FSB Chair presents a comprehensive roadmap for addressing climate-related financial risks

7 July 2021

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Ref no: 18/2021

The Financial Stability Board (FSB) today published a letter from its Chair, Randal K. Quarles, to G20 Finance Ministers and Central Bank Governors ahead of their 9-10 July meeting.

The letter notes mounting evidence of global recovery, even if uneven across regions. However, some risks to financial stability remain elevated. The global financial system has weathered the COVID Event thus far, thanks to greater resilience brought about by the G20 financial regulatory reforms, and the swift, bold and determined international policy response. But there are areas where there is a need to understand better whether the reforms have functioned as intended, and others where the COVID Event has surfaced vulnerabilities that need to be addressed with urgency, notably in non-bank financial intermediation, including in money market funds.

  • On 30 June, the FSB published a consultation report on policy proposals to enhance money market fund resilience.

  • On 13 July, the FSB will publish an interim report on the overall lessons learnt from the COVID Event from a financial stability perspective.

The Chair’s letter stresses the need for coordinated action to address financial risks posed by climate change, noting the large, and growing, number of international initiatives underway. The FSB has submitted to the G20 for endorsement a comprehensive roadmap to address climate-related financial risks. The roadmap outlines the work underway and still to be done by standard-setting bodies and other international organizations over a multi-year period in four key policy areas: disclosures, data, vulnerabilities analysis, and regulatory and supervisory approaches. In total, the FSB is publishing today three climate-related reports:

The Chair’s letter also reiterates the importance of completing the transition way from LIBOR to robust alternative rates by end-2021 and strongly urges market participants to act now to complete the steps set out in the FSB’s Global Transition Roadmap.

  • On 6 July, the FSB published its latest progress report on LIBOR transition.

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 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.

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Progress report to the G20 on LIBOR transition issues: Recent developments, supervisory issues and next steps

6 July 2021 | PDF full text (3 MB)

The publication of the majority of LIBOR settings will cease in less than half a year

With the end of 2021 getting ever nearer, the transition away from LIBOR is a significant priority for the FSB. Continued engagement from the private sector, in conjunction with a significant commitment by the official sector, remains critical in order to support this transformational effort and to support financial stability on a sustainable basis.

The majority of LIBOR panels will cease at the end of the year, with a number of key US dollar settings continuing until end-June 2023 to support the rundown of legacy contracts only. With clear cessation dates now confirmed, progress needs to accelerate in order to achieve a timely transition. A smooth and orderly transition requires, at a minimum, steps to stop issuance of new products linked to LIBOR and efforts to transition away from LIBOR in legacy contracts wherever feasible.

Since its first benchmark transition report in 2014, the FSB has continually highlighted the structural post-financial crisis decline in liquidity in the interbank unsecured funding markets underpinning IBOR benchmarks. For example, published data show that LIBOR rates are largely reliant on judgement-based submission rather than on market transactions, demonstrating that interbank unsecured funding markets are an unsustainable reference source.

Loan markets remain an area of concern, with much new lending still linked to LIBOR, increasing the stock of contracts affected by its discontinuation.  The report stresses that the tools necessary to complete the transition are currently available, and have been for some time. Market participants must not wait for the development of additional tools.  Over the past several years, market participants have established mechanisms to use compounded risk-free rates (RFRs) not only in derivative markets, where use of RFRs was already common, but also in the cash markets. The FSB recognises that in some cases there may be a role for RFR-derived term rates.

On the international front, the report stresses that collaboration and coordination remain crucial in expediting transition progress. The FSB encourages authorities to set globally consistent expectations and milestones that firms will rapidly cease the new use of LIBOR, regardless of where those trades are booked or in which currency they are denominated.

The report points to the FSB’s recently updated Global Transition Roadmap, which, 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 the transition away from LIBOR. Given the limited available until end-2021, the FSB strongly urges market participants to act now to complete the steps set out in the roadmap.

FSB urges action to complete the transition away from LIBOR by end-2021

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Ref no: 17/2021

The Financial Stability Board (FSB) today published a progress report to the G20 on LIBOR transition and remaining issues.

