2019 - YEAR OF EXPORT

COMMUNICATION “A” 6731
03/07/2019

TO FINANCIAL INSTITUTIONS:

Ref.: Circular
SINAP 1 - 89

Principles for financial market infrastructures. Ordered text.

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We address you to send you the ordered text of the rules on “Principles for financial market infrastructures” which contains the provisions made known through Communication “A” 5775.

We greet you attentively.

CENTRAL BANK OF THE ARGENTINE REPUBLIC

Pablo García Arabehety
Luis D’ Orio
Payment Systems Manager
Principal Manager of Payment Systems and Cur- rent Accounts

ANNEX

B.C.R.A.
ORDERED TEXT OF THE RULES ON
“PRINCIPLES FOR FINANCIAL MARKET INFRASTRUCTURES”

-Index-

Section 1. General provisions.

1.1. Definitions.

1.2. Scope.

1.3. Observance criteria.

Section 2. Assessment of financial market infrastructures.

2.1. Criteria for determining 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 the FMIs.

3.1. Self-assessment.

3.2. Adequacy.

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. Final settlement (settlement finality).

4.8. Money settlements.

4.9. Settlement of value 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-level 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.

Correlation table.

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1.1. Definitions.

Below are the definitions issued by the Committee on Payments and Market Infrastructures (CPMI) of the Bank for International Settlements (BIS) and the International Organization of Securities Commissions (IOSCO), which will apply in these rules:

1.1.1. Financial market infrastructure (FMI).

An FMI is a multilateral system that brings together the participating institutions, including the operator of the system used, for the purpose of clearing, and settling payments and securities. It may be administered by the Central Bank of the Argentine Republic (BCRA) or by the private sector.

Some FMIs are:

• systemically important payment systems (PS),

• central securities depositories (CSD),

• securities settlement systems (SSS),

• central counterparties (CCP) and

• trade repositories (TR).

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 aim of preventing significant risks to the financial system and whose adoption was resolved by the BCRA Board for the FMIs under its purview. The complete document of April 2012 may be consulted on the official BIS website.

1.1.3. Disclosure framework.

Form and content of the data to be disclosed by the FMIs in accordance with the provisions of key consideration 5 of Principle 23 and which were established in a supplementary document by the CPMI and IOSCO, with the aim of enabling participants, authorities and the general public to compare different FMIs more accurately and precisely. It uses the questions designed for the assessment methodology as a guide for a complete disclosure of the risks of the FMIs and their risk management and other practices. The specifications of the disclosure framework may be consulted in point 2 of the December 2012 document found on the official BIS website.

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1.1.4. Assessment methodology of the PFMIs.

Guide that allows assessing compliance with the principles applicable to the FMIs, designed by the CPMI and IOSCO to assist authorities, international financial institutions and the FMIs themselves in assessing such compliance.

The established mechanisms may be consulted in point 3 of the December 2012 document found on the official BIS website.

1.2. Scope.

1.2.1. These regulations cover the financial market infrastructures under the BCRA's supervision and oversight, hereinafter financial market infrastructures, which shall be subject to assessment by the Institution, in order to determine whether they constitute systemically important systems as described in Section 2.

1.2.3 Those infrastructures that have been qualified by the BCRA as systemically important systems, hereinafter, under these regulations, shall be called FMIs, and must comply with the procedure established in Section 3. and the key 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. The FMIs, in accordance with these regulations and other applicable provisions on the matter, shall be subject to compliance with the following conditions that the BCRA establishes, within the framework of its functions, in the manner and by the means it deems appropriate:

1.3.1.1. The operating conditions and requirements necessary for the development of the activity by the FMI.

1.3.1.2. The provisions necessary to make effective the control, oversight and supervision of each FMI.

1.3.1.3. The inherent information requirements.

1.3.1.4. The inspections. For this purpose, access to the premises where the activity is carried out must be facilitated to the acting inspectors immediately, after their identity has been verified. Likewise, access to the records of their operations must be facilitated.

