FSB Issues Guidance on Financial Resources to Support CCP Resolution
FSB finalized guidance on financial resources to support central counterparty (CCP) resolution and on approaches to the treatment of CCP equity in resolution. The guidance will support resolution authorities and crisis management groups in assessing the adequacy of financial resources for CCP resolution. FSB stipulates that resolution authorities should conduct such assessment in cooperation with a CCP’s oversight and/or supervisory authorities. For CCPs that are systemically important in more than one jurisdiction, such assessment should be reviewed and updated on an annual basis, with the results of such review or update to be discussed within the firms’ crisis management groups. FSB also published an overview of responses received to the consultation on the guidance.
The guidance is intended to assist resolution authorities in applying the existing principles incorporated in the Key Attributes of effective resolution regimes for financial institutions, the implementation guidance on financial market infrastructure resolution, and the FSB 2017 guidance on CCP resolution and resolution planning. The guidance consists of two parts, with the first part of the guidance proposing five steps to guide the authorities in assessing the adequacy of a CCP’s financial resources and the potential financial stability implications of their use. As per the five steps, the authorities should:
- Identify hypothetical default and non-default loss scenarios (and a combination of them) that may lead to a resolution of a CCP
- Conduct a qualitative and quantitative evaluation of existing resources and tools available in the resolution of the CCP
- Assess potential resolution costs
- Compare existing resources and tools to resolution costs and identify any gaps
- Evaluate the availability, costs, and benefits of potential means of addressing any identified gaps
The second part of the guidance addresses the treatment of CCP equity in resolution. It provides a framework for resolution authorities to evaluate the exposure of CCP equity to losses in recovery, liquidation, and resolution and how (where it is possible) the treatment of CCP equity in resolution could be adjusted.
Five years after the publication of this guidance, FSB will consider, in consultation with CPMI-IOSCO, whether further adjustments are needed in light of market developments and resolution authorities’ experience with using the guidance. The final timetable will be informed by authorities’ feedback on the use of the guidance and any additional resolution related policy work that may be undertaken. Additionally, considering the increasing systemic relevance of CCPs, the Chairs of FSB, CPMI, IOSCO, and the FSB Resolution Steering Group have proposed to collaborate on, and conduct further work on, CCP financial resources through their respective committees. Such work will consider, during the course of 2021, the need for, and develop as appropriate, international policy on the use, composition, and amount of financial resources in recovery and resolution to further strengthen the resilience and resolvability of CCPs in default and non-default loss scenarios. This would include assessing whether any new types of pre-funded resources would be necessary to enhance CCP resolvability.
Related Links
Keywords: International, Banking, Securities, CCP, CCP Resolution, Resolution Planning, OTC Derivatives, Crisis Management, Resolution Framework, FSB
Previous Article
European Council Adopts Conclusions on Sandboxes as Regulatory ToolsRelated Articles
EBA Analyzes Impact of Unwind Mechanism of Liquidity Coverage Ratio
EBA published a report analyzing the impact of the unwind mechanism of the liquidity coverage ratio (LCR) for a sample of European banks over a three-year period, from the end of 2016 to the first quarter of 2020.
ECB Outlines Views on Possible Changes to AnaCredit Rule and TLTROs
In response to questions from a member of the European Parliament, the ECB President Christine Lagarde issued a letter clarifying the possibility of amending the AnaCredit Regulation and making targeted longer-term refinancing operations (TLTROs) dependent on the climate-related impact of bank loans.
IASB Begins First Phase of Post-Implementation Review of IFRS 9
IASB started the post-implementation review of the classification and measurement requirements in IFRS 9 on financial instruments and added the review as a project to its work plan.
FSB Report Examines Progress in Resolvability of Systemic Institutions
FSB published a report that examines progress in implementing policy measures to enhance the resolvability of systemically important financial institutions.
EBA Benchmarks National Insolvency Frameworks Across EU
EBA published a report on the benchmarking of national loan enforcement frameworks across 27 EU member states, in response to the call for advice from EC.
FSB Reports Assess Impact of Pandemic on Financial Stability
FSB published a letter from its Chair Randal K. Quarles, along with two reports exploring various aspects of the market turmoil resulting from the COVID-19 event.
RBNZ Consults on Implementation of Capital Review Changes
RBNZ launched a consultation on the details for implementing the final Capital Review decisions announced in December 2019.
IASB Announces Andreas Barckow as the New Chair from July 2021
The Trustees of the IFRS Foundation, which are responsible for the governance and oversight of IASB, have announced the appointment of Dr. Andreas Barckow as the IASB Chair, effective July 2021.
HKMA Consults on Capital Rules for Bank Equity Investments in Funds
HKMA issued a letter to consult the banking industry on a full set of proposed draft amendments to the Banking (Capital) Rules for implementing the Basel standard on capital requirements for banks’ equity investments in funds in Hong Kong.
ESRB Supports Extension of Macro-Prudential Measure by Swedish FSA
ESRB published an opinion assessing the decision of Swedish Financial Supervisory Authority (FSA) to extend the application period of a stricter measure for residential mortgage lending, in accordance with Article 458 of the Capital Requirements Regulation (CRR).
