Bail-in Execution Practices Paper

13 December 2021 | PDF full text (1 MB)

Operationalising bail-in is a critical part of resolution planning for G-SIBs and other firms where bail-in is part of the resolution strategy.

Bail-in is at the core of resolution strategies for global systemically important banks (G-SIBs). The write-down and conversion of Minimum Total Loss-absorbing Capacity (TLAC) instruments, such as bail-in bonds, and other debt into equity helps to facilitate a creditor-financed recapitalisation. It is an important resolution tool set out in the Key Attributes to achieve an orderly resolution that minimises any impact on financial stability and ensures the continuity of critical functions, without exposing taxpayers to loss.

This paper describes some of the main operational processes and arrangements that resolution authorities of G-SIBs follow when operationalising bail-in in accordance with their jurisdictions’ legal frameworks, securities law and requirements of trading venues (TVs).

Drawing on examples and practices across different jurisdictions, this paper provides an overview of bail-in resolution approaches, including the suspension of trading and delisting from TVs of securities of bailed-in firms; the (re-)listing and (re-)admission to trading of new and existing securities as part of the bail-in process.

The paper reviews the role of central securities depositories (CSDs), which play an important role in the execution of bail-in, reflecting bail-in transactions in their books, e.g. the cancellation of shares, write-down and/or conversion of eligible instruments and issuance of new shares and interim instruments.

Generic overview of main CSD and TV considerations of bail-in execution

Overview of main Central Security Depository and Trading Venue considerations for bail-in execution

The paper also highlights cross-border challenges to the execution of bail-in, when securities are listed on more than one TV (dual listing or secondary listing) across different jurisdictions, or where securities are issued in a market other than the domestic market. These include the suspension of trading and settlement across all relevant TVs and CSDs; the distribution of the new securities in foreign markets/ to foreign investors; and operational challenges arising for example from the involvement of multiple CSDs. These issues introduce additional complexities to the execution of bail-in, which may need to be specifically addressed as part of resolution planning.

The FSB will continue to facilitate the sharing of practices amongst authorities and efforts to address these issues, including by continuing its engagement with stakeholders as part of the work of its Resolution Steering Group and Bank Cross-Border Crisis Management Working Group.

FSB illustrates practical approaches to the execution of bail-in

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Ref: 43/2021

The Financial Stability Board (FSB) today published a Practices Paper on the Execution of Bail-in.

Bail-in is at the core of resolution strategies for global systemically important banks (G-SIBs). Set out in the Key Attributes of Effective Resolution Regimes for Financial Institutions, it is an important tool enabling an orderly resolution that minimises any impact on financial stability and ensures the continuity of critical functions, without exposing taxpayers to loss.

Operationalising bail-in is a critical part of resolution planning for G-SIBs and other firms where bail-in is part of the resolution strategy. Since the adoption of the FSB’s Principles on Bail-in Execution, resolution planning has progressed, and authorities have developed approaches and practices in accordance with their respective jurisdictions’ legal frameworks, securities law and exchange requirements.

Drawing on examples and practices across different jurisdictions, this paper provides an overview of practices, operational processes and arrangements as part of the bail-in process. This includes the suspension of trading and delisting from trading venues of securities of bailed-in firms; the (re-)listing and (re-)admission to trading of new and existing securities; and the role central securities depositories (CSDs) play in the cancellation of shares, write-down and/or conversion of eligible instruments, and issuance of new shares and interim instruments.

The paper also highlights cross-border challenges to the execution of bail-in, where securities are listed on more than one trading venue across different jurisdictions, or where securities are issued in a market other than the domestic market. These include the suspension of trading and settlement across all relevant trading venues and CSDs; the distribution of the new securities in foreign markets or to foreign investors; and operational challenges arising for example from the involvement of multiple CSDs. These issues introduce additional complexities to the execution of bail-in, which may need to be specifically addressed as part of resolution planning.

The FSB will continue to facilitate the sharing of practices amongst authorities and efforts to address these issues, including by continuing its engagement with stakeholders as part of the work of its Resolution Steering Group and Bank Cross-Border Crisis Management Working Group.

Notes to editors

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 Klaas Knot, President of De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

A draft framework for money laundering/terrorist financing risk assessment of a remittance corridor

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This IMF-World Bank report proposes a draft framework and methodology for risk assessment in remittance corridors having the potential of being identified as “safe remittance corridors”.

