Financial market infrastructures (FMIs) play a critical role in the U.S. and global financial system. FMIs are multilateral systems among participating financial institutions, including the system operator, used for the purposes of clearing, settling, or recording payments, securities, derivatives, or other financial transactions. These systems include payment systems, securities settlement systems, central securities depositories, central counterparties, and trade repositories. Such FMIs often give rise to risks and interdependencies among financial institutions both within and across national borders, creating the potential for widespread financial disruptions if an FMI fails to perform as expected. Central banks, with their mandates for macro-economic stability, are particularly interested in the smooth functioning of these FMIs and their strong and robust oversight.
The Federal Reserve supervises and oversees certain FMIs under several authorities and in several contexts. Title VIII of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) sets forth an enhanced supervisory framework for financial market utilities (FMUs), defined to include a subset of FMIs, that have been designated as systemically important by the Financial Stability Oversight Council. Such systemically important FMUs are referred to as "designated FMUs." Among other things, Title VIII authorizes the Board to prescribe risk-management standards governing operations related to the payment, clearing, and settlement activities of certain designated FMUs, supervise designated FMUs for which it is the Supervisory Agency pursuant to Title VIII of the Dodd-Frank Act (i.e. the Federal agency that has primary jurisdiction over a designated FMU under Federal banking, securities, or commodity futures laws), and participate in the examinations of designated FMUs for which it is not the Supervisory Agency. The Board also has other authority with respect to certain payment and settlement systems, such as authority to oversee Reserve Bank operations pursuant to the Federal Reserve Act.
The Board also has a policy interest in other FMIs, including foreign FMIs that have operational and other links to domestic FMIs, that have U.S. financial institutions as participants, or that clear U.S. dollar-denominated transactions. In these cases, the Board seeks to obtain and share information and analysis with relevant authorities overseeing these FMIs to understand the risks that these systems pose to the U.S. financial system.
The Board's risk-management and transparency standards for FMIs are found in two primary documents: Regulation HH and part I of the Federal Reserve Policy on Payment System Risk (PSR policy). Regulation HH sets risk-management standards for designated FMUs for which the Board has standard-setting authority pursuant to Title VIII of the Dodd-Frank Act, including the designated FMUs for which the Board is the Supervisory Agency. Part I of the PSR policy sets forth the Board's views and related standards regarding risk management in FMIs more generally, including those operated by the Federal Reserve Banks. Both Regulation HH and part I of the PSR policy are based on and generally consistent with the CPSS-IOSCO Principles for Financial Market Infrastructures.