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.
Keywords: International, Banking, Securities, CCP, CCP Resolution, Resolution Planning, OTC Derivatives, Crisis Management, Resolution Framework, FSB
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The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.
The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.
The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.
The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.
The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.
The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.
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