1.3.1.5. The specific corrective measures that it determines in order to remedy situations of non-compliance by the FMIs and/or prevent their repetition. Accordingly, it shall impose sanctions consistent with the nature of the non-compliances.

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1.3.2. The provisions of these regulations are not substitutes for the specific requirements contained in other rules issued by the BCRA, and their compliance does not prevent the FMIs from having to comply with the rules and other requirements demanded by other competent authorities.

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Section 2. Assessment of financial market infrastructures.

2.1. Criteria for the determination of systemically important payment systems (FMIs).

2.1.1. Financial market infrastructures must comply with the information requirements that the BCRA establishes, aimed at carrying out the analysis and assessment of their systemic importance, through the application of the criteria specified below.

2.1.2. Those that comply with 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 operations it develops), or the main system (in terms of the total value of payments).

2.1.2.2. Handle mainly high individual value payments.

2.1.2.3. Be used for the settlement of operations in the financial system or for the settlement of other Payment or Securities Settlement Systems.

2.1.2.4. Be interconnected with another payment and/or securities settlement system(s).

2.1.3. Additionally, those that comply with 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 of unique/relevant facilities in the retail sphere, namely:

    i) Critical services: taking into account the relevance of operations, processes, services that make it possible to carry out retail systems (settlement, clearing, registration, access means/channels),

    ii) Critical instruments: weighing the relevance of instruments that make it possible to channel retail systems.

2.1.3.6. A high level of aggregate financial risk: Processing more than 10 % of the aggregate value of the RTGS system.

2.1.3.7. Risk of domino effect derived from:

a) Having a concentration ratio of 80 % of the amounts in a market share of 5 % of the main participants, or

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PRINCIPLES FOR FINANCIAL MARKET INFRASTRUCTURES B.C.R.A.
Section 2. Assessment of financial market infrastructures.

b) Significant net debit positions, or

c) Clearing ratio, equal to or less than 10 %.

2.2. Periodicity of the application of the criteria.

2.2.1. The BCRA will assess the financial market infrastructures annually, or when significant changes occur in the markets, systems and/or in the volumes operated. To this end, it will apply the criteria established in point 2.1., and will determine the FMIs that must comply with the procedure established in Section 3. and the key considerations of the PFMIs contained in Section 4. Updates to the list of FMIs will be disclosed by Communication “B”.

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PRINCIPLES FOR FINANCIAL MARKET INFRASTRUCTURES B.C.R.A. Section 3. Procedure for compliance with the “Principles for Financial Market Infra- structures” (PFMIs) by FMIs.

3.1. Self-assessment.

3.1.1. FMIs must carry out their self-assessment at least every two years and whenever a significant change occurs in their systems, procedures or environment. The self-assessments must be available to be presented before the Payment Systems Management of the Deputy General Management of Payment Means, at the opportunity and by the means that it determines and communicates.

3.1.2. For the assessment of each principle, they must use as a guiding reference the questions specified in the “Assessment Methodology” of the PFMIs and carry out the following actions:

3.1.2.1. Gather for each principle the data to assess each applicable key consideration: for this purpose, the guiding questions cited in point 3.1.2. will be used, which do not constitute a mere exhaustive checklist, but may add aspects they consider necessary to explain specific issues of each FMI.

3.1.2.2. Formulate key conclusions for each principle. Such conclusions must:

i. Summarize the practices and achievements of the FMI, as appropriate.

ii. Identify any shortcoming or deficiency arising from the data they have collected.

iii. Describe for each shortcoming or deficiency any related issue or risk, as well as its implications for compliance with the principle.

iv. Determine for each shortcoming or deficiency whether it constitutes an area for improvement based on the related issues and risks identified. By “area for improvement” is understood any shortcoming 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. Assign a rating for each principle, according to the following parameters:

i. Compliant: the shortcomings and deficiencies detected are minor in nature and do not constitute areas for improvement, the FMI can address them in the course of its usual activity.

ii. Broadly compliant: the assessment has identified at least one area for improvement that the FMI must address and follow according to a defined time horizon.