This draft framework by IMF and World Bank staff provides a contribution to the FSB’s Roadmap for Enhancing Cross-Border Payments that was endorsed by G20 Leaders in 2020 and that aims to achieve faster, cheaper, more transparent, and more inclusive cross-border payment services. Specifically, the draft framework for remittance corridors’ risk assessments is the first action under Building Block 7, the goal of which is to promote “safe payment corridors”, and which has two phases:

  1. The development of a framework and methodology for the assessment of the money laundering and terrorist financing (ML/TF) risks in remittance corridors and the identification of potential “lower risk corridors,” as part of or consistent with a country’s national ML/TF risk assessment.
  2. The proposed framework is expected to be piloted in some corridors with a view to testing and further refining the assessment methodology.

This assessment framework can be applied jointly or separately by the sender and the recipient corridor countries.

Correspondent Banking Relationship Pressures on Remittances

Remittances are the financial lifeblood for the families of migrant workers and the economies of many emerging markets and developing economies, but they may pose ML/TF risks. Though remittances may pose ML/TF risks, all remittance corridors and all the transaction categories in a remittance corridor should not be treated as inherently higher risk and lower risk situations can be identified. Effective ML/TF risk assessments are a critical underpinning for having a risk-based regulatory framework for a remittance corridor.

In recent years, global correspondent banks have been terminating or restricting business relationships with certain client categories. A number of key drivers have been behind this decline. In some cases it has involved so-called “de-risking”, where financial institutions terminate or restrict business relationships with clients or categories of clients to avoid, rather than manage, ML/TF risk in line with a risk-based approach.

Withdrawal of correspondent banking relationships has affected remittance service providers and created new challenges in the provision of remittance services in some countries. In some countries and regions, smaller remittance players have been forced to close, to become agents of larger businesses, or to continue remittance transactions through unregulated channels or alternative arrangements such as nested correspondent relationships and cash couriers.

Objective of a Remittance Corridor Risk Assessment

The objective of a corridor risk assessment is assessing and understanding the ML/TF risks of remittances in a corridor, with the aim of simplifying AML/CFT measures in lower risk remittance transactions. If the corridor risk assessment assesses that the overall ML/TF risk level in the corridor is lower, the corridor can be treated as a “safe remittance corridor” and subject to simplified customer due diligence (CDD) measures by regulatory authorities, which can be implemented by the private sector.

The identification of safe remittance corridors based on a robust corridor risk assessment CRA can reconcile two important policy goals in relation to remittances: first, to support poverty alleviation and economic growth in low-income countries by safeguarding cost-effective transfer mechanisms; and second, to minimize the risk that these mechanisms will be used for criminal or terrorist purposes.

To reflect the scope more accurately, this report uses the term “safe remittance corridor” rather than “safe payment corridor”. The term “safe remittance corridor” does not imply an absence of ML/TF risks in a corridor, but rather a lower risk level.

Lael Brainard appointed as Chair of the FSB’s Standing Committee on Assessment of Vulnerabilities (SCAV)

10 December 2021

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Ref: 42/2021

The Financial Stability Board (FSB) has appointed Lael Brainard, currently a Governor of the US Federal Reserve Board, as Chair of the FSB’s Standing Committee on Assessment of Vulnerabilities (SCAV), effective today.

The SCAV is the FSB’s committee that monitors and assesses vulnerabilities in the global financial system and proposes to the FSB Plenary actions needed to address them.

Lael Brainard succeeds Klaas Knot, President of De Nederlandsche Bank, who served as Chair of the Committee since September 2016 and who became FSB Chair on 2 December. Ms Brainard’s appointment is for a two-year term, renewable once.

On Ms Brainard’s appointment, Mr Knot said “The assessment of vulnerabilities in the global financial system is a core mandate of the FSB and Lael’s deep understanding of financial stability issues makes her the ideal candidate to lead the SCAV. I look forward to working with Lael as SCAV Chair.”

Notes to editors

Lael Brainard has been a member of the Board of Governors of the Federal Reserve System since June 2014. In November 2021, President Biden announced his intent to nominate her as Vice Chair of the Federal Reserve Board.

The FSB Standing Committees have been established by the FSB Plenary to each take forward part of the FSB’s mandate. Their mandates are set out in the FSB Charter, and their current memberships are available here.

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 Klaas Knot, President of De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

FSB seeks feedback on how existing national and regional data frameworks affect cross-border data flows

The FSB is conducting a survey as part of its work under Building Block 6 of the Roadmap for enhancing Cross-border Payments, where the FSB agreed to conduct a stocktake of existing national and regional data frameworks relevant to the functioning, regulation and supervision of cross-border payment arrangements, and to identify issues relating to cross-border use of those data by national authorities and by the private sector.

