Circular SINAP 1-38: Principles for Financial Market Infrastructures

"2015 - YEAR OF THE BICENTENNIAL OF THE CONGRESS OF THE FREE PEOPLES" COMMUNICATION "A" 5775 10/07/2015 TO FINANCIAL ENTITIES, TO ELECTRONIC CLEARING HOUSES, TO ATM NETWORK OPERATING COMPANIES:
Ref.: Circular
SINAP 1 - 38
Principles for Financial Market Infrastructures.

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We address you to inform you that this Institution has resolved the implementation of the Basic Principles for Financial Market Infrastructures (PFMIs), emanating from the Committee on Payments and Market Infrastructures (CPMI) of the Bank for International Settlements (BIS) and the International Organization of Securities Commissions (IOSCO). Regarding this, it has established the rules attached in the Annex with the aim of identifying weaknesses and opportunities for improvement and serving as tools to make the appropriate adjustments. With this objective, the following are included:

• The description of the periodic evaluation mechanism that the Central Bank of the Republic Argentina will develop for the financial market infrastructures under its supervision and oversight, with the objective of determining whether they constitute systemically important systems and, consequently, should be considered FMIs;

• the self-assessment, compliance, and disclosure procedure that FMIs must adopt in order to prevent risks and deepen their informational transparency; and

• the fundamental considerations of the PFMIs.
  We salute you attentively.
  CENTRAL BANK OF THE REPUBLIC OF ARGENTINA
  María Isabel Negueruela Luis Alberto D’ Orio
  Manager of Payment Systems Chief Manager of Payment Systems and Current Accounts
  ANNEX

• Index -
  Section 1. General Provisions
  1.1. Definitions
  1.2. Scope
  1.3. Compliance Criteria
  Section 2. Evaluation of Financial Market Infrastructures
  2.1. Criteria for the determination of systemically important payment systems (FMIs)
  2.2. Periodicity of the application of the criteria
  Section 3. Procedure for compliance with the "Principles for Financial Market Infrastructures" (PFMIs) by FMIs
  3.1. Self-assessment
  3.2. Compliance
  3.3. Disclosure
  Section 4. Fundamental Considerations of the PFMIs
  4.1. Legal soundness
  4.2. Good governance
  4.3. Framework for comprehensive risk management
  4.4. Credit risk
  4.5. Collateral
  4.6. Liquidity risk
  4.7. Finality of settlement (settlement finality)
  4.8. Monetary settlements
  4.9. Settlement of gross exchanges
  4.10. Rules and procedures
  4.11. General business risk
  4.12. Custody and investment risks
  4.13. Operational risk
  4.14. Access and participation criteria
  4.15. Multi-tier participation mechanisms
  4.16. Efficiency and effectiveness
  4.17. Communication procedures and standards
  4.18. Disclosure of rules, procedures, and key market data
  Section 5. Transitional Provisions
  B.C.R.A. Principles for Financial Market Infrastructures
  Annex to
  Comm. "A"

Section 1. General Provisions
1.1. Definitions
The following definitions emanating from the Committee on Payments and Market Infrastructures (CPMI) of the Bank for International Settlements (BIS) and the International Organization of Securities Commissions (IOSCO) are set out below, which will apply in this regulation:
1.1.1. Financial Market Infrastructure (FMI)
An FMI is a multilateral system that brings together participating institutions, including the system operator, with the purpose of clearing, and settling payments and securities. It can be administered by the Central Bank (BCRA) or by the private sector. Some FMIs are:

• systemically important payment systems (PS),
• central securities depositories (CSDs),
• securities settlement systems (SSSs),
• central counterparties (CCPs) and
• trade repositories (TRs)
  .
  1.1.2. Principles for Financial Market Infrastructures (PFMIs)
  International standards applicable to FMIs, developed by the Committee on Payments and Market Infrastructures (CPMI) of the BIS, and the International Organization of Securities Commissions (IOSCO), with the objective of preventing significant risks to the financial system and whose adoption was resolved by the Board of Directors of this BCRA for the FMIs under its orbit. The complete document from April 2012 can be consulted on the official BIS website.
  1.1.3. Disclosure Framework
  The form and content of the data to be disclosed by FMIs according to what is provided for in fundamental consideration 5 of Principle 23 and that were established in a complementary document by the CPMI and the IOSCO, with the objective of allowing participants, authorities, and the general public to compare different FMIs in a more accurate and precise manner. It uses the questions conceived for the evaluation methodology as a guide for a comprehensive disclosure of the risks of FMIs and their risk management practices and of other kinds. The specifications of the disclosure framework can be consulted in point 2 of the document from December 2012 which is located on the official BIS website.
  1.1.4. PFMIs Evaluation Methodology
  In English, BIS: Bank for International Settlements In English, FMI: Financial Market Infrastructure.
  In English, PS: Payment System, CSD: Central securities depositories, SSS: Securities Settlement System, CCP: Central Counterparties, TR: Trade Repositories.
  In English, PFMIs: Principles for Financial Market Infrastructures