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PRINCIPLES FOR FINANCIAL MARKET INFRASTRUCTURES B.C.R.A. Section 3. Procedure for compliance with the “Principles for Financial Market Infra- structures” (PFMIs) by FMIs.

iii. Partly compliant: the assessment has identified at least one area for improvement that could be serious if not addressed promptly. The FMI must give high priority to its rectification.

iv. Non-compliant: the assessment has identified at least one serious area for improvement that requires immediate action, so the FMI must give maximum priority to its rectification.

v. Not applicable: the principle is not applicable to the type of FMI assessed due to its specific legal, institutional or structural characteristics, or of another nature.

3.1.2.4. Indicate the appropriate time horizon to address each area for improvement.

3.1.3. The BCRA may request any additional information it deems pertinent and the corrections of any information it considers incomplete. It may also indicate that the ratings assigned in the self-assessments by the IMFs be reassessed, notifying the aspects that warrant a new analysis or their rectification, based on the requirements and standards set forth in the PIMFs.

3.2. Adequacy.

3.2.1. The IMFs must carry out the actions aimed at adapting their activity and operations in accordance with the standards and guidelines proposed by the PIMFs, so as to align with the fundamental considerations of the PIMFs included in these regulations.

3.2.2. The BCRA may request from the IMFs the information and documentation it deems necessary to assess the completion of such adaptations.

3.3. Disclosure.

3.3.1. The IMFs must publicly disclose the results of the assessments in accordance with the guidelines established in the CPMI's "Disclosure Framework". The information provided must be updated whenever a significant change occurs in their systems, procedures or environment. However, they must review and reformulate the answers to the guiding questions defined in said framework, at least every two years.

3.3.2. The information to be disclosed must respect the banking 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, within that framework, must contain:

3.3.2.1. The description of the functions of the IMF and of the markets in which it operates, and basic data and statistical parameters on its services and activities.

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PRINCIPLES FOR FINANCIAL MARKET INFRASTRUCTURES B.C.R.A. Section 3. Procedure for compliance with the "Principles for Financial Market Infra- structures" (PIMFs) by the IMFs.

3.3.2.2. The description of the general organization of the IMF, of its legal and regulatory framework, and of the design of its system and its activities.

3.3.2.3. The summary disclosure of compliance for each applicable principle, in sufficient detail and context so that each reader –regardless of their knowledge of the activity– can interpret and understand the manner in which the IMF 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 its management that may help the reader to know the IMF and understand its approach when complying with each of the applicable principles.

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4.1. Legal soundness.

The IMFs must have a legal basis that is well founded, transparent and enforceable, and that covers every aspect of their activities in all relevant jurisdictions.

4.1.1. The legal basis must provide a high degree of certainty in every important aspect of the IMFs' activities in all relevant jurisdictions.

4.1.2. The IMFs must have operating rules adopted by the system administrator and approved by the BCRA, with rules, procedures and contracts that are clear, enforceable in all jurisdictions and consistent with the relevant laws and regulations. Such regulations must set forth the minimum policies for the management, implementation and control of the 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 at which the orders will be considered accepted by the system and at which they will be considered irrevocable.

4.1.2.2. The means for controlling the settlement risks arising from the orders accepted by the system, the regime applicable to the collateral provided, the mechanisms to be adopted in the event of default and the causes for temporary and permanent 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 among participants.

4.1.3. The IMFs must be able to clearly communicate the legal basis of their activities (applicable law, rules, procedures and contracts) to the relevant authorities, to the participants and, where appropriate, to the participants' customers, in a clear and understandable manner.

4.1.4. There must be a high degree of certainty that the measures adopted by the IMFs, under said rules and procedures, cannot be invalidated, reversed or suspended.

4.1.5. IMFs that operate in multiple jurisdictions must identify and mitigate the risks arising from any possible conflict between the laws of different jurisdictions.

4.2. Good governance.

The IMFs 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 that regard, they must comply with the following requirements:

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4.2.1. Have objectives that assign a high priority to the safety and efficiency of the IMF and that explicitly support financial stability and other relevant public interest considerations.

