Under the Payment Clearing and Settlement Act (PCSA), which became law on 31 July 1996, the Bank of Canada is responsible for the regulatory oversight of clearing and settlement systems (also known as financial market infrastructures or FMIs) with a view to controlling systemic risk.
An FMI is a system that facilitates the clearing, settling or recording of payments, securities, derivatives or other financial transactions among participating entities. FMIs allow consumers and firms to safely and efficiently purchase goods and services, make financial investments and transfer funds. FMIs can therefore play an important role in enhancing financial stability. Three types of FMIs are overseen by the Bank:
Some FMIs (referred to as “systemically important FMIs”) have the potential to pose systemic risk, in that the inability of one participant to meet its obligations to the FMI could, by transmitting financial problems through the FMI, cause other participants to be unable to meet their obligations. It is therefore essential that FMIs incorporate appropriate risk-control mechanisms so that systemic risk is adequately controlled. The objectives of the Bank in its oversight role are to ensure that systemically important FMIs operate in such a manner that risk is properly controlled and to promote efficiency and stability in the Canadian financial system. The Governor of the Bank of Canada has designated the following FMIs as systemically important to the Canadian financial system and subject to Bank oversight: