Supervision and Oversight of Financial Market Infrastructures
Reserve Bank Systems
Under the Federal Reserve Act, the Board has broad and comprehensive supervisory authority over the Reserve Banks, including the Reserve Banks' provision of payment and settlement services. The Board recognizes the critical role these services, particularly the Fedwire Services, play in the financial system and is committed to strong and effective supervision of these services that is comparable to, or exceeds, the requirements placed on similar private-sector payment and settlement systems. The Board exercises this oversight in three ways – application of robust risk management standards; a rigorous examination process; and review of key strategic initiatives, prices and service terms, proposed material changes, and ongoing operations.
The Federal Reserve Policy on Payment System Risk (PSR policy), which incorporates international risk-management standards for payment, clearing, settlement, and recording systems, applies to both Reserve Bank and certain private-sector systems. The risk-management standards in the PSR policy also are consistent with those in Regulation HH, which apply to payment, clearing and settlement systems (also known as financial market utilities, or FMUs) designated as systemically important by the Financial Stability Oversight Council and for which the Board has standard-setting authority under Title VIII of the Dodd-Frank Act. The Board expects the Fedwire Services to meet or exceed the standards set forth in the PSR policy. In addition, the Board expects the Reserve Banks to prepare and update regularly comprehensive public disclosures of the legal, governance, risk management, and operating framework for the Fedwire Services, including descriptions of how these systems meet each of the applicable international standards.1 These disclosures are consistent with the disclosure framework set forth in the CPSS-IOSCO Principles for Financial Market Infrastructures: Disclosure Framework and Assessment Methodology .
The Board conducts regular examinations of the Reserve Banks’ Fedwire Services covering, among other things, key aspects of the PSR policy standards, and it regularly monitors the Fedwire Services operations and initiatives through reports, discussions with Reserve Bank management, and its oversight liaison roles on various Reserve Bank management groups. The Board also ensures that its Fedwire Services examination process is consistent with the framework that will be used by Federal Reserve supervisors for designated FMUs.
The Board also ensures that the Reserve Banks are held to procedural requirements with respect to Board review of proposed material changes to Fedwire Services rules, procedures, and operations that are the same as, or higher than, the requirements for designated FMUs supervised by the Board. For example, the Board establishes the key rules governing the Fedwire Funds Service (in its Regulation J, subpart B) and reviews all changes to the Reserve Banks’ operating circulars. The Board approves the Reserve Banks’ budgets, including budgets related to the Fedwire Services, and approves major strategic initiatives. The Board approves and publishes Fedwire Services pricing and monitors the Reserve Banks’ ongoing compliance with the cost-recovery requirements of the Monetary Control Act.
1. The first public disclosure for each of these services will be published by December 31, 2015, consistent with the expectations set forth in the PSR policy. See the Fedwire Funds Service assessment and the Fedwire Securities Service assessment against the previous international standards. Return to text.