Imagine a global financial system teetering on the brink because the nuts and bolts holding it together – the Financial Market Infrastructures (FMIs) – aren't prepared for everyday business hiccups. Sounds scary, right? The Bank for International Settlements (BIS) and the International Organization of Securities Commissions (IOSCO) are working to prevent this, and they want your input.
They've released a consultative report offering further guidance on how FMIs should manage 'general business risks' and 'general business losses.' Think of FMIs as the vital organs of the financial system. These include payment systems that allow you to buy your morning coffee, securities settlement systems that ensure stock trades go smoothly, central securities depositories that safeguard your investments, central counterparties that act as insurers for trades, and trade repositories that keep track of derivatives contracts. If one of these organs fails, the whole system could suffer.
This consultative report doesn't introduce entirely new rules. Instead, it builds upon existing principles laid out in the 'Principles for Financial Market Infrastructures' (PFMI). It's like fine-tuning an engine rather than building a new one from scratch. The guidance also incorporates lessons learned from previous assessments and studies on how FMIs handle non-default losses.
But here's where it gets controversial... What exactly are 'general business losses'? They're basically losses that aren't directly caused by a participant defaulting on their obligations, nor are they covered by specific financial resources designed for credit and liquidity risks. These losses stem from the everyday operation of an FMI as a business. For example, an FMI might suffer losses due to legal challenges (Principle 1 of PFMI), poor investment decisions (Principle 16), or operational failures like a major system outage (Principle 17). These losses can be one-off events or recurring problems.
And this is the part most people miss... The report doesn't just define the scope of these risks; it provides concrete guidance on several crucial areas: (i) how to identify, monitor, and manage these general business risks; (ii) how to determine the minimum amount of liquid assets (backed by equity) an FMI should hold to absorb losses; and (iii) how to ensure good governance and transparency in their risk management practices. Think of it as a comprehensive checklist to keep FMIs financially healthy.
In addition to clarifying the scope of general business risk and the interaction across different Principles, the report provides guidance on: (i) identifying, monitoring and managing general business risks; (ii) determining the minimum amount of liquid net assets funded by equity; and (iii) governance and transparency.
This is where your voice comes in. The BIS and IOSCO are actively seeking feedback on this consultative report. If you have expertise in finance, risk management, or the operation of FMIs, they want to hear from you! You can submit your comments by February 6, 2026, to both the CPMI Secretariat (cpmi@bis.org) and the IOSCO Secretariat (GBR-CP@iosco.org). Your comments will be made public, so avoid including any confidential business information or clearly mark any sensitive information that should be redacted.
What do you think? Is this guidance sufficient to protect the financial system from these often-overlooked general business risks? Are there any areas where the guidance could be strengthened? Share your thoughts in the comments below!