With timelines for cessation of LIBOR panels now confirmed, there should be no remaining doubts as to the urgency of the need to transition away from LIBOR by the end of 2021. The FSB encourages authorities to set globally consistent expectations and milestones that firms will rapidly cease the new use of LIBOR, regardless of where those trades are booked or in which currency they are denominated. Market participants are urged to cease new use of LIBOR in all currencies as soon as practicable, respecting national working group timelines and supervisory guidance where applicable, and in any case no later than the end of 2021.

Given the extent of risks associated with a failure to prepare adequately for LIBOR transition, the onus is now on firms to act. With limited time available until end-2021, the FSB strongly urges market participants to act now to complete the steps set out in its Global Transition Roadmap. Financial and non-financial institutions need to accelerate adoption of robust benchmark rates in new contracts, as well as active conversion of legacy LIBOR-referencing contracts to directly reference risk-free rates and/or insert robust fallback language.

Supervisory authorities should step up their efforts for active and adequate communication to increase awareness of the scope and urgency of relevant IBOR transitions for all clients. The FSB, through its Regional Consultative Groups, will undertake work to support transition in emerging market and developing economies, where engagement with financial institutions on transition planning is in general lagging.

Arthur Yuen, Deputy Chief Executive of the Hong Kong Monetary Authority and lead of the FSB team on supervisory issues related to LIBOR transition, said, “As end-2021 is fast approaching, it is crucial for authorities to monitor progress against expected milestones and maintain close supervisory dialogue with regulated financial institutions to ensure a smooth and robust transition.”

Andrew Bailey, Governor of the Bank of England and Co-Chair of the FSB’s Official Sector Steering Group said, “We are now in the final chapter in the global process to transition markets from LIBOR rates. Basing reference rates on insufficiently active markets creates a fundamental weakness, and transition from LIBOR needs to focus on addressing this. Using robust overnight risk-free rates that are based on large flows of actual transactions will help to create a more resilient and transparent financial system.”

John C. Williams, President of the Federal Reserve Bank of New York and Co-Chair of the FSB’s Official Sector Steering Group said, “In these final months until no new LIBOR, remember: we never want to repeat this transition again. So for the sake of global financial stability, choose robust, enduring reference rates. For US dollar LIBOR, that means building the transition on an unshakable SOFR foundation.”

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) co-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.

In June 2021, the FSB issued a set of documents that outlined recommendations for financial and non-financial firms, as well as authorities, to consider to ensure an orderly transition way from LIBOR by end-2021.

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.

Guidance on proliferation financing risk assessment and mitigation

30 June 2021

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In October 2020, the FATF revised its Standards (Recommendation 1 and its Interpretive Note) to require countries, financial institutions, designated non-financial businesses and professions (DNFBPs) and virtual asset service providers (VASPs) to identify, assess, understand and mitigate their proliferation financing risks. The FATF Guidance on Proliferation Financing Risk Assessment and Mitigation, published in June 2021, aims to help countries, financial institutions, DNFBPs and VASPs effectively implement these new FATF requirements.

The Guidance benefited from engagement with various stakeholders and reflects the input from a public consultation in March 2021. It explains how both public and private sectors should conduct risk assessments in the context of proliferation financing, and how they can mitigate the risks they identify. It provides an updated list of indicators of the potential breach, non-implementation or evasion of proliferation financing targeted financial sanctions.

The Guidance includes advice to supervisors and self-regulatory bodies responsible for ensuring that proliferation financing risks are being properly assessed and mitigated. The Guidance emphasises the need for supervisors, financial institutions, and other relevant entities to apply the new obligations in a manner that is proportionate to the risks identified, in order to avoid contributing to de-risking or financial exclusion.

Policy proposals to enhance money market fund resilience: Consultation Report

| PDF full text (1 MB)

Enhancing MMF resilience will help address systemic risks and minimise the need for future extraordinary central bank interventions to support the sector.

Summary of document history

Summary of document history

Enhancing MMF resilience will help address systemic risks and minimise the need for future extraordinary central bank interventions to support the sector.

The FSB’s holistic review of the March 2020 market turmoil highlighted structural vulnerabilities in MMFs and related stress in short-term funding markets. MMFs are susceptible to sudden and disruptive redemptions, and they may face challenges in selling assets, particularly under stressed conditions. These features can make individual MMFs, or even the entire MMF sector, susceptible to runs, and may also give rise to system-wide vulnerabilities.