4.2.2. Have documented good governance mechanisms that provide clear and direct lines of responsibility and accountability. These mechanisms must be made known to the relevant authorities, the participants and, more generally and in abbreviated form, to the public.

4.2.3. Clearly specify the functions and responsibilities of the Board of Directors and have documented processes regarding its operation.

4.2.4. The composition of the Board of Directors of the IMFs must guarantee integrity and an adequate combination of technical skills, experience and knowledge, both regarding their operation and the financial market in general. Normally, this will imply the incorporation of independent member(s) to the Board of Directors.

4.2.5. The functions and responsibilities of Senior Management must be clearly specified, and it must have adequate experience, skills and the necessary integrity to fulfill its responsibilities in relation to risk management and the operation of each IMF.

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 regarding the operation of the IMF and the financial market in general, in such a way that it is qualified to fulfill its responsibilities regarding operation and risk management.

4.2.7. The management of Senior Management, under the direction of the Board of Directors, must guarantee:

4.2.7.1. That the IMF's activities 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 systemically important payment system operator;

4.2.7.3. That the related procedures are subject to periodic review and verification by internal audit and risk management functions, provided with adequate resources and necessary training;

4.2.7.4. Active participation in the risk control process; and

4.2.7.5. That sufficient resources are allocated to the risk management framework.

4.2.8. The Board of Directors shall establish and supervise a documented risk management framework, which must include:

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i. the risk tolerance policy of the IMFs;

ii. the responsibilities and accountability mechanisms for risk decisions;

iii. decision-making procedures in crisis and emergency situations and

iv. internal control functions.

4.2.9. The Board of Directors must 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 must meet quarterly in order to carry out the assigned tasks and must prepare minutes (which will be transcribed in a special book enabled for that purpose) in which the topics discussed at each meeting are incorporated, as well as the points that will require subsequent follow-up, and it will be sent to the Board of Directors, or equivalent authority, for its acknowledgment 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 improving its effectiveness;

iii. become aware of the Information Technology and Systems Plan, and if there are comments regarding its nature, scope and timeliness, the Committee must state them at a meeting;

iv. periodically evaluate the aforementioned plan and review its degree of compliance;

v. review the reports issued by the audits related to the Information Technology and Systems environment, and ensure that the General Management executes corrective actions aimed at regularizing or minimizing the weaknesses observed; and

vi. maintain timely communication with the officials of the External Systems Audit Management of the Superintendency of Financial and Exchange Entities (SEFyC), in relation to the problems detected in the inspections carried out at the entity and with the monitoring of the actions taken for their solution.

4.2.10.The Board of Directors must guarantee that the general strategy, rules and main decisions of the IMF adequately reflect the interests of its participants and other relevant stakeholders.

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

4.3. Framework for comprehensive risk management.

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The IMFs must have a solid risk management framework to comprehensively manage risks: legal, credit, liquidity and operational, among others. To comply with this, the IMFs must:

4.3.1. Have risk management policies, procedures and systems that allow them to identify, measure, monitor and manage the range of risks that could arise in each IMF or that are assumed by it. Risk management frameworks must be subject to periodic reviews, at least annually. The risk management framework must:

i. include the IMF's risk tolerance policy and adequate risk management tools; and

ii. clearly assign responsibility and accountability for risk decisions.

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

4.3.3. Regularly review the important 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 its interdependencies, and develop adequate 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 assess the effectiveness of a complete range of recovery or orderly liquidation options. In accordance with the results of said assessment, it must prepare adequate plans for its recovery or orderly liquidation. Where appropriate, the FMIs must provide the authorities with the necessary information for the purposes of planning their dissolution. The recovery and orderly liquidation plan shall be reviewed at least annually.

4.3.6. Regarding potential risks inherent in information systems, computer technology and associated resources, the Board of Directors shall be responsible for arranging the implementation of mechanisms to control the degree of exposure to potential risks, and shall also be primarily responsible for ensuring their continuous execution. In that order:

4.3.6.1. It shall have documentation evidencing the risk analyses formally carried out on information systems, information technology and their associated resources. The same shall remain available for review by the SEFyC's External Systems Audit Management.