The FSB wishes to gather stakeholders’ feedback in order to better understand how requirements applicable to data – e.g., where and what data must be stored/retained, where it may be transferred, the rules governing the security or access to data, could affect (either enabling or impeding) cross-border payments, by potentially affecting cost, speed, access, security of cross-border payments, or interoperability of cross-border payment networks. Stakeholder views are also requested on what any potential frictions are, as well as which policies are most effective.

Many of the frictions contributing to these challenges arise from their cross-jurisdictional nature. One of the key topics to consider is how existing national and regional data frameworks interact with and affect the functioning, regulation and supervision of cross-border payment arrangements.

Data Frameworks within scope include:

  • Domestic data frameworks, including rules, regulations, guidelines and supervisory guidance, that affect the provision of – or access to – cross-border payment services in one or more jurisdictions, or the manner in which those services utilize cross-border payments data in one or more jurisdictions, such as:
    • Frameworks regulating access to data, such as open banking frameworks
    • Frameworks regulating data privacy, security or storage, such as data location requirements, electronic communications, data sharing with use of third-party providers
    • Requirements for data retention, e.g., required data items for regulatory compliance
    • Multilateral, bilateral trade agreements covering use and sharing of data across borders
  • Implementation of international standards from the FSB and other standard-setting bodies, including BCBS, CPMI, FATF, IAIS, IOSCO, if not included as part of formal domestic data frameworks.
  • Other international efforts, arrangements, or agreements that jurisdictions may implement in their domestic data frameworks or that may affect cross-border data flows.

In particular, the FSB invites feedback from banks, non-banks, financial market infrastructures, academics and industry associations on the following issues:

  1. How, in your view, do data-specific requirements or objectives of existing national and regional data frameworks, such as those listed above, currently affect (either positively or negatively):
    1. the cost and speed of delivering payments,
    2. access and transparency (e.g., through compliance costs or through measures enabling or reducing competition) and
    3. other aspects that affect the delivery of, or regulatory compliance with respect to, cross-border payments?
  2. More specifically, what barriers to cross-border use of data do you see in existing data frameworks that will impede our ability to address the four challenges faced by cross-border payments?
  3. What areas of improvement could you suggest in data frameworks in order to overcome these barriers? Are there effective practices you would highlight to the FSB membership?
  4. Can approaches to data frameworks in one jurisdiction impact the provision or supervision of cross-border payments services in other jurisdictions? Are there particular issues that you would like to highlight?
  5. Are there particular payment corridors (especially related to emerging markets) that you wish to highlight to the FSB as facing specific challenges relating to data frameworks?

Responses to the survey will support FSB member authorities in the analysis of the constraints on cross-border data flows imposed by existing national and regional data frameworks.

Please submit your feedback via the online survey. The survey closes on Friday 14 January 2022 at 08:59 AM CET.

For questions please contact the FSB.

2021 Resolution Report: “Glass half-full or still half-empty?”

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Ten years since the adoption of the “Key Attributes of Effective Resolution Regimes”, how far have we come and where do we go from here?

This year’s Resolution Report commemorates the tenth anniversary of the FSB Key Attributes of Effective Resolution Regimes for Financial Institutions (“Key Attributes”) which were adopted by the FSB Plenary in October 2011 and endorsed by the G20 at the Cannes Summit in November 2011.

Since their adoption ten years ago, the FSB Key Attributes of Effective Resolution Regimes have set the standard for the reform of resolution regimes and resolution planning across all sectors. While progress towards resolvability has been significant, the FSB´s recent evaluation of the “too big to fail” reforms found that a number of gaps need to be addressed to fully realise the benefits of the resolution reforms. Looking ahead, emerging themes in resolution planning relate to digital innovation, including in relation to reliance on third-party service providers and cloud services and the need to assess resolvability of non-traditional market participants.

  • Banks – Important work remains to improve the resolvability of global systemically important banks. Work continues on allocation of Total Loss-Absorbing Capacity (TLAC) resources within groups, G-SIBs’ capabilities for access to funding in resolution, valuation and continuity of access in resolution to financial market infrastructures (FMIs). Cross-border issues remain to be addressed for instance in relation to funding in resolution and bail-in execution. The FSB will soon publish a practices paper that summarises the issues on the latter.

  • Central Counterparties (CCPs) – Uncertainty remains around the resolvability of CCPs given their systemic role in the financial system. A preliminary analytical report on CCP financial resources will be published in early 2022 and will inform options for potential new or revised international policy on the use, composition or amount of financial resources for CCP recovery or resolution.

