Report of

the Committee on Interbank Netting Schemes of the Central Banks of

the Group of Ten countries


Lamfalussy Report


November 1990



Minimum standards for the design and operation of cross-border and multi-currency netting and settlement schemes



I.        Netting schemes should have a well-founded legal basis under all relevant jurisdictions.



II.     Netting scheme participants should have a clear understanding of the impact of the particular scheme on each of the financial risks affected by the netting process.



III.   Multilateral netting systems should have clearly-defined procedures for the management of credit risks and liquidity risks which specify the respective responsibilities of the netting provider and the participants. These procedures should also ensure that all parties have both the incentives and the capabilities to manage and contain each of the risks they bear and that limits are placed on the maximum level of credit exposure that can be produced by each participant.



IV.  Multilateral netting systems should, at a minimum, be capable of ensuring the timely completion of daily settlements in the event of an inability to settle by the participant with the largest single net-debit position.



V.     Multilateral netting systems should have objective and publicly-disclosed criteria for admission which permit fair and open access.



VI.  All netting schemes should ensure the operational reliability of technical systems and the availability of back-up facilities capable of completing daily processing requirements.



Principles for cooperative central bank oversight of cross-border and multi-currency netting and settlement schemes



1.      Each central bank that has identified the actual or proposed operation of a cross-border or multi-currency netting or settlement system, outside of the country of issue of the relevant currency or currencies, should inform other central banks that may have an interest in the prudent design and management of the system.



2.      Cross-border and multi-currency netting and settlement systems should be subject to oversight by a central bank which accepts primary responsibility for such oversight and there should be a presumption that the host-country central bank will have this primary responsibility.



3.      In its oversight of a system, the authority with primary responsibility should review the design and operation of the system as a whole and consult with other relevant authorities on its conclusions both in the first instance and, from time to time, with respect to developments in the systems status.



4.      The determination of the adequacy of a systems settlement and failure-to-settle procedures should be the joint responsibility of the central bank of issue and the authority with primary responsibility for the system.



5.      In the absence of confidence in the soundness of the design or management of any cross-border or multi-currency netting or settlement system, a central bank should discourage use of the system by institutions subject to its authority and, if necessary, identify the use of, or the provision of services to such a system as constituting an unsafe and unsound banking practice.


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