Guide that allows evaluating the compliance of the principles applicable to FMIs, conceived by the CPMI and the IOSCO to assist authorities, international financial institutions, and the FMIs themselves to assess such compliance. The established mechanisms can be consulted in point 3 of the document from December 2012 which is located on the official BIS website.
1.2. Scope
1.2.1. This regulation applies to financial market infrastructures under the
supervision and oversight of the Central Bank of the Republic Argentina, hereinafter financial market infrastructures, which will be subject to evaluation by the Institution, with the aim of determining if they constitute systemically important systems as described in Section 2.
1.2.3 Those infrastructures that have been qualified by the Central Bank of the
Republic Argentina as systemically important systems, hereinafter, in function of this regulation, will be designated as FMIs, and must comply with the procedure established in Section 3 and the fundamental considerations of the PFMIs contained in Section 4., whose description is available for consultation in the document on PFMIs on the official BIS website.
1.3. Compliance Criteria
1.3.1. FMIs, in accordance with this regulation and other applicable provisions in the matter, will be subject to compliance with the following conditions that the Central Bank of the Republic Argentina establishes, within the framework of
its competence functions, in the form and by the means it deems appropriate:
1.3.1.1. The operating conditions and the necessary requirements for the development of the activity by the FMI.
1.3.1.2. The necessary provisions to make effective the control, oversight and
supervision regarding each FMI.
1.3.1.3. The inherent informational requirements.
1.3.1.4. Inspections. To this effect, it will be necessary that access to the premises where the activity takes place be facilitated to the acting inspectors immediately, after their identity has been verified. In the same way, access to their operation records must be facilitated.
1.3.1.5. Specific corrective measures determined in order to remedy
non-compliance situations by FMIs and/or prevent their repetition. In this order, it will impose sanctions appropriate to the nature of the non-compliances.
1.3.2. The provisions of this regulation are not substitutes for the specific requirements contained in other norms issued by the Central Bank of the Republic Argentina, and their compliance does not prevent FMIs from having to comply with
the norms and other precautions required by other competent authorities.

Section 2. Evaluation of Financial Market Infrastructures
2.1. Criteria for the determination of systemically important payment systems (FMIs)
2.1.1. Financial market infrastructures must meet the informational requirements established by the Central Bank of the Republic Argentina, destined to
the concreteness of the analysis and evaluation of their systemic importance, through the application of the criteria specified below.
2.1.2. Those that meet at least one of the following main guidelines may be recognized as systemically important systems:
2.1.2.1. Be the only payment system in the country (focused on the type of operation
it develops), or the main system (in terms of the total value of the payments).
2.1.2.2. Handle mainly high-value individual payments.
2.1.2.3. Be used for the settlement of operations in the financial system or
for the settlement of other Payment Systems or Securities Settlement Systems.
2.1.2.4. Be interconnected with other payment and/or securities settlement systems.
2.1.3. Additionally, those that meet at least two of the following guidelines may be considered systemically important systems:
2.1.3.5. High degree of market penetration given by:
a) Absence of alternative payment systems or mechanisms for the settlement of small payments. b) A market share greater than 50% of the corresponding retail market. c) Offering unique/relevant facilities in the retail sector, namely:
i) Critical services: taking into account the relevance of operations, processes, services that allow retail systems to be completed (settlement, clearing, registration, access means/channels) ii) Critical instruments: weighing the relevance of instruments that allow channeling retail systems.
2.1.3.6. A high level of aggregate financial risk: Processing more than 10% of the
gross domestic product value of the LBTR system.
2.1.3.7. Domino effect risk derived from:
a) Possessing a concentration ratio of 80% of the amounts in a market share of 5% of the main participants, or b) Significant net debtor positions, or c) Clearing ratio, equal to or less than 10%.
2.2. Periodicity of the application of the criteria.
2.2.1. The Central Bank of the Republic Argentina will evaluate financial market infrastructures, annually, or when significant changes occur in the
markets, systems, and/or in the volumes operated. With this objective, it will apply the criteria established in 2.1., and determine the FMIs that must comply with the procedure established in Section 3 and the fundamental considerations of the PFMIs contained in Section 4. Updates to the list of FMIs will be disclosed via Communication "B".

Section 3. Procedure for compliance with the "Principles for Financial Market
Infrastructures" (PFMIs) by FMIs
3.1. Self-assessment
3.1.1. FMIs must carry out their self-assessment with a minimum periodicity of two
years and whenever a significant change occurs in their systems, procedures or environment. Self-assessments must be available to be presented to the Payment Systems Management of the General Sub-Manager of Payment Means, at the time and by the means it determines and communicates.
3.1.2. For the evaluation of each principle, they must use as a guiding reference the questions specified in the "Evaluation Methodology" of the PFMIs and carry out
the following actions:
3.1.2.1. Gather for each principle the data to evaluate each applicable fundamental
consideration: for this, the guiding questions cited in 3.1.2. will be used, the same not constituting a mere exhaustive checklist, but they may add aspects they consider necessary to explain specific issues of each FMI.
3.1.2.2. Formulate key conclusions for each principle. These conclusions must:
i. Summarize the practices and achievements of the FMI, as appropriate.
ii. Identify any lack or deficiency that arises from the
data they have collected.
iii. Describe for each lack or deficiency any related issue or risk
as well as its implications for compliance with the principle.
iv. Determine for each lack or deficiency if it constitutes an area
for improvement based on the related issues and risks identified. By "area for improvement" is understood any lack related to risk management, deficiency or lack of transparency or effectiveness that must be addressed. Three categories of areas for improvement must be distinguished: (a) those that are serious and require immediate attention; (b) those that could become serious if not addressed without delay; and (c) those that must be addressed according to a certain time horizon.
3.1.2.3. Grant a rating for each principle, according to the following
parameters:
i. Complies: The detected shortcomings and deficiencies are of
minor nature and do not constitute areas for improvement, the FMI can address them during its usual activity.
ii. Generally complies: The evaluation has identified at least one
area for improvement that the FMI must address and follow according to a defined time horizon.

