Implementation monitoring of PFMIs: Level 2 assessment report for central counterparties and trade repositories - Japan

February 2015

The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) continue to closely monitor the implementation of the Principles for financial market infrastructures (PFMI). The principles within the PFMI (the Principles) set expectations for the design and operation of key financial market infrastructures to enhance their safety and efficiency and, more broadly, to limit systemic risk and foster transparency and financial stability.

This report represents a "Level 2" assessment of the regulatory or oversight framework applied to systemically important central counterparties (CCPs) and trade repositories (TRs) in Japan. Level 2 assessments are peer-reviews that examine whether, and to what degree, the content of the legal and regulatory or oversight framework is complete and consistent with the Principles.

The Financial Services Agency (FSA) and the Bank of Japan (BOJ) are responsible for the supervision and oversight of CCPs and TRs. These authorities have completely overlapping responsibilities for CCPs and TRs and oversee all aspects of their operations in Japan. CCPs and TRs are supervised by the FSA under the Financial Instruments and Exchange Act (FIEA), which establishes the regulatory framework for CCPs clearing securities and financial derivatives and for TRs. These CCPs and TRs are also overseen by the BOJ under the Bank of Japan Act, as part of the central bank's objective to ensure smooth settlement of funds among banks and other financial institutions.

The PFMIs have been implemented in a complete and consistent manner, and through a high-level policy-based approach adopted by both the FSA and the BOJ, in the Japanese legal, regulatory and policy frameworks for CCPs and TR. Both these policies state simply that the respective authorities will apply the PFMIs in their regulation, supervision or oversight of Japanese CCPs and TRs. The FSA has gone a step further and also incorporated the PFMIs into its supervisory framework by publishing the Supervisory Guidelines. These guidelines, however, do not always mirror those of the PFMIs. Gaps or inconsistencies between the Supervisory Guidelines and the PFMIs are identified as part of this assessment and are primarily attributable to idiosyncrasies of the Japanese regulatory regime and the structure and practices of Japanese financial markets. As such, these gaps and inconsistencies were not considered in the jurisdictional rating because of the policy-based approach taken by the FSA. Recommendations are noted where these gaps and inconsistencies may potentially result in ambiguous supervisory expectations for CCPs and TRs.

The assessment reflects the status of the legal, regulatory and policy frameworks in Japan as at 18 April 2014.

Level 2 assessment reports for the European Union and the United States have also been published concurrently with this report, and are available on the CPMI and IOSCO websites.