February 27, 2019

The FSB Secretary General Dietrich Domanski spoke, at a conference, about the management of central counterparty (CCP) risk. With respect to the CCP reforms, he discussed the work done so far and the work that remains to be done from the perspective of FSB. In terms of the remaining work, he covered areas of policy development as well as the implementation and evaluation of the existing standards. According to him, more work is needed to ensure adequacy of financial resources and treatment of CCP equity in resolution, to complete the adoption of central clearing frameworks, and to understand the effects of reforms on central clearing.

Mr. Domanski highlighted that CCP resolution continues to be a challenging topic, with complex debates around issues such as the use of variation margin gains haircutting, resources and responsibility for non-default losses, and the boundary between recovery and resolution. In November 2018, FSB had published a discussion paper, jointly with CPMI and IOSCO, on financial resources to support CCP resolution and the treatment of equity in CCP resolution. Responses to the public consultation, along with the experience of authorities in evaluating financial resources for resolution, will help inform the development of guidance by the end of 2020. He mentioned that next steps need to be based on the responses received. Mr. Domanski also noted the continued progress toward enhancing the regulatory frameworks for CCPs, including in cross-border aspects such as deference decisions in relation to CCPs, and in setting expectations for their sound design and operations (consistent with PFMI by CPMI and IOSCO). He also emphasized that more work is needed across the FSB membership to implement requirements on recovery and resolution. In Europe, EC, as a member of FSB, and the European Parliamentarians have shown a clear desire to implement the international standards while some other jurisdictions do not yet have in place a comprehensive resolution regime for CCPs.

He added that the Crisis Management Groups (CMGs) are a key component in ensuring that appropriate resolution arrangements are in place, given the cross-border activities of many CCPs. Authorities have begun to establish CMGs for CCPs that have been identified as systemically important in more than one jurisdiction. CMGs and institution-specific cooperation agreements that underpin their operation are not yet in place for all such CCPs and resolution planning for CCPs is still at an early stage. For CCPs that are systemically important in more than one jurisdiction, resolution plans should be developed by the home resolution authority and coordinated within CMG or equivalent arrangements. Rapid progress in implementation is important. A lack of effective and timely implementation of the guidance on CCP resilience, recovery, and resolution would considerably limit the toolkit that supervisors have to address CCP risks.

The evaluation of the effects of reforms is a new, key area of FSB work. One of the first two evaluations under FSB framework was on the incentives to centrally clear derivatives. The evaluation found that including client margins in the leverage ratio creates a disincentive for central clearing. BCBS has been consulting on the question of whether, and how, there is a case for changing the treatment of client margins in the leverage ratio in light of this finding. Furthermore, CCPs will play a role in another evaluation by FSB. This evaluation will examine the effects of too-big-to-fail reforms for banks. Notwithstanding the focus on banks, the evaluation will consider implications for CCPs, keeping in mind that global systemically important banks are the largest clearing members and key nodes in an interconnected financial system. This evaluation should be completed by late 2020. Finally, he discussed the initiative (a priority under Japan’s G20 Presidency in 2019) on exploring the causes and financial stability implications of market fragmentation, along with the possible policy approaches to address possible unintended effects. 

 

Related Link: Speech (PDF)

 

Keywords: International, Banking, Securities, CCP, Resolution Planning, Recovery and Resolution, Post Crisis Reforms, CCP Resolution, Too Big to Fail, FSB

Related Articles
News

EBA Report Assesses Regulatory Framework for Fintech Activities

EBA published the findings of its analysis on the regulatory framework applicable to fintech firms when accessing the market.

July 18, 2019 WebPage Regulatory News
News

OSFI Revises Capital Requirements for Operational Risk for Banks

OSFI is revising its capital requirements for operational risk, in line with the final Basel III revisions published by BCBS in December 2017.

July 18, 2019 WebPage Regulatory News
News

OSFI Consults on Revised Principles for Management of Liquidity Risk

OSFI proposed revisions to Guideline B-6 on the principles for the management of liquidity risk.

July 18, 2019 WebPage Regulatory News
News

ESMA Guidance on Disclosures for Credit Rating Sustainability Issues

ESMA published the technical advice on sustainability considerations in the credit rating market, along with the final guidelines on disclosure requirements applicable to credit ratings.

July 18, 2019 WebPage Regulatory News
News

FASB Issues Q&A on Estimation of Expected Credit Losses by Firms

FASB issued a second question-and-answer (Q&A) document that addresses more than a dozen frequently asked questions related to the Accounting Standards Update No. 2016-13 titled “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.”

July 17, 2019 WebPage Regulatory News
News

US Agencies Delay Enforcing Volcker Rule Restrictions on Foreign Funds

US Agencies (FDIC, FED, and OCC) announced that they will not take action related to restrictions under the Volcker Rule for certain foreign funds for an additional two years.

July 17, 2019 WebPage Regulatory News
News

SRB Announces SRF Receives Cash Injection, Grows to EUR 33 billion

SRB announced that the Single Resolution Fund (SRF or the Fund) received a cash injection of EUR 7.8 billion from 3,186 institutions in 2019, bringing the total amount in the Fund to about EUR 33 billion.

July 17, 2019 WebPage Regulatory News
News

FASB to Propose to Delay CECL Compliance Deadline for Certain Entities

FASB published a summary of the tentative decisions taken at its Board meeting in July 2019.

July 17, 2019 WebPage Regulatory News
News

IMF Publishes Report on 2019 Article IV Consultation with Vietnam

IMF published its staff report in context of the 2019 Article IV consultation with Vietnam.

July 16, 2019 WebPage Regulatory News
News

European Parliament Elects Next President of European Commission

European Parliament elected Ursula von der Leyen from Germany as the first female President of the next European Commission for a five-year term from November 01, 2019.

July 16, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 3476