iii. Partially complies: The evaluation has identified at least one
area for improvement that could be serious if not addressed with urgency. The FMI must give high priority to its correction.
iv. Does not comply: The evaluation has identified at least one area of
serious improvement that requires immediate action, so the FMI must give maximum priority to its correction.
v. Not applicable: the principle is not applicable to the type of FMI
evaluated due to its specific characteristics of a legal, institutional or structural nature, or of another kind.
3.1.2.4. Indicate the appropriate time horizon to address each area for improvement.
3.1.3. The Central Bank of the Republic Argentina may require additional information
it deems pertinent and the corrections of the information it considers incomplete. It may also indicate that the ratings assigned in the self-assessments by FMIs be re-evaluated, notifying the aspects that merit a new analysis or correction, based on the requirements and standards imparted in the PFMIs.
3.2. Compliance
3.2.1. FMIs must carry out actions aimed at the compliance of their activity and operations according to the standards and guidelines proposed by the PFMIs, in
such a way as to align with the fundamental considerations of the PFMIs included in this regulation.
3.2.2. The Central Bank of the Republic Argentina may require FMIs, the information
and documentation it considers necessary to evaluate the concreteness of such compliance.
3.3. Disclosure
3.3.1. FMIs must publicly disclose the results of the evaluations
according to the guidelines established in the "Disclosure Framework" of the CPMI.
The information recorded must be updated whenever a significant change occurs in their systems, procedures or environment. Nevertheless, they must review and reformulate the answers to the guiding questions defined in said framework, with a minimum periodicity of two years.
3.3.2. The information to be disclosed must respect the bank secrecy provided for in articles
39 and 40 of Law 21.526 and in article 53 of Law 24.144 as well as personal data protected by Law 25.326 and, in that framework, it must contain:
3.3.2.1. The description of the functions of the FMI and of the markets in which
it operates, and basic data and statistical parameters about its services and activities.

3.3.2.2. The description of the general organization of the FMI, of its legal and
regulatory framework, and of the design of its system and its activities.
3.3.2.3. The synthetic disclosure of compliance for each applicable principle,
in a sufficiently detailed and contextualized manner so that each reader - regardless of their knowledge of the activity - can interpret and understand the manner in which the FMI observes each principle.
3.3.2.4. The summary of the most significant changes since the last disclosure.
3.3.2.5. The list feasible to be publicly disclosed of those resources used in their management that may contribute to the reader knowing the FMI and
understanding its approach when complying with each of the applicable principles.

Section 4. Fundamental Considerations of the PFMIs
4.1. Legal soundness
FMIs must have a legal basis that is well-founded, transparent and enforceable, and that covers each aspect of their activities in all relevant jurisdictions.
4.1.1. The legal basis must provide a high degree of certainty in each important
aspect of the activities of FMIs in all relevant jurisdictions.
4.1.2. FMIs must have operating rules adopted by the system operator and approved by the Central Bank of the Republic Argentina, having rules, procedures and contracts that are clear, enforceable in all
jurisdictions and consistent with relevant laws and regulations. This regulation must reflect the minimum policies for management, implementation and control of different risks and include the following aspects:
4.1.2.1. The procedures for the processing of payment orders, including the specification of the moment when the orders will be considered
accepted by the system and when they will be considered irrevocable.
4.1.2.2. The means for the control of settlement risks derived from the
orders accepted by the system, the regime applicable to the guarantees constituted, the mechanisms to be adopted in case of default and the causes for temporary and definitive exclusion of a participant from the system.
4.1.2.3. The technical and solvency requirements that participants must meet
and the mechanisms and instruments for resolving incidents and conflicts between participants.
4.1.3. FMIs must be able to clearly communicate the legal basis of their activities (applicable law, rules, procedures and contracts) to relevant authorities, to participants and, when appropriate, to the clients of participants, in a clear and understandable manner.
4.1.4. There must be a high degree of certainty that the measures adopted by FMIs,
by virtue of said rules and procedures, cannot be invalidated, reversed or suspended.
4.1.5. FMIs operating in multiple jurisdictions must identify and mitigate the
risks arising from any possible conflict between legislations of various jurisdictions.
4.2. Good governance
FMIs must have good governance mechanisms that are clear and transparent, that foster the safety and efficiency of each one, and that support the stability of the financial system in general, other relevant public interest considerations and the objectives of the corresponding stakeholders. In this sense, they must comply with the following requirements:

