EIOPA published a report on the approach and lessons learned from the first crisis walkthrough exercise. EIOPA conducted this exercise with one national supervisory authority that volunteered to participate. The walkthrough exercise was intended to test the crisis processes and procedures and to assess the way in which participants interacted in terms of exchanging information, cooperating, and adopting decisions. The report emphasizes that authorities in charge of financial stability need to develop very flexible crisis management procedures to deal with unexpected events and to quickly mitigate the consequences of a developing crisis.
The exercise was aimed at making participants think what could be the best course of action that they could follow in a given situation and making them aware of potential inconsistencies or limitations in their decision-making processes. The following are the key lessons learned from the exercise:
- The need to have in place comprehensive crisis procedures and to test them. It is clear that all crisis situations cannot be foreseen in advance and that flexibility is needed. However, having a comprehensive crisis roadmap in place allows to identify potential vulnerabilities, facilitates crisis management and orderly escalation, and provides Senior Management and relevant staff with a structured way of thinking.
- The importance of testing the relevant documents of the groups. A real crisis might look different than any of the forecasted scenarios by groups in their own stress testing or risk management related documentation. However, having credible and realistic plans, processes, and roadmaps can help undertakings and groups identify potential vulnerabilities, try to minimize their impact, and assess the effectiveness of the measures considered.
- The need to supplement the current regulatory toolkit with additional recovery and resolution tools. During the exercise, the need for management actions and recovery measures to be potentially taken was debated by participants, as the simulated insurance group faced severed distress and even near-default. There was broad agreement on the need to supplement the current regulatory toolkit with potential new tools that could be appropriate in the recovery or resolution phases.
- The importance of cooperation among national supervisory authorities and EIOPA during idiosyncratic crises. The exercise showed the relevance of cooperation among all relevant parties. One of the critical aspects analyzed was whether or when the national supervisory authority would contact EIOPA and/or other potentially affected stakeholders in an idiosyncratic crisis, which ex ante may seem to be contained at the national level and not pose any EU-wide impact yet.
Keywords: Europe, EU, Insurance, Crisis Walkthrough Exercise, Recovery and Resolution, Crisis Management Framework, Resolution Framework, Lessons Learned, Solvency II, EIOPA
Previous ArticleBank of Italy Publishes Version 1.9 of AnaCredit Reporting Manual
EBA issued a revised list of validation rules with respect to the implementing technical standards on supervisory reporting.
EBA published its response to the call for advice of EC on ways to strengthen the EU legal framework on anti-money laundering and countering the financing of terrorism (AML/CFT).
NGFS published a paper on the overview of environmental risk analysis by financial institutions and an occasional paper on the case studies on environmental risk analysis methodologies.
MAS published the guidelines on individual accountability and conduct at financial institutions.
APRA published final versions of the prudential standard APS 220 on credit quality and the reporting standard ARS 923.2 on repayment deferrals.
SRB published two articles, with one article discussing the framework in place to safeguard financial stability amid crisis and the other article outlining the path to a harmonized and predictable liquidation regime.
FSB hosted a virtual workshop as part of the consultation process for its evaluation of the too-big-to-fail reforms.
ECB updated the list of supervised entities in EU, with the number of significant supervised entities being 115.
OSFI published the key findings of a study on third-party risk management.
FSB is extending the implementation timeline, by one year, for the minimum haircut standards for non-centrally cleared securities financing transactions or SFTs.