Federal regulatory agencies in the US have called on core clearing and settlement organisation and other firms that play significant roles in critical financial markets to step up their preparations for improving business continuity in the event of future wide-scale disruptions to normal market activity.
The Federal Reserve, the Office of the Comptroller of the Currency and the Securities and Exchange Commission have published a draft white paper on 'Sound Practices to Strengthen the Resilience of the US Financial System'. The intra-agency paper discusses the views of the agencies on how the events surrounding 11 September, 2001, have altered business recovery and resumption expectations.
Market participants have been given 45 days to comment on the proposals, which focus on minimising immediate systemic effects of wide-scale regional disruption of critical wholesale financial markets.
The paper addresses three business continuity objectives that have special importance after 11 September:
Rapid recovery and timely resumption of critical operations following a wide-scale, regional disruption;
Rapid recovery and timely resumption of critical operations following the loss or inaccessibility of staff in at least one major operating location; and
A high level of confidence, through ongoing use or robust testing, that critical internal and external continuity arrangements are effective and compatible.
The agencies say they are issuing their views to guide financial organisations as they complete their reviews of business continuity plans and make strategic investments to strengthen their capabilities. Market participants will be given 180 days from publication of the final paper to get their houses in order.
The agencies say that some firms have built, or are in the process of establishing, back-up sites or other arrangements that, while improving resilience, may not make the final cut.
"Given their different circumstances, it may take some firms longer than others to implement all of these sound practices in a cost-effective manner," states the paper. "Accordingly, while the agencies recognise the need for some flexibility in implementation timetables, firms nevertheless should strive to achieve these sound practices as soon as practicable."
All core clearing and settlement utilites, however, should begin to implement plans to establish out-of-region back-up resources within the next year.
The rules will also apply to most of the 15-20 major banks and the 5-10 major securities firms, and possibly others, who play at least one significant role in at least one critical market.