The policy options in the report aim to address these vulnerabilities and are intended to inform jurisdiction-specific reforms and any necessary adjustments to the policy recommendations for MMFs issued by the International Organization of Securities Commissions (IOSCO). Enhancing MMF resilience will help address systemic risks and minimise the need for future extraordinary central bank interventions to support the sector.

The policy options are grouped according to the main mechanism through which they aim to enhance MMF resilience – namely, to: impose on redeeming investors the cost of their redemptions; absorb losses; reduce threshold effects; and reduce liquidity transformation. The report assesses the likely effects of each option on the behaviour of MMF investors, fund managers and sponsors, as well as their implications for the underlying markets,

The consultation report also sets out considerations on how different policy options could be selected and combined to address all the vulnerabilities arising from different types of MMFs. The optimal combination should take account of jurisdiction-specific circumstances and policy priorities, as well as cross-border considerations including to prevent regulatory arbitrage that could arise from adopting divergent approaches across jurisdictions.

Policies aimed at enhancing the resilience of MMFs could be accompanied by additional reforms in two areas: (i) policies to support robust risk management by fund managers and risk monitoring by authorities; and (ii) measures to improve the functioning of the underlying short-term funding markets.

Responses to the public consultation should be sent to [email protected] by 16 August with “MMF policy proposals” in the subject line. All responses will be published on the FSB website unless respondents request otherwise. The final report will be published in October 2021.

FSB seeks feedback on its policy proposals to enhance money market fund resilience

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Ref no: 16/2021

The Financial Stability Board (FSB) today published a consultation report with policy proposals to enhance money market fund (MMF) resilience. The proposals form part of the FSB’s work programme on non-bank financial intermediation (NBFI).

The FSB’s Holistic review of the March 2020 market turmoil highlighted structural vulnerabilities in MMFs and related stress in short-term funding markets. MMFs are susceptible to sudden and disruptive redemptions, and they may face challenges in selling assets, particularly under stressed conditions. These features can make individual MMFs, or even the entire MMF sector, susceptible to runs, and may also give rise to system-wide vulnerabilities.

The policy options in the report aim to address these vulnerabilities and are intended to inform jurisdiction-specific reforms and any necessary adjustments to the policy recommendations for MMFs issued by the International Organization of Securities Commissions (IOSCO). Enhancing MMF resilience will help address systemic risks and minimise the need for future extraordinary central bank interventions to support the sector.

The policy options are grouped according to the main mechanism through which they aim to enhance MMF resilience – namely, to: impose on redeeming investors the cost of their redemptions; absorb losses; reduce threshold effects; and reduce liquidity transformation. The report assesses the likely effects of each option on the behaviour of MMF investors, fund managers and sponsors, as well as their implications for the underlying markets,

The consultation report also sets out considerations on how different policy options could be selected and combined to address all the vulnerabilities arising from different types of MMFs. The optimal combination should take account of jurisdiction-specific circumstances and policy priorities, as well as cross-border considerations including to prevent regulatory arbitrage that could arise from adopting divergent approaches across jurisdictions.

Policies aimed at enhancing the resilience of MMFs could be accompanied by additional reforms in two areas: (i) policies to support robust risk management by fund managers and risk monitoring by authorities; and (ii) measures to improve the functioning of the underlying short-term funding markets.

Responses to the public consultation should be sent to [email protected] by 16 August with “MMF policy proposals” in the subject line. All responses will be published on the FSB website unless respondents request otherwise. The final report will be published in October 2021.

Notes to editors

The FSB published a Holistic review of the March 2020 market turmoil which lays out a comprehensive and ambitious work programme for strengthening the resilience of the NBFI sector while preserving its benefits. The policy proposals to enhance the resilience of MMFs are a key deliverable of the work programme for 2021.

The proposals were developed by the FSB Technical Expert Group (TEG) on MMFs, which comprises experts from FSB and IOSCO member institutions. The TEG is co-chaired by representatives of the Bank for International Settlements and the US Securities and Exchange Commission, supported by a joint FSB and IOSCO Secretariat. In preparing these proposals, the TEG analysed information from various sources and engaged with stakeholders.

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.

Press release available as: PDF

Thematic Peer Review on Corporate Debt Workouts: Summary Terms of Reference

28 June 2021 | PDF full text (200 KB)

Effective corporate restructuring and insolvency frameworks are necessary to help minimise risks to financial stability that could be caused by widespread defaults.

