Settlement Recovery
Definition
The set of pre-defined arrangements by which a settlement system continues to provide its critical services, or winds them down in an orderly manner, when its ordinary operations are disrupted by participant default, operational failure, custodian disruption, or any other condition that exceeds the system's steady-state design envelope.
Notes
The CPMI-IOSCO recovery framework prescribes that every systemically important financial market infrastructure maintain a comprehensive recovery plan, including the stress scenarios that trigger it, the tools available to address those scenarios, and the governance under which those tools are invoked.1 The framework was written for FMIs whose participants and operators are themselves regulated and whose recovery toolset is well-understood (loss allocation, replenishment, partial tear-up, position transfer).
Tokenized settlement systems inherit the requirement but not the toolset. The recovery question for a tokenized arrangement is structurally different: when the issuer fails, when the custodian's banking partner fails, when the chain forks, when the validator set is captured — what continues, what unwinds, and on whose authority? Settlement Recovery, in the SII sense, is the answer to that question made specific to a given Trust Fabric. It is not optional. A settlement system without a defined recovery posture has not been examined; it has only been described.
See also
Operational Suitability · Trust Fabric · Redemption Pathway · Reserve Custody Architecture
References
- ↩ Committee on Payments and Market Infrastructures & International Organization of Securities Commissions, Recovery of Financial Market Infrastructures — Revised Report (July 2017). bis.org
- ↩ Committee on Payments and Market Infrastructures & International Organization of Securities Commissions, Principles for Financial Market Infrastructures, Principle 3 (framework for the comprehensive management of risks). iosco.org