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    FSB Discusses Bail-In Practices and ML/TF Risk Assessment Framework

    December 13, 2021

    The Financial Stability Board (FSB) published a paper on practices on the execution of bail-in, which is at the core of resolution strategies for global systemically important banks (G-SIBs). In addition, FSB published an IMF-World Bank report that proposes a draft framework and methodology for assessment of money laundering/terrorist financing (ML/TF) risk in remittance corridors that have the potential of being identified as “safe remittance corridors." The Committee on Payments and Market Infrastructures (CPMI) also published new data on the trends in correspondent banking, based on end-2020 data from over 200 countries and jurisdictions. The data show that cross-border payment volume and value increased by 2% and 7%, respectively, in 2020. However, correspondent banking relationships declined by 4% from the previous year, taking their total contraction to about 25% between 2011 and 2020.

    Bail-in, which is an important tool set out in the Key Attributes of Effective Resolution Regimes for Financial Institutions, is intended to enable an orderly resolution that minimizes any impact on financial stability and ensures the continuity of critical functions, without exposing taxpayers to loss. Since the adoption of the FSB Principles on Bail-in Execution, resolution planning has progressed and authorities have developed approaches and practices in accordance with their respective jurisdictions’ legal frameworks, securities law, and exchange requirements. Drawing on examples and practices across different jurisdictions, the paper on bail-in provides an overview of practices, operational processes, and arrangements as part of the bail-in process. This includes the suspension of trading and delisting from trading venues of securities of bailed-in firms; the (re-)listing and (re-)admission to trading of new and existing securities; and the role central securities depositories (CSDs) play in the cancellation of shares, write-down and/or conversion of eligible instruments, and issuance of new shares and interim instruments. The paper also highlights cross-border challenges to the execution of bail-in, where securities are listed on more than one trading venue across different jurisdictions or where securities are issued in a market other than the domestic market. These include the suspension of trading and settlement across all relevant trading venues and CSDs; the distribution of the new securities in foreign markets or to foreign investors; and operational challenges arising for example from the involvement of multiple CSDs. These issues introduce additional complexities to the execution of bail-in, which may need to be specifically addressed as part of resolution planning. FSB will continue to facilitate the sharing of practices among authorities and efforts to address these issues, including by continuing its engagement with stakeholders as part of the work of its Resolution Steering Group and Bank Cross-Border Crisis Management Working Group.

    The draft framework on ML/TF risk assessment, by IMF and World Bank staff, contributes to the FSB Roadmap for Enhancing Cross-Border Payments, which the G20 Leaders endorsed in 2020 and that aims to achieve faster, cheaper, more transparent, and more inclusive cross-border payment services. The draft framework for remittance corridors’ risk assessments is the first action under Building Block 7, the goal of which is to promote “safe payment corridors,” and which has two phases. The first phase involves the development of a framework and methodology for the assessment of the money laundering and terrorist financing (ML/TF) risks in remittance corridors and the identification of potential “lower risk corridors,” as part of or consistent with a country’s national ML/TF risk assessment. In the second phase, the proposed framework is expected to be piloted in some corridors with a view to testing and further refining the assessment methodology. This assessment framework can be applied jointly or separately by the sender and the recipient corridor countries. The objective of a corridor risk assessment is assessing and understanding the ML/TF risks of remittances in a corridor, with the aim of simplifying AML/CFT measures in lower risk remittance transactions. If the corridor risk assessment assesses that the overall ML/TF risk level in the corridor is lower, the corridor can be treated as a “safe remittance corridor” and subject to simplified customer due diligence measures by regulatory authorities, which can be implemented by the private sector.

     

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    Keywords: International, Banking, Insurance, Securities, FMI, Resolution Framework, Crisis Management Framework, Resolution Planning, Basel, G-SIBs, Systemic Risk, Financial Stability, Bail-In, ML/TF Risk, AML/CFT, Customer Due Diligence, Lending, Cross-Border Payments, Remittance Corridors, Key Attributes, Correspondent Banking, CPMI, FSB

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