4.2.1. Have objectives that assign a high priority to the safety and efficiency of
the FMI and that explicitly support financial stability and other relevant public interest considerations.
4.2.2. Have documented good governance mechanisms that provide lines
direct and clear lines of responsibility and accountability. These mechanisms must be made known to relevant authorities, participants and, more generally and briefly, to the public.
4.2.3. Clearly specify the functions and responsibilities of the Governing Body and have documented processes about its functioning.
4.2.4. The composition of the Governing Body of FMIs must guarantee integrity and an adequate combination of technical skills, experience and knowledge, both about the functioning of the same as about the financial market
in general. Normally, this will imply the incorporation to the Governing Body of independent member(s).
4.2.5. The functions and responsibilities of Senior Management must be clearly specified, which must have the adequate experience, skills and integrity necessary to fulfill its responsibilities in relation to risk management and the functioning of each FMI.
4.2.6. The functions and responsibilities of Management must be clearly specified,
guaranteeing integrity and an adequate combination of technical skills, experience and knowledge, both about the functioning of the FMI as about the financial market in general, in such a way that it is qualified to fulfill its responsibilities regarding the functioning and risk management.
4.2.7. Senior Management management, under the direction of the Governing Body, must guarantee:
4.2.7.1. That the activities of the FMI are consistent with its objectives, strategy and risk tolerance;
4.2.7.2. That internal controls and related procedures are appropriately designed, executed and supervised in order to promote the
objectives of the operator of the systemically important payment system;
4.2.7.3. That related procedures are subject to periodic review and verification by internal audit and risk management functions, provided with adequate resources and with the necessary training;
4.2.7.4. Active participation in the risk control process;
4.2.7.5. That sufficient resources are assigned to the risk management framework.
4.2.8. The Governing Body will establish and supervise a documented risk management framework, which must include:
i. the risk tolerance policy of the FMIs;

ii. the responsibilities and accountability mechanisms for risk decisions;
iii. decision-making procedures in crisis and emergency situations;
iv. internal control functions.

4.2.9. The Governing Body shall define an information technology committee, describing in the respective regulations the treatment of the aspects indicated in point 4.2.8., in relation to this topic. The committee shall meet quarterly to carry out the assigned tasks and shall prepare a minutes (which shall be transcribed in a special book enabled for this purpose) incorporating the topics discussed at each meeting, as well as the points that will require subsequent follow-up, and it shall be sent to the Governing Body, or equivalent authority, for its knowledge at the first subsequent meeting of said body. Likewise, the following functions and responsibilities must be clearly specified in the regulations of the information technology committee:
i. monitor the proper functioning of the Information Technology environment;
ii. contribute to the improvement of its effectiveness;
iii. be informed of the Information Technology and Systems Plan, and in case there are comments regarding its nature, scope, and timeliness, the Committee must express them in a meeting;
iv. periodically evaluate the aforementioned plan and review its degree of compliance;
v. review the reports issued by audits related to the Information Technology and Systems environment, and ensure that the General Management executes corrective actions aimed at regularizing or minimizing the observed weaknesses; and
vi. maintain timely communication with the officials of the External Systems Audit Department of the Superintendence of Financial and Currency Entities, regarding the problems detected in the inspections carried out on the entity and with the monitoring of the actions taken for their solution.

4.2.10. The Governing Body shall ensure that the general strategy, rules, and main decisions of the FMI adequately reflect the interests of its participants and other relevant stakeholders.

4.2.11. Main decisions shall be clearly disclosed to relevant stakeholders and, when they entail a broad impact on the market, shall be disclosed to the public.

4.3. Framework for Comprehensive Risk Management

FMIs shall have a solid risk management framework to comprehensively manage legal, credit, liquidity, and operational risk, among others. To comply with this, FMIs shall:

4.3.1. Have policies, procedures, and risk management systems that allow them to identify, measure, monitor, and manage the range of risks that may arise in each FMI or are assumed by it. Risk management frameworks shall be subject to periodic reviews, at least annually. The risk management framework shall:
i. include the FMI's risk tolerance policy and appropriate risk management tools;
ii. clearly assign responsibility and accountability for risk decisions;

4.3.2. Offer incentives to participants and, where appropriate, to their clients to manage, reduce, and contain the risks that may entail for themselves.

4.3.3. Regularly review the significant risks to which it is exposed due to other entities and those that it represents for other entities (such as other FMIs, settlement banks, liquidity providers, and service providers) as a result of their interdependencies, and develop appropriate risk management tools.

4.3.4. Identify scenarios that could potentially prevent it from carrying out its activities and providing its critical services as a going concern and evaluate the effectiveness of a complete range of recovery or orderly liquidation options. Based on the results of such an evaluation, it shall prepare appropriate plans for its recovery or orderly liquidation. Where appropriate, FMIs shall provide authorities with the necessary information for the purpose of their dissolution planning. The recovery and orderly liquidation plan shall be reviewed at least annually.

4.3.6. Regarding potential risks inherent to information systems, information technology, and associated resources, the Governing Body shall be responsible for ensuring the implementation of mechanisms to control the degree of exposure to potential risks, as well as being primarily responsible for observing their continuous execution. In this order:

4.3.6.1. It shall have documentation confirming the risk analyses formally carried out on information systems, information technology, and their associated resources. These shall remain available for review by the External Systems Audit Department of the Superintendence of Financial and Currency Entities.

4.3.6.2. The results of the aforementioned analyses and their periodic updates must be formally reported to the Governing Body, which shall be primarily responsible for managing that weaknesses exposing the entity to high or unacceptable risk levels are corrected to acceptable levels.

