Because MBSD Clearing Services are guaranteed,* MBSD clearing membership applicants are required to submit a membership application/questionnaire and other required documentation. This information is designed to provide the necessary information for FICC personnel to evaluate the applicant. The questionnaire and document request list focus on the following information:
- Organization structure, including ownership, senior management and experience;
- Financial information, including audited and unaudited financial statements;
- Information on legal counsel, external auditor, settling bank, lines of credit and service; bureau to enhance FICC’s understanding of the operational aspects of the applicant
- Business background;
- Volumes to be processed through MBSD;
- Know-your-customer (“KYC”) information necessary for the anti-money laundering (“AML”) risk review; and
- Legal documentation, including requisite legal opinion.
The counterparty credit risk team of the Risk Management Department evaluates each applicant to assess the applicant’s potential credit and reputational risk. The credit risk review focuses on the applicant’s financial condition and additional financial resources to meet its obligations to FICC as well as understanding the applicant’s business strategy and its impact on the financial condition and performance of the entity. The reputational risk focuses on the applicant’s business strategy as well as a search of regulatory and news sources to determine if the applicant, related entities or senior management have been the subject of civil or criminal penalties or regulatory action.
FICC’s applicant review also includes an Anti-Money Laundering (“AML”) due-diligence component. The due-diligence is conducted to evaluate the entity and its key personnel within the context of ensuring compliance with the Know Your Customer (“KYC”) Program. This ensures that FICC has a better understanding of who the applicant is and the manner in which the applicant intends to use the MBSD’s services. The due diligence process includes, but is not limited to, collecting and verifying the applicant's name, address, country of domicile, entity structure and customer base. The due diligence process also includes screening applicants against various governmental watch lists, such as the Office of Foreign Assets and Control ("OFAC") list, along with conducting negative news screening to see if there is any adverse information about the applicant that FICC should factor into its decision on whether to admit the applicant into membership. The AML due diligence review results in an AML risk rating, which is incorporated into the analysis process.
If the applicant is a non-U.S. entity, enhanced due diligence is conducted and additional information may be collected for KYC purposes. In addition, non-U.S. applicants are required to submit an opinion prepared by outside counsel in the applicant’s jurisdiction on the enforceability of MBSD’s rules against the applicant. Pursuant to the SEC’s request, the non-U.S. legal opinion will be reviewed by FICC’s outside counsel in an effort to determine whether there are any legal risks presented by the applicant.
MBSD applicants that meet the various criteria and are deemed to have the appropriate risk profile are presented to the Management Risk Committee (“MRC”) for consideration. If necessary, the MRC may escalate the application to the Board Risk Committee of FICC’s Board of Directors for consideration.
Please refer to the MBSD Clearing Rules for full details on the membership requirements and on-going reporting requirements.
*The MBSD CCP service is covered by the MBSD’s Clearing Rulebook.