Financial market plumbing not prepared for quick recovery, regs warn

In particular, the regulatory review, which examined 38 financial market infrastructures (FMIs) in 29 jurisdictions, found that FMIs’ recovery plans in the event of a disaster, such as a natural disaster or major system failure, fell short of expectations.

“The business continuity management of some, and possibly many, FMIs does not appear to be focused on resuming operations in a timely manner, even in the event of a major or major disruption,” the regulators said.

The study noted that IT systems should be able to recover within two hours of a major incident, and that FMIs should be able to complete transactions by the end of the day of the outage, even in “extreme circumstances.”

“As this is a serious concern, the CPMI and IOSCO expect the relevant FMIs and their [regulators] to address this as a matter of the highest priority,” the review reads.

FMIs have generally weathered the pandemic without major disruption, it added, by moving to remote working and preserving critical functions.

“While the Covid-19 pandemic did not cause any service interruptions, it did pose some operational challenges,” the report said. For example, large trading volumes in the early days of the pandemic posed a challenge for some FMIs.

The episode “also highlighted operational risks from third parties, such as critical service providers,” and the pandemic also increased cybersecurity risks, the report said.

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