4.4. Credit Risk

FMIs shall effectively measure, monitor, and manage their credit exposures vis-à-vis their participants and those arising from their own payment, clearing, and settlement processes. Likewise, they shall maintain sufficient financial resources to cover their credit exposure vis-à-vis each participant, in full value, with a high degree of confidence. In this order, they shall:

4.4.1. Have a solid framework to manage their credit exposures vis-à-vis their participants and the credit risks arising from their payment, clearing, and settlement processes. Credit exposure may arise from current exposures, future exposures, or both.

4.4.2. Identify the sources of credit risk, measure and monitor their credit exposures routinely, and use appropriate risk management tools to control these risks.

4.4.3. Cover their current exposures and, if they exist, their future exposures with respect to each participant, in full, and with a high degree of confidence, through guarantees and other equivalent financial resources.

4.4.4. Maintain, at a minimum, sufficient resources to cover the exposures of the two participants and their affiliates that would cause the greatest possible aggregate credit exposure in the system, in the case of deferred net settlement payment systems where settlement is not guaranteed but where their participants face credit exposures derived from their payment, clearing, and settlement processes.

4.4.5. Establish explicit rules and procedures that comprehensively address any credit loss that may be incurred as a result of a single or collective default among its participants, with respect to any of their obligations to the FMI. Such rules and procedures shall address how potential credit losses that have not been covered would be allocated, including the return of funds that may be obtained from liquidity providers. These rules and procedures shall also indicate the process adopted by the FMI to replenish any financial resource that may be employed during a stress event so that it can continue to operate in a solid and secure manner.

4.5. Collateral

FMIs that require collateral to manage their own credit exposure or that of their participants shall accept those that have low credit, liquidity, and market risk. Likewise, FMIs shall set and enforce appropriately conservative concentration limits and haircuts. In this regard, FMIs shall comply with the following obligations:

4.5.1. Establish and implement policies and procedures to monitor the credit quality, market liquidity, and price volatility of each asset accepted as collateral.

4.5.2. Supervise periodically, and at least annually, the adequacy of their valuation policies and procedures.

4.5.3. Establish prudent valuation practices and establish haircuts that are regularly tested and take into account market stress conditions. To reduce the need for procyclical adjustments, FMIs shall establish stable and conservative haircuts, calibrated to include periods of market stress conditions, to the extent possible and prudent.

4.5.4. Avoid the concentration of certain assets when this significantly impairs the ability to liquidate said assets quickly, without significant negative effects on prices.

4.5.5. Use a collateral management system that is well-designed and operationally flexible.

4.5.6. Those FMIs that accept cross-border collateral shall mitigate the risks associated with its use and ensure that such collateral can be used in a timely manner.

4.6. Liquidity Risk

FMIs shall effectively measure, control, and manage their liquidity risk. Likewise, they shall maintain in all relevant currencies sufficient liquid resources to effect settlements of their payment obligations on the same day and, where appropriate, intraday settlements, maintaining a high degree of confidence across a wide range of possible stress scenarios. Such scenarios shall include, without limitation, situations where the default of a participant and its affiliates resulted in the greatest aggregate liquidity need under extreme but feasible market conditions. To these ends, FMIs shall:

4.6.1. Have a solid framework to manage the liquidity risks of their participants, settlement banks, liquidity provider banks, custodian banks, liquidity providers, and other entities.

4.6.2. Have effective operational and analytical tools to identify, measure, and control their settlement and funding flows continuously and timely, including the use of intraday liquidity.

4.6.3. They may complement their admissible liquid requirements with other forms of liquid resources. If they do so, these liquid resources shall be assets that can be sold or accepted as collateral for ad hoc credit lines, swaps, or repos after a default occurs, even if they cannot be reliably pre-agreed or guaranteed under extreme market conditions. Even if the FMI does not have access to routine Central Bank financing, it shall take into account what collateral the latter usually accepts since such assets are more likely to be liquid in circumstances of market stress. FMIs shall not assume that they will have access to emergency credit offered by the Central Bank as part of their liquidity plan.

4.6.4. Obtain a high degree of confidence, through rigorous evaluation procedures, that each provider of the required admissible liquid resources, at a minimum, whether an FMI participant or an external party, has sufficient information to understand and manage the associated liquidity risks, and has the capacity to operate as required according to its commitment. If deemed appropriate to assess the reliability of a liquidity provider with respect to a specific currency, the potential access of the liquidity provider to credit provided by the issuing Central Bank may be taken into account. FMIs shall regularly test (at least annually) their procedures to access their liquid resources through the liquidity provider.

4.6.5. If it has access to accounts with the Central Bank, payment services, or securities services, use these services, whenever practical, to improve its liquidity risk management.

4.6.6. Determine the amount of its liquid resources and regularly test their sufficiency by conducting rigorous stress tests. For the performance of stress tests, FMIs shall consider a wide range of relevant scenarios. The scenarios shall include price volatilities at maximum historical levels, changes in other market factors such as, for example, price determinants and yield curves, multiple defaults across various time horizons, simultaneous pressures in asset and funding markets, and a range of future stress scenarios characterized by a series of extreme but feasible market conditions.

