Application Paper on Resolution Powers and Planning

23 June 2021

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The Application Paper on Resolution Powers and Planning aims to provide supporting material on supervisory practices related to resolution, which is defined in the IAIS Glossary as “actions taken by a resolution authority towards an insurer that is no longer viable, or is likely to be no longer viable, and has no reasonable prospect of returning to viability.” In particular, it provides background for the application of ICP 12 (Exit from the Market and Resolution), including the ComFrame standards and guidance, and is also relevant to ICP 25 (Supervisory Cooperation and Coordination), including the ComFrame standards and guidance (related to crisis management planning). These materials were adopted at the IAIS Annual General Meeting in November 2019.

This Paper aims to:

  • Provide support to supervisors and/or resolution authorities on the practical application of resolution powers, as well as on cooperation and coordination between authorities when planning for, and exercising, such powers;

  • Provide support with regard to resolution planning, which may be beneficial to supervisors, resolution authorities and/or insurers, depending on the circumstances within a jurisdiction; and

  • Provide examples to illustrate the application of standards and guidance relevant to resolution.

The Paper also aims to address issues that were identified during the development of supervisory material in ICP 12 and ComFrame, including feedback received from IAIS Members and stakeholders. Issues that were identified, include:

  • Further guidance and clarifications around expectations for resolution planning;

  • Explanations and examples of the application of resolution powers;

  • The practical application of proportionality in the case of resolution; and

  • The role of policyholder protection schemes (PPS) in resolution. This Paper discusses the role that a PPS, if established within a jurisdiction, may have in relation to certain resolution powers as well as in relation to the resolution authority. It does not, however, aim to provide a comprehensive overview on the role of PPSs in resolution. The IAIS plans to start the development of an Issues Paper on this topic in the second half of 2021.

Application Paper on Supervision of Control Functions

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Effective control functions with necessary independence, stature and resources help insurers identify and manage risks and are considered a crucial element of the corporate governance framework.

The Application Paper on Supervision of Control Functions describes practices aimed at helping supervisors address issues related to the supervision of control functions as described in the Insurance Core Principles (ICPs) and the Common Framework for the Supervision of Internationally Active Insurance Groups (ComFrame). In particular, the Application Paper supports observance of ICP 8 (Risk Management and Control Functions) and is relevant to ICP 5 (Suitability of Persons) and ICP 7 (Corporate Governance).

The Application Paper describes practices aimed at helping supervisors address issues related to the supervision of control functions, such as: role, independence, stature, combination and outsourcing of control functions

Outsourcing and third-party risk – Overview of responses to the public consultation

14 June 2021 | PDF full text (195 KB)

Summary of document history

Summary of document history

On 9 November 2020, the FSB published a discussion paper for public consultation on Regulatory and Supervisory Issues Relating to Outsourcing and Third-Party Relationships. The FSB received 39 responses from a wide range of stakeholders including banks, insurers, asset managers, financial market infrastructures (FMIs), third-party service providers, industry associations, public authorities, and individuals. The FSB also held a virtual outreach meeting in late February 2021, attended by around 200 participants.

This note summarises the main issues raised and views expressed in the public consultation, including the virtual outreach meeting.

FSB Sub-Saharan Africa group discusses financial stability and regulatory and supervisory challenges arising from COVID-19

8 June 2021

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Ref no: 14/2021

The Financial Stability Board (FSB) Regional Consultative Group (RCG) for Sub-Saharan Africa held today a virtual meeting to discuss global and regional macroeconomic and financial market developments, including the financial stability implications of the COVID-19 pandemic on the region.

Members discussed some of the preliminary lessons learnt from the pandemic which were of particular relevance to Sub-Saharan African economies. Looking ahead, members exchanged views on potential threats to regional financial stability. They also shared their considerations in deciding whether and how to exit from temporary public support measures related to COVID-19, when conditions allow.

The group also discussed regulatory and supervisory challenges arising from the pandemic. They exchanged views on the aspects of the global regulatory framework that had been particularly important to their jurisdictions during the pandemic. They also shared information on specific adjustments they had made to their own regulatory and supervisory frameworks, in response to the pandemic, as well as any adjustments that might need to be made in response to identified longer-term and institutional resilience issues.

Members received an update on the FSB’s work programme and the planned deliverables for the G20 in 2021. The group discussed topics of importance for Sub-Saharan Africa member jurisdictions, including work underway in the FSB to: implement the G20 roadmap to enhance cross-border payments; support the transition away from LIBOR; strengthen cyber and operational resilience; and analyse and address climate-related financial risks.

