment concludes that the legal, regulatory, and oversight frameworks for payment systems, central security depositories (CSDs), and securities settlement systems in the U.S. are complete and "consistent" with the Principles for financial market infrastructures (PFMI). Minor gaps have been identified in the frameworks for payment systems, CSDs, and securities settlement systems; however, these gaps are judged to have an immaterial impact on the assessment ratings.

The information to be provided by a third party seeking authorization to assess the compliance of securitizations with the STS criteria provided for in Securitization Regulation should enable a competent authority to evaluate whether and, to what extent, the applicant meets the conditions of Article 28(1) of the Securitization Regulation. An authorized third party will be able to provide STS assessment services across EU. The application for authorization should, therefore, comprehensively identify that third party, any group to which this third party belongs, and the scope of its activities. With regard to the STS assessment services to be provided, the application should include the envisaged scope of the services to be provided as well as their geographical scope, particularly the following:

To facilitate effective use of the authorization resources of a competent authority, each application for authorization should include a table clearly identifying each submitted document and its relevance to the conditions that must be met for authorization.
To enable the competent authority to assess whether the fees charged by the third party are non-discriminatory and are sufficient and appropriate to cover the costs for the provision of the STS assessment services, as required by Article 28(1)(a) of Securitization Regulation, the third party should provide comprehensive information on pricing policies, pricing criteria, fee structures, and fee schedules.
To enable the competent authority to assess whether the third party is able to ensure the integrity and independence of the STS assessment process, that third party should provide information on the structure of those internal controls. Furthermore, the third party should provide comprehensive information on the composition of the management body and on the qualifications and repute of each of its members.
To enable the competent authority to assess whether the third party has sufficient operational safeguards and internal processes to assess STS compliance, the third party should provide information on its procedures relating to the required qualification of its staff. The third party should also demonstrate that its STS assessment methodology is sensitive to the type of securitization and that specifies separate procedures and safeguards for asset-backed commercial paper (ABCP) transactions/programs and non-ABCP securitizations.

The use of outsourcing arrangements and a reliance on the use of external experts can raise concerns about the robustness of operational safeguards and internal processes. The application should, therefore, contain specific information about the nature and scope of any such outsourcing arrangements or use of external experts as well as the third party's governance over those arrangements. Regulation (EU) 2019/885 is based on the draft regulatory technical standards submitted by ESMA to EC.

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Effective Date: June 18, 2019

Press Release

Proposed Rule 1

Proposed Rule 2

Proposed Rule 3

Presentation on Regulatory Framework (PDF)

Presentation on Resolution Plan Rules (PDF)

The assessment reflects the status of the U.S. legal, regulatory, and oversight framework as of March 30, 2018. The report presents a table that covers the identified gaps and recommendations. The assessment was conducted as a peer review from June 2018 to January 2019. The report complements a February 2015 report on central counterparties and trade repositories. The U.S. has now completed the Level 2 peer assessment process for the implementation of the PFMI. The U.S. authorities for the assessment were FED and SEC because of their role in the regulation, supervision, and oversight of payment systems and CSDs/securities settlement systems.

The rating framework used in Level 2 assessments is an adaptation of the approach described in the PFMI Assessment Methodology. The possible rating levels are “Consistent,” “Broadly consistent,” “Partly consistent,” “Not consistent,” and “Not applicable.” CPMI and IOSCO have also launched the PFMI Level 2 implementation database, which is a repository of all assessments completed to date. The database contains relevant implementation measures, ratings, gaps, and recommendations. It complements the assessment reports, which, starting with this U.S. evaluation, will provide descriptions of the principles and key considerations for which any gaps are identified and recommendations made. This database will be updated as new Level 2 assessments are completed.

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Keywords: Americas, US, Banking, Securities, PMI, PFMI, Level 2 Assessment, Implementation Monitoring, CSD, CPMI, IOSCO

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