4.6.7. Have adequate good governance mechanisms regarding the amount and type of total liquid resources maintained and document the justification regarding this, evaluate its framing, and make adjustments to its management framework.

4.6.8. Establish explicit rules and procedures that allow it to effect settlements of its payment obligations on the same day and, where appropriate, intraday and multi-day settlements, according to the scheduled time after a single or collective default among its participants occurs. Such rules and procedures shall address unexpected and potentially uncovered liquidity deficits, and shall not include the need to reverse, revoke, or delay the settlement of payment obligations. These rules and procedures shall also indicate the process to be adopted by each FMI to replenish any liquidity resource that has been employed during a stress event, in such a way that it can continue to operate in a solid and secure manner.

4.7. Final Settlement (Settlement Finality)

4.7.1. The rules and procedures of FMIs shall clearly define the moment at which settlement is definitive.

4.7.2. FMIs shall complete definitive settlement no later than the end of the value date, and preferably shall effect intraday or real-time settlements, to reduce liquidity risk.

4.7.3. FMIs shall clearly define the moment from which payments, transfer instructions, or other obligations that have not yet been settled cannot be revoked by a participant.

4.8. Monetary Settlements

4.8.1. To avoid credit and liquidity risks, FMIs shall carry out their monetary settlements with Central Bank money whenever possible and this type of resource is available. Likewise, fund transfer orders shall be settled in a cash account at the Settlement Agent determined by the Central Bank of the Argentine Republic.

4.8.2. In case of not using Central Bank money, FMIs shall carry out their monetary settlements using a settlement asset with little or no credit and liquidity risk. Furthermore, they shall monitor, manage, and limit their credit and liquidity risks derived from commercial settlement banks. In particular, FMIs shall establish and monitor compliance, by their settlement banks, of strict criteria that take into account, among other aspects, their regulation and supervision, solvency, capitalization, access to liquidity, and operational reliability. FMIs shall also monitor and manage the concentration of credit and liquidity exposures of their commercial settlement banks.

4.8.4. In case an FMI carries out monetary settlements in its own books, it shall minimize and strictly control its credit and liquidity risks.

4.8.5. The legal agreements of FMIs with settlement banks shall clearly establish the moment when each settlement must be accounted for, as well as that transfers must be definitive when effected and that received funds shall be transferable as soon as possible, at least before the end of the day; although ideally it will be in intraday terms to allow FMIs and their participants to manage credit and liquidity risks.

4.9. Settlement of Value Exchanges

In the case that FMIs settle operations that could involve the settlement of two linked obligations (for example, foreign exchange or securities operations), they shall eliminate principal risk by conditioning the definitive settlement of one obligation to the definitive settlement of the other, regardless of whether the settlements were in gross or net terms and at the moment when the definitive settlement occurred.

4.10. Rules and Procedures

4.10.1. FMIs shall have effective and clearly defined rules and procedures to manage the default of a participant. Such rules and procedures shall be designed to ensure that FMIs take timely measures to contain losses and liquidity pressures, and can continue to meet their obligations.

4.10.2. A distinction shall be made between automatic and discretionary default. In the latter case, FMIs shall clearly specify which person or group may exercise that discretionary power. Such definition shall be reviewed, at least, annually.

4.10.3. The rules and procedures shall define, at a minimum, all of the following:
i. the actions that the FMI can take when a default occurs;
ii. whether such actions are automatic or discretionary and the means by which that discretionary power is exercised;
iii. possible changes in the FMI's usual practices that ensure timely settlement;
iv. the management of payments at different processing stages;
v. the probable sequence of actions;
vi. the functions, obligations, and responsibilities of stakeholders, including participants that have not defaulted;
vii. other mechanisms that should be activated to limit the impact of a default.

4.10.4. FMIs shall:

4.10.4.1. Involve their participants and other stakeholders in the reviews and tests of their procedures related to defaults, including position closure procedures. Such reviews and tests shall be carried out at least annually or after significant changes in rules and procedures occur to ensure that they are practical and effective.

4.10.4.2. Be properly prepared to implement their rules and procedures related to defaults, including the appropriate discretionary procedures contemplated in their rules. Senior management shall ensure that the FMI has the operational capacity, including sufficient personnel with adequate training, to implement the procedures according to the scheduled time. Likewise, it shall have internal plans that clearly delimit functions and responsibilities when addressing a default, and shall provide training and guidelines to its staff on how procedures shall be implemented. These plans shall address documentation, information needs, and coordination when more than one FMI or authority is involved.

4.10.4.3. Publicly disclose the key aspects of their rules and procedures related to defaults, such as:
i. the circumstances in which it is feasible that measures are taken;
ii. the person responsible for taking such measures;
iii. the scope of the measures that may be taken, including the management of positions, funds, and other assets of the FMI and clients;
iv. the mechanisms to address the FMI's obligations with respect to participants that do not incur a default;
v. when there are direct relationships with participants' clients, the mechanisms that contribute to addressing the obligations that, towards their clients, the participant that has incurred the default has.

4.11. General Business Risk

For the purpose of managing business risk, FMIs shall:

4.11.1. Have solid control and management systems that allow identifying, monitoring, and managing such risks, among which are included losses derived from poor execution of the business strategy, negative cash flows, or excessively high or unexpected operating expenses.

