Payment, Clearing, and Settlement Supervision

Title VIII of the Dodd-Frank Wall Street Reform and Consumer Protection Act establishes a framework for the Board of Governors of the Federal Reserve System, the CFTC, the SEC, and other agencies to impose and enforce risk management standards for designated "financial market utilities" and a broad range of "financial institutions" engaged in "systemically important" payment, clearing or settlement activities related to financial transactions.

Scope

A "financial market utility" manages or operates a multilateral system for transferring, clearing or settling payments, securities or other financial transactions (including funds transfers, securities contracts, forward contracts, repurchase agreements, swaps, foreign exchange contracts, and similar transactions) with or among financial institutions.

• "Financial institution" is defined broadly to include depository institutions, brokers and dealers, investment companies, investment advisers, insurance companies, futures commission merchants, and others subject to Commodity Exchange Act regulation, and other companies engaged in activities of a financial nature, but excludes certain regulated entities, including designated contract markets and clearing entities and national securities exchanges and associations.
• "Payment, clearing or settlement activity" generally means an activity by one or more financial institutions to facilitate the completion of financial transactions (excluding offering or selling a security and pre-trade or execution activity) and may include calculating and communicating unsettled transactions, netting, provision or maintenance of contract information, transmittal and storage of payment instructions, movement of funds, final settlement, and similar functions.

Designation of Utilities and Activities as Systemically Important

The Oversight Council is to designate financial market utilities and payment, clearing or settlement activities that are or are likely to become "systemically important," after notice and hearings involving the applicable utilities and financial institutions. Systemic importance depends on factors that include the effect of a failure on critical markets, financial institutions and the financial system. Once designated, entities and activities are referred to as "designated financial market utilities" and "designated activities." The Oversight Council may require utilities and financial institutions to provide information for assessing systemic importance.

Imposition of Risk Management Standards

The Board of Governors, the CFTC, and the SEC are to prescribe risk management standards to govern the designated financial market utilities' payment, clearing, and settlement operations and financial institutions' conduct of designated activities.

Regulatory Review of Rule Changes Proposed by Designated Utilities

A designated financial market utility is to give its primary supervisory agency advance notice of proposed changes to its own rules, procedures or operations that could materially affect the risks presented by the utility, under standards to be defined by regulations. Supervisory agencies, in consultation with the Board of Governors, may object to, and thus prohibit, such proposed changes.

Reporting by Designated Utilities and Financial Institutions

The Board of Governors and the Oversight Council may require designated financial market utilities, and financial institutions subjected to risk management standards, to provide reports and data related to assessment of systemic risks and other matters.

Federal Reserve Bank Services for Designated Utilities

The Board of Governors may authorize a Federal Reserve Bank to maintain accounts and provide certain services for designated financial market utilities, as with depository institutions. Under certain "unusual or exigent circumstances," it also may authorize a Federal Reserve Bank to advance funds to designated financial market utilities by providing access to discount window and borrowing privileges.

Examination and Enforcement

Supervisory agencies, in consultation with the Board of Governors, are to conduct annual examinations of designated utilities, and may conduct examinations of financial institutions subject to risk management standards, to determine, among other things, financial and operational risks to financial institutions, critical markets, and the financial system and legal compliance; they also may conduct examinations of affiliates or non-affiliates that perform integral services for designated utilities. Supervisory agencies and the Board of Governors are given broad powers, similar to federal banking agencies' powers with respect to depository institutions, to bring cease-and-desist, suspension, and other enforcement actions against the designated utilities or applicable financial institutions, or their affiliated persons, in the case of non-compliance, or unsafe or unsound practices by designated utilities.

Rulemaking

Extensive and coordinated rule-making by the Oversight Council, the Board of Governors, the CFTC, the SEC, and other regulatory agencies is contemplated to give effect to title VIII.