Notes to editors

The FSB RCG for Sub-Saharan Africa is co-chaired by Lesetja Kganyago, Governor, South African Reserve Bank and Ernest Addison, Governor, Bank of Ghana. Membership includes financial authorities from Angola, Botswana, Ghana, Kenya, Mauritius, Namibia, Nigeria, South Africa, Tanzania, Uganda and Zambia as well as the Central Bank of West African States (BCEAO) and the Bank of Central African States (BEAC). Permanent observers include the Committee of Central Bank Governors of the Southern African Development Community, and the East African Community.

The FSB has six Regional Consultative Groups, established under the FSB Charter, to bring together financial authorities from FSB member and non-member countries to exchange views on vulnerabilities affecting financial systems and on initiatives to promote financial stability.1 Typically, each Regional Consultative Group meets twice each year.

The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 25 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with approximately 70 other jurisdictions through its six Regional Consultative Groups.

The FSB is chaired by Randal K. Quarles, Vice Chairman, US Federal Reserve Board; its Vice Chair is Klaas Knot, President of De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

  1. The FSB Regional Consultative Groups cover the following regions: Americas, Asia, Commonwealth of Independent States, Europe, Middle East and North Africa, and sub-Saharan Africa. [←]

Global Transition Roadmap for LIBOR

2 June 2021 | PDF full text (224 KB)

Transition away from LIBOR requires significant commitment and sustained effort from both financial and non-financial institutions across many LIBOR and non-LIBOR jurisdictions.

The Financial Stability Board has identified that continued reliance of global financial markets on LIBOR poses clear risks to global financial stability. On 5 March 2021, ICE Benchmark Administration (IBA) and the UK Financial Conduct Authority (FCA) formally confirmed the dates that panel bank submissions for all LIBOR settings will cease, after which representative LIBOR rates will no longer be available. The majority of LIBOR panels will cease at the end of this year, with a number of key US dollar (USD) settings continuing until end-June 2023, to support rundown of legacy contracts only.

This updated Global Transition Roadmap (GTR) is intended to inform those with exposure to LIBOR benchmarks of some of the steps they should be taking now and over the remaining period to LIBOR cessation dates to successfully mitigate these risks. These are considered prudent steps to take to ensure an orderly transition by end-2021 and are intended to supplement existing timelines/milestones from industry working groups and regulators.

This does not constitute regulatory advice or affect any transition expectations set by individual regulators, which may require firms to move faster in some instances. It is important that all regulated financial institutions have an open and constructive LIBOR transition dialogue with their regulators, both home state and host state, throughout the transition period. As benchmark transitions vary across currency regions and legislation and other actions to promote transition are taking different paths in different jurisdictions, financial institutions, non-financial firms and others with exposure to LIBOR benchmarks should also monitor developments with regard to other IBORs relevant to their business.

Interest rate benchmark reform: Overnight risk-free rates and term rates

| PDF full text (366 KB)

The FSB has recognised that in some cases there may be a role for risk-free rate-derived term rates.

Interest rate benchmarks play a key role in global financial markets. To ensure financial stability, benchmarks which are used extensively must be especially robust. Consistent with this, the FSB, working through the Official Sector Steering Group (OSSG) it set up to coordinate international work to review and reform interest rate benchmarks, welcomes the progress that has been made by public authorities and private sector working groups in transitioning to overnight risk-free, or nearly risk-free, rates (RFRs) that are sufficiently robust for such extensive use.

Some of the working groups on RFRs have considered the development of forward-looking term rates derived from overnight RFRs (also described as “RFR-derived term rates”). However, in many markets, notably the largest part of the interest rate derivative markets, transition to the new overnight RFRs, rather than to these types of term rates, remains particularly important. This is for a number of interconnected reasons:

  • Derivative markets represent a particularly large and often highly leveraged proportion of exposures to interest rate benchmarks.

  • The overnight index swap (OIS) structure substantially reduces the incentive to manipulate individual IBOR settings by removing the stub payment risk.

  • Deep and liquid derivative markets based on the overnight RFRs are an essential prerequisite for creation of robust term benchmarks.

  • Due to their basis in inputs from other derivatives markets, widespread use of term RFRs in derivatives would create the potential for actual or perceived conflicts of interest for market participants.

The derivatives industry has recognised the importance of these issues, and, where IBORs are ending, has developed mechanisms to transition cleared derivatives to overnight RFRs via CCP rule changes, and uncleared derivatives to overnight RFRs via the International Swaps and Derivatives Association (ISDA) Protocol.