4.3.6.2. The results of the aforementioned analyses and their periodic updates must be formally reported to the Administrative Body, which will be primarily responsible for managing the correction of weaknesses that expose the entity to high or unacceptable risk levels to acceptable levels.

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4.4. Credit risk.

IMFs shall effectively measure, monitor and manage their credit exposures to 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 to each participant, at its full value, with a high degree of confidence. To that end, they shall:

4.4.1. Have a robust framework for managing their credit exposures to 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, routinely measure and monitor their credit exposures, and use appropriate risk management tools to control these risks.

4.4.3. Cover their current and, where applicable, future exposures with respect to each participant, in their entirety, and with a high degree of confidence, through collateral and other equivalent financial resources.

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

4.4.5. Establish explicit rules and procedures that comprehensively address any credit loss that may be faced as a result of a single or collective default among their participants, with respect to any of their obligations to the IMF. 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 that the IMF adopts to replenish any financial resource it may employ during a stress event so that it can continue to operate in a robust and safe manner.

4.5. Collateral.

IMFs that require collateral to manage their own credit exposure or that of their participants shall accept those with low credit, liquidity and market risk. Likewise, IMFs shall set and enforce duly conservative concentration limits and price haircuts. In this regard, IMFs 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.

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4.5.2. Periodically, and at least annually, supervise 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, IMFs 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 such assets quickly, without significant adverse effects on prices.

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

4.5.6. IMFs 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.

IMFs shall effectively measure, control and manage their liquidity risk. Likewise, they shall maintain sufficient liquid resources in all relevant currencies to make same-day settlements of their payment obligations and, where appropriate, intraday settlements, maintaining a high degree of confidence across a wide range of possible stress scenarios. Such scenarios shall include, without being limited to, situations in which the default of a participant and its subsidiaries results in the greatest aggregate liquidity need within a framework of extreme but feasible market conditions. To these ends, IMFs shall:

4.6.1. Have a robust framework for managing 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 continuously and timely identify, measure and control their settlement and funding flows, including the use of intraday liquidity.

4.6.3. They may supplement their admissible liquid requirements with other forms of liquid resources. In the event of doing so, these liquid resources shall be assets that can be sold or accepted as collateral for credit lines, swaps or ad hoc repos after a default occurs, even if they cannot be pre-agreed or reliably collateralized under extreme market conditions.

Even if the IMF does not have access to routine financing from the BCRA, it shall take into account the collateral that the BCRA usually accepts, since it is more likely that such assets will be liquid under market stress conditions. IMFs shall not assume that they will have access to the emergency credit offered by the BCRA as part of their liquidity plan.

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4.6.4. Obtain a high degree of confidence, through rigorous assessment procedures, that each provider of the required eligible liquid resources, at a minimum, whether a participant of the IMF or an external party to it, has sufficient information to understand and manage the associated liquidity risks, and has the capacity to operate as required in accordance with its commitment. Where it is considered 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 BCRA of issue may be taken into account. IMFs shall test regularly (at least annually) their procedures for accessing their liquid resources through the liquidity provider.

4.6.5. If it has access to accounts with the BCRA, payment services or securities services, use these services, whenever practicable, to improve its management of liquidity risk.

4.6.6. Determine the amount of its liquid resources and regularly test their sufficiency by conducting rigorous stress tests. For the purpose of conducting stress tests, IMFs shall consider a wide range of relevant scenarios. Scenarios shall include price volatilities at historical peak 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 plausible market conditions.

4.6.7. Have adequate good governance mechanisms in relation to the amount and type of total liquid resources held and document the justification thereof, assess its framework and make adjustments to its management framework.

4.6.8. Establish explicit rules and procedures that allow it to settle its payment obligations on the same day and, where appropriate, intraday and multi-day settlements, in accordance with the period provided after a single or collective default occurs among its participants. Such rules and procedures must address unforeseen and potentially uncovered liquidity shortfalls, and must not include the need to reverse, revoke or delay the settlement of payment obligations. These rules and procedures must also indicate the process to be adopted by each FI to replenish any liquidity resource used during a stress event, so that it can continue operating in a sound and safe manner.