  • Insurers – Progress on resolution reforms and resolution planning implementation in the insurance sector has been mixed. As in prior years, some jurisdictions have identified systemically important insurers and/or internationally active insurance groups. Work on resolution planning and resolvability assessments for these institutions has started or is under way. The FSB will soon publish two papers that present practices regarding financial and operational interconnectedness in resolution planning and funding in resolution.

The FSB has also published the data underpinning the Resolution Reform Index which is used in Graph 5 of the Resolution Report. The index illustrates the progress of FSB jurisdictions in adopting comprehensive bank resolution reforms since the global financial crisis. A detailed description of the RRI can be found in Annex F of the March 2021 FSB Report on the Evaluation of Too-Big-To-Fail Reforms.

Datasets from the report are publicly available for use in accordance with the FSB’s normal terms and conditions.

Resolution Report marks 10 years since the adoption of the FSB’s Key Attributes of Effective Resolution Regimes

Press enquiries:
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Ref: 41/2021

The Financial Stability Board (FSB) today published its 2021 Resolution Report. This year’s report commemorates the tenth anniversary of the FSB Key Attributes of Effective Resolution Regimes for Financial Institutions (“Key Attributes”) and takes stock of progress made in implementing FSB resolution policies and enhancing resolvability across the banking, financial market infrastructure, and insurance sectors. It also sets out the FSB’s priorities in the resolution area going forward.

Since their adoption ten years ago, the Key Attributes have set the standard for the reform of resolution regimes and resolution planning across all sectors. Progress towards resolvability has been significant, but the FSB´s recent evaluation of the “too big to fail” reforms found that a number of gaps need to be addressed to fully realise the benefits of the resolution reforms. In addition, digital innovation is giving rise to new challenges for resolution planning, including in relation to the reliance on third-party service providers and cloud services, and the need to assess resolvability of non-traditional market participants.

  • Banks – Work is under way to build up external TLAC for four emerging market economy G-SIBs due to comply with the TLAC standard by January 2025. All other G-SIBs report that they already meet or exceed the final TLAC requirement. Not all G-SIBs consistently disclose information on internal TLAC. Cross-border issues remain to be addressed, for instance in relation to funding in resolution and bail-in execution. The FSB will shortly publish a practices paper that summarises the issues on the latter.

  • Central Counterparties (CCPs) – Uncertainty remains around the resolvability of CCPs given their systemic role in the financial system. A preliminary report will be published in early 2022 and will inform options for new or revised international policy on the use, composition or amount of financial resources for CCP recovery or resolution.  

  • Insurers – As in prior years, some jurisdictions have identified systemically important insurers and/or internationally active insurance groups. Work on resolution planning and resolvability assessments for these institutions has started or is under way. The FSB will soon publish two papers that present practices regarding financial and operational interconnectedness in resolution planning and funding in resolution.

Notes to editors

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 Klaas Knot, President of De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

2021 Resolution Reform Index (RRI)

FSB Americas group discusses financial stability outlook and the implications of crypto-assets for financial stability

6 December 2021

Press enquiries:
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Ref: 40/2021

The Financial Stability Board (FSB) Regional Consultative Group (RCG) for the Americas held a virtual meeting today to discuss recent global and regional macroeconomic and financial market developments and the outlook for the region.

Members exchanged views on possible financial stability implications from the COVID-19 pandemic and recovery, including implications for capital flows in emerging market and developing economies (EMDEs) due to divergent growth patterns across countries.  

Members also discussed the impact of rapidly evolving crypto-asset markets on financial systems in the region and their implications for financial stability. The group also shared experiences on the impact of the COVID-19 pandemic on accelerating digital innovation in the financial system and financial inclusion.

The group received an update on the FSB’s work programme, including planned deliverables to the G20 during the Indonesian Presidency in 2022. Members deliberated on areas of importance for RCG Americas member jurisdictions and how they could contribute to the FSB’s work programme.

Notes to editors

The FSB RCG for the Americas is currently chaired by Cindy Scotland, Managing Director of the Cayman Islands Monetary Authority. Membership includes financial authorities from Argentina, Bahamas, Barbados, Bermuda, Bolivia, Brazil, British Virgin Islands, Canada, Cayman Islands, Chile, Colombia, Costa Rica, Guatemala, Honduras, Jamaica, Mexico, Panama, Paraguay, Peru, Trinidad and Tobago, Uruguay and the United States of America.

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 stability1. 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 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. [←]