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SWIFT white paper explores how critical service providers help compliance with CPSS-IOSCO principles for financial market infrastructures

SWIFT white paper explores how critical service providers help compliance with CPSS-IOSCO principles for financial market infrastructures

24 October 2012

Paper proposes assurance framework for critical service providers to help market infrastructures assess their readiness and reduce overall industry cost of compliance.

Brussels, 24 October 2012 - SWIFT, the financial messaging provider for more than 10,000 financial institutions and corporations in 212 countries and territories, has released a white paper on the CPSS-IOSCO principles for financial market infrastructures (FMIs).

The paper argues the need for industry-wide adoption of a consistent and robust assessment and disclosure framework for the critical service providers (CSPs) to FMIs, based on international assurance standards and requiring external independent validation. This will support FMIs in demonstrating compliance with the CPSS-IOSCO principles - designed to ensure the safety and robustness of the key infrastructures underpinning the global financial markets - in a cost-efficient, streamlined way.

The CPSS-IOSCO principles and the role of CSPs
In the wake of the financial crisis, global regulators are focusing on payments systems, central counterparties, central securities depositories and trade repositories, to ensure that they have effective risk management in place.

CPSS and IOSCO have jointly produced 24 principles which form the basis of the supervisory approach for all the impacted FMIs. Minimising operational risk is a key objective of the principles and this extends to the CSPs which an FMI uses to deliver its services. Under the CPSS-IOSCO principles, CSPs are required to meet expectations in the areas of risk management, technology management, security management, resilience and communication with users.

SWIFT proposes industry-wide adoption of coherent assurance framework for CSPs
In absence of specific guidance on how FMIs should go about gaining the comfort required of their CSPs, the paper argues there is a risk that the process of establishing their fitness becomes inefficient and ineffective, with CSPs responding to large numbers of non-standardised surveys and FMIs failing to gain comparative, transparent information about their CSPs' approaches to operational risk management.

SWIFT's new white paper outlines an approach for adoption by all FMI CSPs to help make this process effective and efficient, based on an international assurance standard and requiring validation of compliance by an external assessor.  The white paper describes the benefits of this approach which are compelling and extend well beyond SWIFT and the FMIs using SWIFT, and include consistency of assurance reporting and reduced costs of demonstrating compliance for CSPs, FMIs and regulators.

SWIFT complies today
In an addendum to the white paper, SWIFT shows how it already meets the expectations for CSPs. In 2013, the current self-assessment of compliance will be replaced by an independently validated report as per the proposed approach. 

Harry Newman, Head of Market Initiatives, EMEA, SWIFT, comments: "The CPSS-IOSCO guidelines will make an important contribution to improving the safety and soundness of the financial markets, and it is important for CSPs to evidence compliance with these guidelines. The assurance approach with independent validation proposed in our new white paper would help regulators, FMIs, and their CSPs by streamlining the process of demonstrating compliance, and helping the industry to meet the obligations being set out by regulators in the most efficient, cost-effective way."

CPSS-IOSCO’S Principles for Financial Market Infrastructures (FMIs)

SWIFT is a member-owned cooperative that provides the communications platform, products and services to connect more than 10,000 financial institutions and corporations in 212 countries and territories. SWIFT enables its users to exchange automated, standardised financial information securely and reliably, thereby lowering costs, reducing operational risk and eliminating operational inefficiencies. SWIFT also brings the financial community together to work collaboratively to shape market practice, define standards and debate issues of mutual interest.

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