FSB consults on guidance on assessing the adequacy of financial resources for CCP resolution

4 May 2020

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Ref no: 15/2020

The Financial Stability Board (FSB) today published a public consultation report on Guidance on financial resources to support CCP resolution and on the treatment of CCP equity in resolution. The guidance will assist central counterparty (CCP) resolution authorities.

Central clearing of standardised over-the-counter (OTC) derivatives is a key pillar of the G20 Leaders’ commitment to reform OTC derivatives markets in response to the 2008 financial crisis. Increased central clearing has simplified the previously complex and opaque web of derivatives exposures. In addition, more collateral is in place to reduce counterparty credit risks. At the same time, CCPs’ criticality to the overall safety and soundness of the financial system means that authorities must take steps to ensure that CCPs do not themselves become a source of systemic risk and that they can be successfully resolved without exposing taxpayers to loss.

The draft guidance is based on the concepts included in a discussion paper the FSB published in 2018. It takes into account the comments received in that earlier public consultation and feedback from the resolution authorities of CCPs.

Part I of the guidance proposes five steps to guide the authorities in assessing the adequacy of a CCP’s financial resources and the potential financial stability implications of their use. The authorities should:

  • Step 1: identify hypothetical default and non-default loss scenarios (and a combination of them) that may lead to a resolution of a CCP;

  • Step 2: conduct a qualitative and quantitative evaluation of existing resources and tools available in the resolution of the CCP;

  • Step 3: assess potential resolution costs;

  • Step 4: compare existing resources and tools to resolution costs and identify any gaps; and

  • Step 5: evaluate the availability, costs and benefits of potential means of addressing any identified gaps.

Part II of the guidance addresses the treatment of CCP equity in resolution. It provides a framework for resolution authorities to evaluate the exposure of CCP equity to losses in recovery, liquidation and resolution and how (where it is possible) the treatment of CCP equity in resolution could be adjusted.

The FSB welcomes responses to the questions set out in the public consultation report by 31 July 2020.

Notes to editors

The FSB, the Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) have cooperated closely in developing their respective standards and guidance for CCP recovery and resolution, paying particular attention to the interaction between CCP recovery and resolution to ensure consistency between their respective policies. The FSB’s Key Attributes are the umbrella standard for resolution regimes covering financial institutions of all types that could be systemic in failure.

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 financial resources to support CCP resolution and on the treatment of CCP equity in resolution: Consultative document

| PDF full text (587 KB)

Summary of document history

Summary of document history

This public consultation report provides guidance that will assist central counterparty (CCP) resolution authorities.

Central clearing of standardised over-the-counter (OTC) derivatives is a key pillar of the G20 Leaders’ commitment to reform OTC derivatives markets in response to the 2008 financial crisis. Increased central clearing has simplified the previously complex and opaque web of derivatives exposures. In addition, more collateral is in place to reduce counterparty credit risks. At the same time, CCPs’ criticality to the overall safety and soundness of the financial system means that authorities must take steps to ensure that CCPs do not themselves become a source of systemic risk and that they can be successfully resolved without exposing taxpayers to loss.

The draft guidance is based on the concepts included in a discussion paper the FSB published in 2018. It takes into account the comments received in that earlier public consultation and feedback from the resolution authorities of CCPs.

Part I of the guidance proposes five steps to guide the authorities in assessing the adequacy of a CCP’s financial resources and the potential financial stability implications of their use. The authorities should:

  • Step 1: identify hypothetical default and non-default loss scenarios (and a combination of them) that may lead to a resolution of a CCP;

  • Step 2: conduct a qualitative and quantitative evaluation of existing resources and tools available in the resolution of the CCP;

  • Step 3: assess potential resolution costs;

  • Step 4: compare existing resources and tools to resolution costs and identify any gaps; and

  • Step 5: evaluate the availability, costs and benefits of potential means of addressing any identified gaps.

Part II of the guidance addresses the treatment of CCP equity in resolution. It provides a framework for resolution authorities to evaluate the exposure of CCP equity to losses in recovery, liquidation and resolution and how (where it is possible) the treatment of CCP equity in resolution could be adjusted.

The FSB, the Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) have cooperated closely in developing their respective standards and guidance for CCP recovery and resolution, paying particular attention to the interaction between CCP recovery and resolution to ensure consistency between their respective policies. The FSB’s Key Attributes are the umbrella standard for resolution regimes covering financial institutions of all types that could be systemic in failure. In July 2017 the standard-setters completed a workplan to coordinate international policy issues related to CCPs, with the publication of guidance on CCP resilience, recovery and resolution.

The FSB is inviting comments on this consultation report. Responses should be sent to [email protected] with “CCP consultation” in the subject line by 31 July 2020. Responses will be published on the FSB’s website unless respondents expressly request otherwise.

FSB Sub-Saharan Africa group discusses regional financial stability and the impact of COVID-19

28 April 2020

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+41 61 280 8138
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Ref no: 14/2020

The Financial Stability Board (FSB) Regional Consultative Group (RCG) for Sub-Saharan Africa held a conference call today to discuss recent macroeconomic and financial market developments, including the financial stability implications from COVID-19.