The FSB has recognised that in some cases there may be a role for RFR-derived term rates and sets out the circumstances where the limited use of RFR-based term rates would be compatible with financial stability.

FSB issues statements to support a smooth transition away from LIBOR by end 2021

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Ref no: 13/2021

The Financial Stability Board (FSB) has today published a set of documents to support a smooth transition away from LIBOR by the end of 2021. On 5 March 2021, ICE Benchmark Administration (IBA) and the UK Financial Conduct Authority (FCA) formally confirmed the dates that panel bank submissions for all LIBOR settings will cease, after which representative LIBOR rates will no longer be available. The majority of LIBOR panels will cease at the end of this year, although a number of key US dollar (USD) settings will continue until end-June 2023, to support the rundown of legacy contracts only.

In light of these developments, and to facilitate an orderly transition by end-2021, the FSB has published the following statements and reports that set out recommendations for financial and non-financial sector firms, as well as the authorities, to consider:

  • An updated global transition roadmap that, drawing on national working group recommendations, summarises the high-level steps firms will need to take now and over the course of 2021 to complete their transition.

  • A paper reviewing overnight risk-free rates and term rates, building on the concept that the tools necessary to complete the transition are currently available. The FSB cautions market participants against waiting for the development of additional tools, in particular forward-looking term risk-free rates.

  • A statement on the use of the ISDA spread adjustments in cash products, to support transition particularly in loan markets, which remains an area of concern with much new lending still linked to LIBOR.

  • A statement encouraging authorities to set globally consistent expectations that regulated entities should cease the new use of USD LIBOR in line with the relevant timelines for that currency, regardless of where those trades are booked.

The FSB also welcomes the statement on benchmarks transition published today by the International Organization of Securities Commissions, which reiterates the importance of ensuring a smooth and timely transition away from LIBOR.

Given the limited time available until the end of 2021, the FSB strongly urges market participants to act now to complete the steps set out in its global transition roadmap.

The FSB plans to produce its next full report on progress in November 2021.

Notes to editors

The FSB set out in 2014 a series of recommendations for strengthening key interbank offered rates (IBORs) in the unsecured lending markets, and for promoting the development and adoption of alternative nearly risk-free reference rates, where appropriate. The FSB and member authorities, through the FSB Official Sector Steering Group (OSSG) chaired by Andrew Bailey (Governor, Bank of England) and John C. Williams (President and CEO, Federal Reserve Bank of New York), are working to implement and monitor these recommendations. The FSB published its most recent annual progress report on implementation of the recommendations in November 2020.

The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with approximately 70 other jurisdictions through its six Regional Consultative Groups.

The FSB is chaired by Randal K. Quarles, Vice Chairman, US Federal Reserve; its Vice Chair is Klaas Knot, President of De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

Targets for Addressing the Four Challenges of Cross-Border Payments: Consultative document

31 May 2021 | PDF full text (335 KB)

A foundational step in the G20 Roadmap for Enhancing Cross-border Payments consists of setting quantitative global targets for addressing the challenges of cost, speed, transparency and access faced by cross-border payments.

Summary of document history

Summary of document history

A foundational step in the G20 Roadmap for Enhancing Cross-border Payments consists of setting quantitative global targets for addressing the challenges of cost, speed, transparency and access faced by cross-border payments.

This consultation sets out quantitative targets for addressing the challenges of cost, speed, transparency and access faced by cross-border payments.

The targets are a foundational step in the G20 Roadmap for Enhancing Cross-border Payments. Faster, cheaper, more transparent and more inclusive cross-border payment services, including remittances, while maintaining their safety and security, would have widespread benefits for citizens and economies worldwide, supporting economic growth, international trade, global development and financial inclusion. The targets will be set at a global level and will play an important role in defining the ambition of the work on enhancing cross-border payments and creating accountability. They will act as a commitment mechanism to drive change. These targets will therefore need to be monitored and publicly reported on over time.

The consultation:

  • describes the principles, and key design features underpinning, the targets and target metrics;

  • proposes three market segments (wholesale, retail and remittances) for which targets will be set across the four challenges;

  • considers factors in setting the targets; and

  • proposes a small number of high-level, simple targets that are focused on end-users

Responses to this consultative document should be sent to [email protected] by Friday 16 July 2021. Responses will be published on the FSB’s website unless respondents expressly request otherwise. The final recommendations, taking on board feedback from the public consultation, will be delivered for endorsement at the G20 Summit in October 2021 and published.