The Financial Stability Board (FSB) has published two finalised guidance papers and three consultative documents as part of its policy agenda to end “too-big-to-fail” and promote the resolvability of all financial institutions that could be systemic in failure through full implementation of the Key Attributes of Effective Resolution Regimes for Financial Institutions (the Key Attributes).

Finalised Guidance Paper – Principles for cross-border effectiveness of resolution actions

At the St Petersberg G20 summit in 2013 the FSB made a commitment to “develop policy proposals on how legal certainty in cross-border resolution can be further enhanced.” These principles set out statutory and contractual mechanisms that jurisdictions should consider including in their legal frameworks to give cross-border effect to resolution actions in accordance with the Key Attributes.

However, the principles are not intended to be comprehensive, and each jurisdiction will need to consider what is required in the context of its own legal environment for such a legal framework to be effective.

The guidance paper has been developed with a focus on the resolution of banks. However, many of the legal issues and principles that are contained within it may be relevant to other types of financial institutions as well as to financial market infrastructures.

Finalised Guidance Paper – Guidance on cooperation and information sharing with host authorities of jurisdictions where a G-SIFI has a systemic presence that are not represented on its CMG

The Key Attributes require home and key host authorities of FSB designated global systemically important financial institutions (G-SIFIs) to maintain Crisis Management Groups (CMGs) to prepare for and manage a cross-border financial crisis affecting the firm. Among other things, CMGs provide a forum for the discussion and agreement of resolution strategies and plans and the coordination of resolvability assessments.

For reasons of operational efficiency, practicality and effective decision making, the membership of CMGs is generally limited to core jurisdictions and authorities that are material for a group-wide resolution of the firm, meaning the authorities that have resolution responsibilities relating to the significant or critical functions of the G-SIFI, including its holding company and material operating entities. However, with membership limited in this way, it is possible that some jurisdictions where operations of the firm are locally systemic but not material in the context of the overall group will not be represented in the CMG.

The guidance paper is addressed to home authorities and CMGs of G-SIFIs, and non-CMG host authorities of G-SIFIs. Its purpose is to provide guidance on cooperation and information sharing between CMGs and non-CMG host jurisdictions. It covers:

  • processes for identifying jurisdictions where operations of a G-SIFI are locally systemic;
  • criteria for assessing a systemic G-SIFI presence in a non-CMG host jurisdiction;
  • possible cooperation and information sharing arrangements with a non-CMG host jurisdiction; and
  • classes of information that should be shared.

Consultation – Guiding principles on the temporary funding needed to support the orderly resolution of a global systemically important bank

In its November 2014 report to the G20 entitled Progress in reform of resolution regimes and resolution planning for global systemically important financial institutions the FSB identified the provision of temporary funding in resolution as an outstanding issue that needs to be addressed to complete the FSB’s SIFI reform agenda.

In a plenary session the FSB agreed that further work should be conducted in 2015 to develop a set of guiding principles regarding the temporary funding of firms in resolution to support implementation of the preferred resolution strategies of G-SIBs. These guiding principles should be consistent with the Key Attributes.

The FSB has now published a consultative document that proposes guiding principles that are intended to ensure that temporary funding is available to enable the effective resolution of G-SIBs without bail-out by the public sector and in a way that reduces moral hazard, with a preference for private sector provision of liquidity.

The deadline for comments on the consultative document is 4 January 2016.

Consultation – Guidance on arrangements to support operational continuity in resolution

In its September 2013 report to the G20 entitled Progress and Next Steps in Ending “Too-Big-to-Fail” the FSB identified operational continuity in resolution as an outstanding issue that needs to be addressed in order for authorities and market participants to have confidence that resolution strategies and plans can be implemented in practice. Operational continuity refers to the means of ensuring continuity of critical shared services that are necessary to maintain a firm’s critical functions in resolution. It is a key aspect of resolution planning for individual firms.

The FSB has published a consultative document that contains draft guidance which identifies a number of arrangements that could support operational continuity in resolution and help address obstacles to resolvability that arise from uncertainties about continuity of critical shared services. It discusses those arrangements in the context of three prevailing industry models: service provision within a regulated entity, service provision by an intra-group service company and service provision by a third party service provider. However, the draft guidance does not specifically address continued access to Financial Market Infrastructure services. The FSB acknowledges that this may be essential to support continuity of certain critical functions and will consider this aspect separately.

The deadline for responses to the consultative document is 4 January 2016.

Consultation – Developing effective resolution strategies and plans for systemically important insurers

In October 2014, the FSB adopted implementing guidance on how provisions of the Key Attributes, including resolution powers and the details of recovery and resolution planning, should be interpreted for insurers.

The FSB has issued a consultative document that builds on that guidance. It also incorporates guidance on the identification of critical insurance functions, which was the subject of a separate consultation last year. Elements from that consultative document have been included in the document that the FSB has now published because of the close connection between critical functions, the institution-specific resolution objectives and the development of resolution strategies.

The deadline for comments on the consultative document is 4 January 2016.

View New measures to promote resolvability, including effective cross-border resolution, 3 November 2015