4.7. Final settlement (settlement finality).

4.7.1. The rules and procedures of FIs must clearly define the moment at which settlement is final.

4.7.2. FIs must complete final settlement no later than the end of the value date, and preferably should effect intraday or real-time settlements, to reduce liquidity risk.

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4.7.3. FIs must 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, FIs must carry out their monetary settlements with BCRA money whenever possible and this type of resource is available. Likewise, funds transfer orders must be settled in a cash account at the Settlement Agent determined by the BCRA.

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

4.8.4. If an FMI carries out cash settlements on its own books, it must minimize and strictly control its credit and liquidity risks.

4.8.5. The legal agreements of FMIs with settlement banks must clearly establish the time at which each settlement must be recorded, as well as that transfers must be final when made and that funds received must be transferable as soon as possible, at a minimum before the end of the day; although ideally on an intraday basis in order to allow FMIs and their participants to manage credit and liquidity risks.

4.9. Settlement of exchange-for-value transactions.

If FMIs settle transactions that could involve the settlement of two linked obligations (for example, foreign exchange or securities transactions), they must eliminate principal risk by conditioning the final settlement of one obligation on the final settlement of the other, regardless of whether the settlements are on a gross or net basis and of the time at which final settlement occurs.

4.10. Rules and procedures.

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

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

4.10.3. The rules and procedures must define, at a minimum, all of the following:

i. the actions the FMI may take when 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 the different stages of processing;

v. the likely sequence of actions;

vi. the roles, obligations and responsibilities of interested parties, including non-defaulting participants; and

vii. other mechanisms that should be activated to limit the impact of a default.

4.10.4. FMIs must:

4.10.4.1. Involve their participants and other interested parties in the reviews and tests of their default procedures, including close-out procedures. Such reviews and tests must be carried out at least annually or after significant changes occur in the rules and procedures to ensure that they are practical and effective.

4.10.4.2. Be duly prepared to implement their default rules and procedures, including the appropriate discretionary procedures contemplated in their rules. Senior management must ensure that the FMI has the operational capacity, including sufficient staff with adequate training, to implement the procedures within the expected timeframe. It must also have internal plans that clearly define the roles and responsibilities when addressing a default, and will provide training and guidance to its staff on how the procedures should be implemented. These plans must 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 default rules and procedures, such as:

i. the circumstances in which action is likely to be taken;

ii. the party responsible for taking such action;

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iii. the scope of the measures that may be taken, including the management of positions, funds and other assets of the FMI and of clients;

iv. the mechanisms for addressing the FMIs' obligations with respect to non-defaulting participants; and

v. where there are direct relationships with participants' clients, the mechanisms that help address the obligations that the defaulting participant has toward its clients.

4.11. General business risk.

For the purposes of managing business risk, FMIs must:

4.11.1. Have sound control and management systems that make it possible to identify, monitor and manage such risks, including losses arising from poor execution of the business strategy, negative cash flows or excessively high or unforeseen operating expenses.

4.11.2. Maintain liquid net assets funded through their equity (such as through ordinary shares, declared reserves or other retained 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 liquid net assets financed by the FMIs through their net equity must be determined by their overall business risk profile and by the period of time 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 liquid net assets financed through their net equity to implement this plan. At a minimum, the FMIs must maintain liquid net assets financed through their net equity equivalent to current operating expenses for at least six months. These assets must be additional to the resources maintained to cover participant defaults or other risks covered under the principles relating to financial resources. However, in order not to be subject to duplicate capital requirements, where appropriate and relevant, net 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 enable the 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 net equity falls below the minimum required amount or is close to that amount. Said plan must be approved by the Board of Directors and updated at least annually.

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4.12. Custody and investment risks.

