1. Adopts new Rule 17Ad-25 under the Securities Exchange Act setting governance and conflicts of interest requirements for registered clearing agencies.
2. Requires majority of board directors to be independent, or 34% if majority owned by participants. Defines “independent director” and sets out circumstances precluding independence.
3. Requires nominating committee to evaluate director independence and document outcome of evaluation process. Majority of nominating committee must be independent.
4. Requires establishment of risk management committee (RMC) of the board with representatives from owners and participants. RMC membership must be re-evaluated annually.
5. Requires policies and procedures for identifying, mitigating and documenting conflicts of interest involving directors or senior managers.
6. Requires oversight by board of directors regarding risks from relationships with “service providers for core services.” Defines this term.
7. Requires formal consideration of viewpoints of participants and stakeholders regarding material developments in risk management and operations.
8. Sets compliance dates of 12 months after publication for most provisions, 24 months for certain board composition requirements.
9. Estimates industry-wide initial PRA burden ranging from 27 hours to 990 hours per rule provision, and annual ongoing burden ranging from 9 hours to 882 hours
10. The rules are intended to improve governance and address divergent incentives between clearing agency owners, participants, and other stakeholders. This could enhance risk management.
11. Independent directors can provide impartial perspectives and help mitigate conflicts of interest. Allowing participant employees to potentially serve as independent directors brings useful expertise.
12. Requiring annual re-evaluation of risk committee membership will help prevent stagnation of views and maintain expertise.
13. Policies and procedures for conflicts of interest will promote integrity in governance arrangements. Requirements for prompt reporting of potential conflicts by directors provides information to address conflicts.
14. Oversight of core service providers will enhance operational resilience and ability to address risks from disruptions. Rule delineates responsibilities of senior management versus board.
15. Formal consideration of stakeholder views will lead to more informed decision-making, better meeting public interest standards. Reduces scope to focus on risk management and operations.
16. Total estimated initial industry-wide paperwork burden is 3,543 hours. Total estimated annual ongoing burden is 2,808 hours.
17. The rules balance governance flexibility for clearing agencies while enhancing sound practices across all registrants.

If you are a compliance manager at a bank that is a participant in a registered clearing agency, here are some key things to focus on in this SEC document adopting Rule 17Ad-25:

1. Independent Director Requirements – Assess whether your bank employees could potentially qualify to serve as independent directors on the board or board committees of a clearing agency where your bank is a participant. Understand the definition of “independent director” and the circumstances precluding independence.
2. Risk Management Committee – Note the requirements to have risk management committees with clearing agency participant representatives. Consider whether your bank could put forth qualified individuals.
3. Conflicts of Interest Policies – Review the clearing agency’s policies and procedures for identifying and addressing conflicts of interest involving directors and senior managers. Understand reporting obligations.
4. Core Service Providers – Be aware of the clearing agency’s oversight process regarding risks from critical outsourced services. This could impact continuity of clearing and settlement activities.
5. Stakeholder Views – The formal mechanism for soliciting participant feedback provides an avenue to convey your bank’s perspectives on material developments related to risk management and operations.
6. Implementation Timeframes – Expect clearing agencies to come into compliance over the next 12-24 months.