The Financial Stability Board (FSB) is seeking feedback from stakeholders as part of its thematic peer review on corporate debt workouts. The objective of the review is to support COVID-19 response efforts by examining FSB member jurisdictions’ practices, experiences and lessons from out of court debt workouts (OCWs), and the implications for financial stability.

The peer review will take stock of existing and planned OCW frameworks in FSB jurisdictions. It will examine the experience of particular mechanisms that have been, or are being used, to address corporate stress, including the role of financial sector authorities. The review will also seek to identify good practices and lessons on how well OCW frameworks have worked in terms of preserving value for viable companies and how useful their debt restructurings are for resolving non-performing loans and dealing with a large number of distressed corporates.

The Summary Terms of Reference provide more details on the objectives, scope and process for this review. The FSB has distributed a questionnaire to member jurisdictions to collect information in this area. In addition, as part of this peer review, the FSB invites feedback from financial institutions, corporates, insolvency practitioners and other stakeholders on out of court corporate debt workouts. This could include comments on:

  • the types of OCW frameworks (e.g. informal workouts, enhanced workouts and hybrid workouts) most often used in your jurisdiction and why;

  • features of OCW frameworks that may be particularly helpful to minimise the economic and financial system damage caused by corporate defaults due to COVID-19;

  • the appropriate role of financial sector authorities in facilitating debt restructuring, including to incentivise the participation of various stakeholders in an OCW; and

  • experiences and challenges in the use of OCWs, including to manage the volume of non-performing loans in the financial system.

Feedback should be submitted by 9 August 2021 to [email protected] under the subject heading “FSB Thematic Peer Review on Corporate Debt Workouts”. Individual submissions will not be made public.

The peer review report is expected to be published in early 2022.

FSB launches thematic peer review on corporate debt workouts and invites feedback from stakeholders

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Ref no: 15/2021

The Financial Stability Board (FSB) is seeking feedback from stakeholders as part of its thematic peer review on corporate debt workouts. The objective of the review is to support COVID-19 response efforts by examining FSB member jurisdictions’ practices, experiences and lessons from out of court debt workouts (OCWs), and the implications for financial stability.

The peer review will take stock of existing and planned OCW frameworks in FSB jurisdictions. It will examine the experience of particular mechanisms that have been or are being used to address corporate stress, including the role of financial sector authorities. The review will also seek to identify good practices and examples of how well OCW frameworks have worked in terms of preserving value for viable companies and how useful their debt restructurings are for resolving non-performing loans and dealing with a large number of distressed corporates.

The Summary Terms of Reference provide more details on the objectives, scope and process for this review. The FSB has circulated a questionnaire to its member jurisdictions to collect information in this area.

In addition, as part of this peer review, the FSB invites feedback from financial institutions, corporates, insolvency practitioners and other stakeholders on out of court corporate debt workouts. This could include comments on:

  • the types of OCW frameworks (e.g. informal workouts, enhanced workouts and hybrid workouts) most often used in your jurisdiction and why;

  • features of OCW frameworks that may be particularly helpful to minimise the economic and financial system damage caused by corporate defaults due to COVID-19;

  • the appropriate role of financial sector authorities in facilitating debt restructuring, including to incentivise the participation of various stakeholders in an OCW; and

  • experiences and challenges in the use of OCWs, including to manage the volume of non-performing loans in the financial system.

Feedback should be sent to [email protected] by 9 August 2021 under the subject heading “FSB Thematic Peer Review on Corporate Debt Workouts”. Individual submissions will not be made public. The peer review report will be published in early 2022.

Notes to editors

The FSB began a regular programme of peer reviews in 2010, consisting of thematic reviews and country reviews. Thematic reviews focus on the implementation and effectiveness across the FSB membership of international financial standards developed by standard-setting bodies and policies agreed within the FSB in a particular area important for global financial stability. Thematic reviews may also analyse other areas important for global financial stability where international standards or policies do not yet exist. Peer reviews are conducted according to the objectives and guidelines set out in the Handbook for FSB Peer Reviews. All published peer review reports are available on the FSB website.

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.

Application Paper on Supervision of Control Functions

23 June 2021

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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

Application Paper on Resolution Powers and Planning

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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.