The 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 insolvency, negligence, fraud, poor administration or inadequate record-keeping by a custodian or sub-custodian. For these purposes, the FMIs must:

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 arising from the relationship with their custodian banks, taking into account the full scope of the relationships they have with each of them. They must comprehensively consider all relationships with their custodian banks in particular to ensure that their overall exposure to a specific custodian remains within acceptable concentration limits.

4.12.4. Define an investment strategy, which must be reviewed at least annually, consistent with their overall risk management strategy and communicate it fully to their participants. These investments must allow rapid liquidation with little (or no) adverse effect on prices and must be guaranteed by (or constitute rights over) high-quality debtors. The FMIs must establish the criteria for defining high-quality debtors.

4.13. Operational risk.

The FMIs must have a robust operational risk management framework that possesses appropriate systems, policies, procedures and controls to identify, control and manage operational risks. In this regard, the systems, operational policies, procedures and controls must be reviewed, audited and tested periodically and after significant changes occur in them. In this sense, the FMIs must:

4.13.1. Have clearly defined operational reliability objectives and have policies that are designed to achieve said objectives. Said objectives and policies must 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 must be reviewed at least annually.

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In the management cycles of IT functions, planning, implementation and continuous improvement of the administration and security control processes for the protection of information assets must be considered.

In accordance with the risks identified in the strategic goals and plans, the FMIs must prepare operational plans that contemplate the critical factors for effective control of applications together with the business activities they support. Said operational plans shall take into account the tasks to be carried out with their corresponding allocation of times and resources, the priorities and the precedence of each of them.

Likewise, in new IT projects, security requirements must be contemplated from their initial stages, with the aim of ensuring the design and implementation of appropriate security controls and records, as well as the correct selection of technology that tends toward a 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 significant or large-scale disruptions.

Said plan must incorporate the use of a secondary site and must be designed to ensure that critical IT systems can resume activities within two hours after the occurrence of the disruptions in question.

The plan must be designed to allow the FMI to complete settlement before the end of the day on which the disruptions or alterations occur, even in the event of extreme circumstances. FMIs must test these mechanisms at least annually.

The business continuity plan must demonstrate that the events that could cause interruptions in its critical processes have been identified.

Likewise, said business continuity plan must consist of a formally approved written procedure to address the continuity of electronic data processing and related activities in the event of contingencies or emergencies.

The document must be based on the same risk analysis carried out to determine the location of the alternative processing facilities, setting out 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 must identify, control and manage the risks that their activities may pose to other FMIs.

4.13.6. The Board of Directors of each FMI must clearly define the functions and responsibilities in relation to operational risk and must support its management framework.

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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 magnitude of damage and the recovery period and return to normal operations.

These two activities must be carried out with the active participation of the owners of business processes and resources. The assessment must cover all business processes and must not be limited only to information processing facilities, but also to all related resources. On the other hand, the results of the assessment must support the selection of alternative recovery mechanisms and the adoption of preventive measures for the preparation of the data processing recovery and return-to-normal plan. Said results shall be formally approved and acknowledged by the Board of Directors and must be permanently available to be audited by the External Systems Audit Management of the SEFyC.

4.14. Access and participation criteria.

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

4.14.1. Participation requirements must be justified in terms of safety and efficiency both for the FMI and for the markets to which it provides services. They must be consistent and proportionate to the specific risks of the FMI and must be publicly disclosed. Without prejudice to maintaining acceptable risk control standards, FMIs must establish access requirements with the least restrictive impact possible, in accordance with the circumstances.

4.14.2. Participation requirements must be monitored continuously and with clearly defined and publicly disclosed procedures to facilitate the suspension and orderly exit of a participant that breaches, or has ceased to meet, the participation requirements. FMIs must review said procedures at least annually.

4.15. Tiered participation mechanisms.

FMIs must:

4.15.1. Ensure that their rules, procedures and agreements allow them to gather basic information on indirect participants for the purposes of identifying, controlling and managing the significant risks faced by each of them in relation to their tiered participation mechanisms. This information must, at a minimum, cover the following aspects:

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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 4.15.1.iii., 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 the indirect participants that are responsible for a significant part of the processed operations, as well as the indirect participants whose values and volumes of operations are significant in relation to the capacity of the direct participants through which they have access to the FMI, in order to manage the risks arising from these operations.