4.11.2. Maintain net liquid assets funded through their equity (such as through ordinary shares, declared reserves, or other accumulated earnings), so as to be able to continue operating and providing services as a going concern in the event of general business losses.
The amount of net liquid assets funded by FMIs through their equity shall be determined by their general business risk profile and by the time period necessary to achieve an orderly recovery or liquidation of their most important activities and services in the event that such measures are adopted.

4.11.3. Maintain a viable recovery or orderly liquidation plan and sufficient net liquid assets funded through their equity to implement this plan. As a minimum, FMIs shall maintain net liquid assets funded through their equity equivalent to at least six months of current operating expenses. These assets shall be in addition to the resources maintained to cover participant defaults or other risks covered under the principles relating to financial resources. However, to avoid being subject to duplicate capital requirements, where appropriate and relevant, the equity maintained under international risk-based capital standards shall be included.

4.11.4. Possess assets to cover this risk that are of high quality and sufficiently liquid to allow FMIs to meet their current and projected operating expenses under a wide range of scenarios, including adverse market conditions.

4.11.5. Have a viable plan to obtain additional capital in the event that their equity falls below the minimum necessary amount or is near that amount. Such plan shall be approved by the Governing Body and updated at least annually.

4.12. Custody and Investment Risks
FMIs shall be responsible for safeguarding their assets, such as cash funds or securities, as well as the assets provided to them by their participants.
Custody risk is the risk of loss of assets held in custody due to the insolvency, negligence, fraud, poor administration, or inadequate record-keeping of a custodian or sub-custodian. For the purposes of FMIs, they shall:

4.12.1. Make investments in instruments with minimal credit, market, and liquidity risks.

4.12.2. Have rapid access to their assets and to the assets provided by participants, when necessary.

4.12.3. Evaluate and understand the exposure derived from their relationship with their custodian banks, taking into account the full scope of the relationships they have with each of them. They shall thoroughly consider all relationships with their custodian banks, particularly to ensure that their overall exposure to a specific custodian remains within acceptable concentration limits.

4.12.4. Define an investment strategy, which shall be reviewed at least annually, consistent with their overall risk management strategy and communicated in full to their participants. These investments shall allow for rapid settlement with little (or no) adverse effect on prices and shall be secured by (or constitute rights against) high-quality debtors. FMIs shall establish criteria to define high-quality debtors.

4.13. Operational Risk
FMIs shall have a solid operational risk management framework that possesses timely systems, policies, procedures, and controls to identify, control, and manage operational risks. In this regard, systems, operational policies, procedures, and controls shall be reviewed, audited, and verified periodically and after significant changes occur. In this sense, FMIs shall:

4.13.1. Have clearly defined operational reliability objectives and have policies designed to achieve said objectives. These objectives and policies shall be reviewed at least annually.

4.13.2. Ensure that they have adequate flexible capacity to manage an increase in stress volumes and to achieve their service level objectives.

4.13.3. Have comprehensive physical and information security policies that address all potential vulnerabilities and threats. Such policies shall be reviewed at least annually.
In the management cycles of computer functions, planning, implementation, and continuous improvement of administration and control processes regarding the protection of information assets shall be considered.
According to the risks identified in strategic goals and plans, FMIs shall develop operational plans that contemplate the critical factors for effective control of applications along with the business activities that support them. These operational plans shall take into account the tasks to be performed with their corresponding time and resource allocation, priorities, and precedence of each of them. Likewise, in new computer projects, security requirements shall be contemplated from their initial stages, with the objective of ensuring the design and implementation of appropriate security controls and records, as well as the correct selection of technology that tends toward the comprehensive solution thereof.

4.13.4. Have a service continuity plan that addresses events that represent a significant risk of disruption to their activities, such as events that cause major or large-scale disruptions.
Such plan shall incorporate the use of a secondary site and shall be designed to ensure that critical information technology systems can resume activities within two hours after the occurrence of the aforementioned disruptions. The plan shall be designed to allow the FMI to complete settlement before the end of the day in which the disruptions or alterations occur, even in the event of extreme circumstances. FMIs shall test these mechanisms at least annually. The service continuity plan shall evidence that events that could cause interruptions in their critical processes have been identified. Likewise, said continuity plan shall consist of a written procedure, formally approved, to address the continuity of electronic data processing and related activities, in the event of contingencies or emergencies. The document shall be based on the same risk analysis carried out to determine the location of alternative processing facilities, stating all possible scenarios that would cause the plan to be activated.

4.13.5. Identify, monitor, and manage the risks that major participants, other FMIs, and service providers may pose to their activities. Likewise, they shall identify, control, and manage the risks that their activities may pose to other FMIs.

4.13.6. The Governing Body of each FMI shall clearly define the functions and responsibilities regarding operational risk and shall support its management framework.
It shall be responsible for ensuring that a risk assessment has been carried out to determine the impact of different events, both in terms of damage magnitude and the recovery period and return to normality.
These two activities shall be carried out with the active participation of the owners of business processes and resources. The assessment shall cover all business processes and shall not be limited only to information processing facilities, but also to all related resources. On the other hand, the results of the assessment shall serve as the basis for the selection of alternative recovery mechanisms and the adoption of preventive measures for the preparation of the data processing recovery and return to normality plan. Such results shall be formally approved and brought to the knowledge of the Governing Body and must be permanently available to be audited by the External Systems Audit Management of the Superintendence of Financial and Currency Entities.

