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Securities Law

NIN 95/22 - Release of IOSCO/BIS Joint Report on the Framework for Supervisory Information About the Derivatives Activities of Banks and Securities Firms [NIN - Rescinded]

Published Date: 1995-06-01
Effective Date: 1995-06-01
The British Columbia Securities Commission is publishing a press communiqué issued jointly by the Basle Committee on Banking Supervision and the Technical Committee of the International Organisation of Securities Commissions ("IOSCO"). The communiqué announces the publication of a joint report entitled Framework for supervisory information about the derivatives activities of banks and securities firms.

The purpose of the paper is to provide bank and securities firm regulators and self regulatory organisations with a framework for supervisory information about the derivatives activities of banks and securities firms. The Commission encourages industry participants to review and consider the framework set out in the paper.

A limited number of copies of the full report (44 pages) are available for pick-up from the Commission, upon request. Requests should be directed to:

Shandie Hertslet
Information Distribution Officer
1100 - 865 Hornby Street
Vancouver, British Columbia V6Z 2H4
Tel: (604) 660-4844
Fax: (604) 660-2688

DATED at Vancouver, British Columbia, on June 1, 1995.

Douglas M. Hyndman

May 16, 1995


The Basle Committee on Banking Supervision and the Technical Committee of the International Organisation of Securities Commissions (IOSCO) are issuing to bank and securities firm supervisors around the world a framework for supervisory information on the derivatives activities of banks and securities firms.

While derivatives activities generally involve risks to which banks and securities firms have been exposed through their traditional business, the rapid growth and complexity of these activities pose new challenges for firms and their supervisors. It is therefore important that both continue to improve their access to comprehensive and timely information on an institutions over-the-counter and exchange-traded derivatives activities, whereby derivatives activities are defined broadly to include related on-balance-sheet positions where appropriate.

The supervisory information framework advanced by the two Committees consists of two main parts. The first part presents a catalogue of data on derivatives activities - organised into four broad areas (credit risk, liquidity risk, marker risk, and earnings) - for supervisors to draw from as they expand and improve upon their reporting systems. The catalogue is intended to promote the development of more consistent approaches to evaluating derivatives risks among supervisors. In addition, it should promote further discussions between firms and their supervisors about the type of information on derivatives activities that an institution should have available as part of its overall risk management and control process. In this context, it is the aim of supervisors to draw as much as possible on information that institutions already produce internally.

In the second part of the document, the two Committees recommend that supervisors have available to them a minimum subset of the data identified in the catalogue for large, internationally active derivatives dealers. This minimum framework - which focuses on credit risk, market liquidity risk, and overall market activity - is intended to provide a baseline of information for supervisors to begin evaluating an institutions derivatives activities. Supervisors can then supplement the minimum framework with information drawn form the catalogue.

The overall information framework provides supervisors with the flexibility to assess information on institutions derivatives activities through various channels, including on-site examinations, regular discussions with firm management, reports submitted by external auditors, as well as standard reporting forms.

The Committees recognise that different institutional, accounting, and public policy approaches to supervision require that each supervisory authority have flexibility to implement the common minimum framework in a manner and according to a timetable best suited to its regulatory environment. Supervisory authorities may also wish to discuss with the industry in their own jurisdictions the arrangements for implementing the recommendations in the report.

The Committees note that the development of a supervisory information framework is an evolutionary process. In particular, the common minimum framework part of the document will require periodic revisions to ensure that it is consistent with national practices and market innovations. For example, the common minimum framework currently does not cover market risks. However, the Committees plan to address this issue at a later stage. The Committees also intend to review the framework in light of the planned efforts of the Group of Ten central banks to collect, on a regular basis, aggregate market data on the derivatives activities of financial institutions. Such co-ordination between banking and securities supervisors and central banks should minimise increases in reporting burden by avoiding inconsistencies and duplication in data collection.