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

4.16. Efficiency and effectiveness.

In order to promote their effectiveness and efficiency, FMIs must:

4.16.1. Have a design that can meet the needs of their participants and the markets to which they provide services, in particular, in relation to their clearing and settlement mechanisms; operational structure; types of products cleared, settled or recorded; 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. Consider the following aspects for each of the resources involved in the information technology processes (data, application systems, technology, facilities and people):

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 in a correct, coherent, complete manner and be usable in a timely manner.

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4.16.4.2. Efficiency: the information process must be carried out through an optimal use of resources.

4.16.4.3. Confidentiality: critical or sensitive information must be protected in order to prevent its unauthorized use.

4.16.4.4. Integrity: refers to the accuracy that the information must have, as well as its validity in accordance with the guidelines set by the entity and external regulations

4.16.4.5. Availability: resources and information must be available in a timely manner and in due form.

4.16.4.6. Compliance: refers to compliance with internal rules 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 operations of the IMF, in the presentation of financial reports to internal users and to be delivered to the BCRA and other regulatory bodies.

4.17. Communication procedures and standards.

The IMFs must use or, at a minimum, adapt to internationally accepted communication standards and procedures in order to facilitate the efficiency of payment, clearing, settlement and recording processes.

4.18. Disclosure of rules, procedures and key market data.

The IMFs must adopt comprehensive and clearly defined rules and procedures that they must communicate in full to the participants. The relevant rules and main procedures must also be publicly disclosed.

Among the aspects to be disclosed to their participants are:

4.18.1. Clear descriptions of the design and operations of the system, as well as the rights and obligations of the participants and of the IMF.

4.18.2. All documentation that facilitates the participants' understanding of the rules and procedures of the IMF and the risks they face when participating in them. For these purposes, they must provide the necessary and adequate training.

Among the aspects to be publicly disclosed are:

4.18.3. Its fees broken down at the level of the individual services it offers, as well as its policies on any available discount.

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4.18.4. A clear description of the prices of its services, in order to be able to compare them.

4.18.5. Basic data on securities and transaction volumes.

4.18.6. The results of the assessments according to the guidelines established in the CPMI “Disclosure Framework” and the specifications of point 3.3.

The disclosure of rules and procedures must respect banking 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.

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PRINCIPLES FOR FINANCIAL MARKET INFRASTRUCTURES B.C.R.A.
Section 5. Transitional provisions.

The IMFs 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 tending to the effective observance of the PFMIs and of the considerations set forth in Section 4.

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B.C.R.A.
ORIGIN OF THE PROVISIONS CONTAINED IN THE RULES ON “PRIN- CIPLES FOR FINANCIAL MARKET INFRASTRUCTURES”

CENTRAL BANK
OF THE ARGENTINE REPUBLIC

CONSOLIDATED TEXT			ORIGINATING RULE						OBSERVATIONS
Sect.	Point	Para.	Com.	Annex	Chap.	Sect.	Point	Para.
	1.1.		“A” 5775
1.	1.2.		“A” 5775
	1.3.		“A” 5775
	2.1.		“A” 5775
2.	2.2.		“A” 5775
	3.1.		“A” 5775
3.	3.2.		“A” 5775
	3.3.		“A” 5775
	4.1.		“A” 5775
	4.2.		“A” 5775
	4.3.		“A” 5775
	4.4.		“A” 5775
	4.5.		“A” 5775
	4.6.		“A” 5775
	4.7.		“A” 5775
	4.8.		“A” 5775
	4.9.		“A” 5775
	4.10.		“A” 5775
	4.11.		“A” 5775
	4.12.		“A” 5775
	4.13.		“A” 5775
	4.14.		“A” 5775
	4.15.		“A” 5775
	4.16.		“A” 5775
	4.17.		“A” 5775
4.	4.18.		“A” 5775
5.			“A” 5775