FSB published the methodology for assessing the implementation of the key attributes of effective resolution regimes for financial institutions in the insurance sector. The methodology sets out essential criteria to guide the assessment of the compliance of the insurance resolution framework in a jurisdiction with the FSB Key Attributes of Effective Resolution Regimes for Financial Institutions (Key Attributes). The methodology is intended primarily for use in the assessments performed by authorities of existing resolution regimes of their jurisdiction and of any reforms to those regimes that implement the Key Attributes; it is also intended for the peer reviews of resolution regimes conducted within the FSB framework for implementation monitoring by member jurisdictions.
The Key Attributes apply to resolution regimes for any type of financial institution that could be systemically significant or critical if it fails. Financial institutions include banks, insurers, investment and securities firms and financial market infrastructure. The Key Attributes also cover the resolution of financial groups and conglomerates and, therefore, extend to both holding companies of and nonregulated operational entities within a financial group or conglomerate. In other words, the Key Attributes constitute an "umbrella" standard for resolution regimes for all types of financial institutions. Implementation of the Key Attributes allows authorities to resolve financial institutions in an orderly manner without taxpayer exposure to loss from solvency support, while maintaining continuity of their vital economic functions. However, not all attributes are equally relevant for all sectors. This Key Attributes Assessment Methodology provides an insurance sector-specific interpretation of individual key attributes. It stresses that the insurance resolution regime of a jurisdiction should be proportionate to the size, structure, and complexity of the insurance system of a jurisdiction.
The methodology may also be a useful tool for a jurisdiction that is adopting new resolution regimes or reviewing, reforming, or making improvements to its existing regimes. For assessments, the following four-grade scale will be used:
- Compliant. A jurisdiction will be considered compliant with a Key Attribute when all applicable Essential Criteria are met without any significant deficiencies.
- Largely compliant. The grade “largely compliant” can, in particular, be used when the regime does not meet all applicable Essential Criteria, but overall the regime is sufficiently robust and comprehensive and no material risks are left unaddressed.
- Materially non-compliant. A jurisdiction will be considered materially non-compliant with a Key Attribute when there are severe shortcomings in the jurisdiction’s compliance with the relevant Key Attribute, including in instances where formal rules, regulations, and procedures exist but practical implementation of the Key Attribute has been weak.
- Non-compliant. A jurisdiction will be considered non-compliant with a Key Attribute when there is no substantive implementation of the Key Attribute, several Essential Criteria are not complied with or the resolution regime is manifestly ineffective. If there is only one Essential Criterion for a Key Attribute and the jurisdiction does not meet that criterion, then the jurisdiction will be considered noncompliant with respect to that Key Attribute.
FSB also issued a note explaining the application of the insurance Key Attributes Assessment Methodology and the Key Attributes during the period of suspension of the designation of Global Systemically Important Insurers (G-SIIs). It states that the Key Attributes continue to apply during the suspension period to any insurer that could be systemically significant or critical in failure. National authorities may apply to certain insurers the requirements specific to G-SIIs, which are the requirements for a crisis management group, institution-specific cross-border cooperation agreements, and resolvability assessments. In the event of a 2022 decision by FSB to discontinue the G-SII list, FSB will review the scope of application of G-SII-specific requirements in consultation with the IAIS. The insurance Key Attributes Assessment Methodology was developed in collaboration with experts from FSB jurisdictions, relevant standard-setting bodies, the International Monetary Fund, and the World Bank.
Keywords: International, Insurance, Resolution Regime, Key Attributes, Insurance KaaM, Systemic Risk, G-SII, FSB
Sam leads the quantitative research team within the CreditEdge™ research group. In this role, he develops novel risk and forecasting solutions for financial institutions while providing thought leadership on related trends in global financial markets.
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