SARB published a discussion paper that sets out its intended approach to planning for, and conducting, an open-bank resolution. The discussion paper provides an overview of how the SARB intends to perform its functions as the resolution authority and sets out certain requirements that may be imposed on designated institutions after the promulgation of the Financial Sector Laws Amendment Bill, 2018 (FSLAB). SARB and designated institutions will have to develop clearly defined strategies and take preemptive measures to make the legal provisions in the FSLAB effective and to make the orderly resolution of large and complex financial institutions feasible. The closing date for comments is August 31, 2019 and the comments received will inform the process to develop the resolution planning standard, which is to be issued once the FSLAB is promulgated.
The paper first provides an overview of the elements of the resolution framework that will be introduced by the FSLAB, and how the powers assigned to the SARB may be applied in practice. The paper then sets out the key elements of planning for an open-bank resolution strategy, which will most likely be followed in the unlikely event of the failure of a bank that has been designated as a systemically important financial institution in terms of the Financial Sector Regulation Act, 9 of 2017 (FSRA). This also includes an overview of the requirements that designated institutions may have to meet. Finally, the paper describes the process that will most likely be followed leading up to, and during, a resolution.
The FSLAB contains proposed amendments to the FSRA, including the addition of a chapter with provisions for the orderly resolution of designated institutions, which will include all banks as well as non-bank systemically important financial institutions and their holding companies. The FSLAB also contains a chapter that will introduce an explicit deposit insurance scheme to provide protection to covered depositors in the event of a bank failure. The FSLAB amends a number of other acts that are required to make the resolution framework effective. The views expressed in the paper are based on the assumption that the FSLAB will be passed by Parliament in its current form. To the extent that amendments are made to the FSLAB, SARB will, where necessary, update the approach set out in the paper. This discussion paper should be seen as a first iteration, likely to be revised and expanded in future as experience is gained by both the SARB and the designated institutions and as the focus expands to all designated institutions. The intention is also to publish more detailed guidance on certain aspects of resolution planning in future, as the work progresses.
Related Link: Discussion Paper
Comment Due Date: August 31, 2019
Keywords: Middle East and Africa, South Africa, Banking, Resolution Planning, Resolution Framework, Open-Bank Resolution, SIFI, Too Big to Fail, Systemic Risk, SARB
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