FSB published a report that examines progress in implementing policy measures to enhance the resolvability of systemically important financial institutions. The report highlights the need for resolution preparedness and discusses lessons learned from the COVID-19 pandemic, which confirmed the importance of ongoing work on resolvability for banks, insurers, and central counterparties (CCPs). The report concludes that improved capabilities for monitoring the financial condition of firms and for cooperation and communication in a crisis, although not yet perfect, have served authorities well.
In the banking sector, the sixth round of the resolvability assessment process conducted during 2019-2020 confirmed that crisis management groups are broadly satisfied with the progress of global systemically important banks (G-SIBs) toward resolvability. Global systemically important banks (G-SIBs) are estimated to already meet the final 2022 minimum external total loss-absorbing capacity (TLAC) requirement. TLAC-eligible bond issuance has continued through the difficult COVID-19 pandemic environment and the market has, so far, absorbed issuance without difficulty. Disclosure of external TLAC levels by G-SIBs has improved over the past year. However, little information is available to market participants on the distribution of TLAC within banking groups. Work is ongoing on the management, distribution and transferability of these resources. The report identified some remaining obstacles to resolvability and gaps that to be addressed.
In the insurance sector, FSB continues to monitor implementation of the Key Attributes. Progress on implementation of national insurance resolution regimes has slowed down, with no significant reforms, such as finalization of new or enhanced insurance resolution frameworks, reported in this recent cycle. The FSB Key Attributes Assessment Methodology (KAAM) for the insurance sector, which was published in August 2020, may also be a useful tool for a jurisdiction that is adopting a new resolution regime or reviewing, reforming, or making improvements to its existing regimes. A number of jurisdictions have identified systemically important insurers for purpose of recovery and resolution planning. Key areas of attention for FSB work on resolution planning for insurers are intra-group interconnectedness and funding in resolution. Furthermore, in the event of a 2022 decision to discontinue the global systemically important insurers (G-SIIs) list, FSB will review the scope of application of G-SII specific requirements in consultation with IAIS.
Central counterparties are also increasing in importance, given that the recent periods of market turmoil have demonstrated the benefits that central clearing brings for global financial stability. CPMI and IOSCO coordinated a review, which qualified thirteen central counterparties as systemically important in more than one jurisdiction. Some progress has been made in resolution planning for systemically important central counterparties in more than one jurisdiction. Authorities have established crisis management groups and commenced resolution planning for all central counterparties identified as systemically important in more than one jurisdiction, with the exception of one central counterparty that was added to the list of systemically important central counterparties in more than one jurisdiction in the August review. To support discussions on central counterparty resolvability and adequacy of financial resources for resolution, FSB recently issued a guidance on financial resources to support central counterparty resolution and on the treatment of central counterparty equity in resolution. FSB also developed, in 2020, a resolvability assessment process questionnaire that will be used for the first time in the 2021 for central counterparties that systemically important in more than one jurisdiction. Summary findings from the 2021 central counterparty resolvability assessment process will be included in the 2021 resolution report of FSB. The Chairs of FSB, CPMI, IOSCO, and the FSB Resolution Steering Group agreed to collaborate on and conduct further work on central counterparty financial resources through their respective committees.
Keywords: International, Banking, Insurance, FMI, COVID-19, Crisis Management Framework, CCPs, Resolution Planning, Resolution Framework, FSB
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
The Hong Kong Monetary Authority (HKMA) revised the Supervisory Policy Manual module CG-5 that sets out guidelines on a sound remuneration system for authorized institutions.
The European Banking Authority (EBA) published the final guidelines on the monitoring of the threshold and other procedural aspects on the establishment of intermediate parent undertakings in European Union (EU), as laid down in the Capital Requirements Directive (CRD).
In a recent Market Notice, the Bank of England (BoE) confirmed that green gilts will have equivalent eligibility to existing gilts in its market operations.
The Financial Conduct Authority (FCA) published the policy statement PS21/9 on implementation of the Investment Firms Prudential Regime.
The European Banking Authority (EBA) proposed regulatory technical standards that set out criteria for identifying shadow banking entities for the purpose of reporting large exposures.
The Board of the International Organization of Securities Commissions (IOSCO) proposed a set of recommendations on the environmental, social, and governance (ESG) ratings and data providers.
The European Securities and Markets Authority (ESMA) published recommendations from the Working Group on Euro Risk-Free Rates (RFR) on the switch to risk-free rates in the interdealer market.
The European Central Bank (ECB) published a paper as well as an article in the July Macroprudential Bulletin, both of which offer insights on the assessment of the impact of Basel III finalization package on the euro area.
The International Swaps and Derivatives Association (ISDA) published a paper that explores the impact of the Fundamental Review of the Trading Book (FRTB) on the trading of carbon certificates.
The Prudential Regulation Authority (PRA) published the remuneration policy self-assessment templates and tables on strengthening accountability.