Resolution of Systemically Important Financial Institutions: Progress Report
Since the adoption of the FSB Key Attributes of Effective Resolution Regimes for Financial Institutions ("the Key Attributes")1 as a new international standard for resolution regimes in November 2011, many jurisdictions have initiated reforms to align national resolution regimes and institutional frameworks with the Key Attributes. Overall, progress is encouraging.
Implementation of the Key Attributes in national resolution regimes
Recent reforms focus on extending the resolution tools to include powers such as bail-in, transfer and bridge bank powers, and on widening the scope of resolution regimes to cover non-bank financial institutions that could be systemically critical if they fail, including investment firms, financial market infrastructures (FMIs) and insurers (particularly insurance groups with non-traditional insurance activities). The
Key Attributes will need to be applied in a manner that reflects the specificities and objectives of resolution of particular sectors, such as protecting insurance policy holders in resolution; facilitating the rapid return or transfer of holdings of client assets in resolution to protect the interests of customers of investment firms; and ensuring the continuity of critical operations and services of FMIs.
Recovery and resolution planning for G-SIFIs
High importance is being given to the effective implementation of the Key Attributes that are directed at global systemically important financial institutions (G-SIFIs). This includes the requirements for cross-border crisis management groups (CMGs), institution-specific cross-border cooperation agreements (COAGs), recovery and resolution plans (RRPs) and resolvability assessments for all G-SIFIs. Considerable but uneven progress has been made in implementing these requirements, guided by CMGs which are now established for nearly all the G-SIFIs designated by the FSB in November 2011.2In the course of that work it became clear that recovery planning, resolvability assessments and the development of COAGs are inter-dependent and iterative processes, and progress in these areas is largely dependent on a clearly articulated, high level 'resolution strategy' for a firm. Accordingly, the priorities of CMGs were adapted to focus on the development of resolution strategies by end-2012.
Recognising that certain aspects of the recovery and resolution planning requirements would benefit from deeper examination and building on the experience of its Members to date, the FSB has developed guidance that it is releasing for public consultation on: (i) the nature of the stress scenarios and triggers for recovery actions that should be used in G-SIFIs' recovery plans; (ii) the development of resolution strategies and associated operational resolution plans tailored to different group structures, drawing on two stylised approaches to resolution - 'single point of entry' and 'multiple point of entry'; and (iii) the identification of the critical functions that would need to be maintained. This guidance is expected to assist those CMGs, authorities and firms at earlier stages of the recovery and resolution planning process and to promote consistency in the approaches of CMGs.
Implementation of the remaining G-SIFI resolution planning requirements is on track to be completed during the first half of 2013, after which the implementation of the resolution planning requirements in relation to each G-SIFI will be reviewed through resolvability assessments by resolution authorities and CMGs, and through a resolvability assessment process that the FSB expects to launch in 2013. For financial firms that are no longer designated as G-SIFIs, the implementation of those requirements will not be evaluated through the FSB assessment process. However, such firms will still be required to have RRPs, and national authorities are encouraged to continue to apply the other requirements proportionately to those firms. Continue reading