4.14. Access and Participation Criteria
FMIs shall allow their direct participants and, where appropriate, their indirect participants and other FMIs, fair and open access to their services based on reasonable participation requirements based on risk. FMIs shall review their access criteria at least annually. To this end, they shall take into account the following mechanisms:

4.14.1. Participation requirements shall be justified in terms of security and efficiency for both the FMI and the markets to which they provide services. They shall be commensurate and proportional to the specific risks of the FMI and shall be publicly disclosed. Without prejudice to maintaining acceptable risk control standards, FMIs shall establish access requirements with the least restrictive impact possible, according to the circumstances.

4.14.2. Participation requirements shall be controlled continuously and with clearly defined procedures publicly disclosed to facilitate the suspension and orderly exit of a participant who infringes, or has ceased to comply with, the participation requirements. FMIs shall review said procedures at least annually.

4.15. Multi-tiered Participation Mechanisms
FMIs shall:

4.15.1. Ensure that their rules, procedures, and agreements will allow them to collect basic information on indirect participants for the purpose of identifying, controlling, and managing the significant risks to which each of them is exposed in relation to their multi-tiered participation mechanisms. This information shall, at a minimum, cover the following aspects:
i. the proportion of activity carried out by direct participants on behalf of indirect participants;
ii. the number of indirect participants through individual direct participants;
iii. the volumes or values of payments from each indirect participant;
iv. the volumes or values of payments corresponding to point 4.15.1iii., in proportion to those of the direct participant through which the indirect participant accesses the FMI.

4.15.2. Identify those significant dependencies between direct and indirect participants that could affect them.

4.15.3. Identify indirect participants that are responsible for a significant portion of processed operations as well as indirect participants whose values and volumes of operations are important in relation to the capacity of the direct participants through which they have access to the FMI, to manage the risks derived from these operations.

4.15.4. Regularly review, at least annually, the risks derived from multi-tiered participation mechanisms and take mitigation measures where appropriate.

4.16. Efficiency and Effectiveness
For the purpose of promoting their effectiveness and efficiency, FMIs shall:

4.16.1. Have a design that can satisfy the needs of their participants and of the markets to which they provide services, particularly in relation to their clearing and settlement mechanisms; operational structure; types of cleared, settled, or registered products; and the use of technologies and procedures.

4.16.2. Have clearly defined goals and objectives that are measurable and achievable.

4.16.3. Establish mechanisms for the periodic review, at least annually, of their efficiency and effectiveness.

4.16.4. Contemplate the following aspects for each of the resources involved in computer technology processes (data, application systems, technology, facilities, and personnel):
4.16.4.1. Effectiveness: the information and its related processes must be relevant and pertinent for the development of the activity. It must be presented correctly, coherently, completely, and in a timely manner.
4.16.4.2. Efficiency: the information process must be carried out through optimal use of resources.
4.16.4.3. Confidentiality: critical or sensitive information must be protected to prevent unauthorized use.
4.16.4.4. Integrity: refers to the accuracy that information must have, as well as its validity in accordance with the guidelines established by the entity and external regulations.
4.16.4.5. Availability: resources and information must be available in a timely manner.
4.16.4.6. Compliance: refers to compliance with internal standards and all laws and regulations to which financial entities are subject.
4.16.4.7. Reliability: systems must provide correct information to be used in the FMI's operations, in the presentation of financial reports to internal users, and to be delivered to the Central Bank of the Argentine Republic and other regulatory bodies.

4.17. Communication Procedures and Standards
FMIs shall use or, at a minimum, adapt to internationally accepted communication standards and procedures in order to facilitate the efficiency of payment, clearing, settlement, and registration processes.

4.18. Disclosure of Rules, Procedures, and Key Market Data
FMIs shall adopt comprehensive and clearly defined rules and procedures that shall be communicated in full to participants. Relevant rules and main procedures shall also be publicly disclosed.
Among the aspects to be disclosed to their participants are:
4.18.1. Clear descriptions of the system design and operations, as well as the rights and obligations of participants and the FMI.
4.18.2. All documentation that facilitates participants' understanding of the FMI's rules and procedures and the risks they face when participating. For these same purposes, they shall provide necessary and adequate training.
Among the aspects to be publicly disclosed are:
4.18.3. Their disaggregated fees at the level of individual services offered, as well as their policies on any available discounts.
4.18.4. A clear description of the prices of their services, for the purpose of being able to compare them.
4.18.5. Basic data on values and volumes of operations.
4.18.6. The results of the evaluations according to the guidelines established in the CPMI "Disclosure Framework" and the specifications of point 3.3 of this regulation.
The disclosure of rules and procedures shall respect the bank secrecy provided for in articles 39 and 40 of Law 21.526 and in article 53 of Law 24.144 as well as personal data protected by Law 25.326.

Section 5. Transitional Provisions
FMIs whose list has been disclosed as specified in point 2.2.1. shall have a period of 6 months to carry out the necessary adjustments aimed at the effective observance of the PIMFs and the considerations set forth in Section 4 of this regulation.