Members discussed global and regional financial vulnerabilities including the sharp contraction in economic growth reflecting a combination of demand and supply shocks caused by the pandemic. In particular, they discussed the impact of existing high debt levels in the region, significant capital outflows and access to US dollar funding. The group also considered the effectiveness of policy responses to address the financial stability implications of COVID-19.

Members noted the importance of FSB and non-FSB members continuing to coordinate action, including financial policy responses in their jurisdictions, to maintain global and regional financial stability, keep markets open and functioning, and preserve the financial system’s capacity to finance growth.

The Group also received an update on FSB’s work programme which has been reprioritised to focus on measures to tackle the impact of COVID-19 on the financial system. Members welcomed the FSB policy work in several areas to promote a global financial system that supports a strong recovery after the pandemic.

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 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, 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. [←]

Effective Practices for Cyber Incident Response and Recovery: Consultative document

20 April 2020 | PDF full text (2 MB)

Summary of document history

Summary of document history

This consultative document provides a toolkit of effective practices to assist financial institutions before, during and after a cyber incident.

Cyber incidents pose a threat to the stability of the global financial system. In recent years, there have been a number of major cyber incidents that have significantly impacted financial institutions and the ecosystems in which they operate. A major cyber incident, if not properly contained, could seriously disrupt financial systems, including critical financial infrastructure, leading to broader financial stability implications.

Efficient and effective response to and recovery from a cyber incident by organisations in the financial ecosystem are essential to limiting any related financial stability risks. Such risks could arise, for example, from interconnected information technology systems between multiple financial institutions or between financial institutions and third-party service providers, from loss of confidence in a major financial institution or group of financial institutions, or from impacts on capital arising from losses due to the incident. The toolkit lists 46 effective practices, structured across seven components:

  1. Governance – frames how cyber incident and recovery is organised and managed.

  2. Preparation – to establish and maintain capabilities to respond to cyber incidents, and to restore critical functions, processes, activities, systems and data affected by cyber incidents to normal operations.

  3. Analysis – to ensure effective response and recovery activities, including forensic analysis, and to determine the severity, impact and root cause of the cyber incident to drive appropriate response and recovery activities.

  4. Mitigation – to prevent the aggravation of the situation and eradicates cyber threats in a timely manner to alleviate their impact on business operations and services.

  5. Restoration – to repair and restore systems or assets affected by a cyber incident to safely resume business-as-usual delivery of impacted services.

  6. Improvement – to establish processes to improve response and recovery capabilities through lessons learnt from past cyber incidents and from proactive tools, such as tabletop exercises, tests and drills.

  7. Coordination and communication – to coordinate with stakeholders to maintain good cyber situational awareness and enhances the cyber resilience of the ecosystem.

Responses to this the consultation report should be sent to [email protected] by Monday 20 July 2020. An optional template for submitting responses to optional guiding questions can be downloaded here. Responses to the consultation should be sent to [email protected] with “CIRR” in the e-mail subject line. Responses will be published on the FSB website unless respondents expressly request otherwise. The final toolkit, taking on board feedback from public consultation, will be published in October 2020.

FSB consults on effective practices for cyber incident response and recovery

Press enquiries:
+41 61 280 8138
[email protected]
Ref no: 13/2020

The Financial Stability Board (FSB) today published a consultation report on Effective Practices for Cyber Incident Response and Recovery, which was sent to G20 Finance Ministers and Central Bank Governors for their virtual meeting on 15 April. The toolkit of effective practices aims to assist financial institutions in their cyber incident response and recovery activities.

Cyber incidents pose a threat to the stability of the global financial system. In recent years, there have been a number of major cyber incidents that have significantly impacted financial institutions and the ecosystems in which they operate. A major cyber incident, if not properly contained, could seriously disrupt financial systems, including critical financial infrastructure, leading to broader financial stability implications.

Efficient and effective response to and recovery from a cyber incident by organisations in the financial ecosystem are essential to limiting any related financial stability risks. Such risks could arise, for example, from interconnected information technology systems between multiple financial institutions or between financial institutions and third-party service providers, from loss of confidence in a major financial institution or group of financial institutions, or from impacts on capital arising from losses due to the incident. The toolkit lists 46 effective practices, structured across seven components:

  1. Governance – frames how cyber incident and recovery is organised and managed.

  2. Preparation – to establish and maintain capabilities to respond to cyber incidents, and to restore critical functions, processes, activities, systems and data affected by cyber incidents to normal operations.

  3. Analysis – to ensure effective response and recovery activities, including forensic analysis, and to determine the severity, impact and root cause of the cyber incident to drive appropriate response and recovery activities.

  4. Mitigation – to prevent the aggravation of the situation and eradicates cyber threats in a timely manner to alleviate their impact on business operations and services.

  5. Restoration – to repair and restore systems or assets affected by a cyber incident to safely resume business-as-usual delivery of impacted services.

  6. Improvement – to establish processes to improve response and recovery capabilities through lessons learnt from past cyber incidents and from proactive tools, such as tabletop exercises, tests and drills.

  7. Coordination and communication – to coordinate with stakeholders to maintain good cyber situational awareness and enhances the cyber resilience of the ecosystem.

The FSB welcomes comments and responses to the questions set out in the consultation report, by Monday 20 July 2020. The final toolkit, taking on board the feedback from this public consultation, will be sent to the October G20 Finance Ministers and Central Bank Governors meeting and published.

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.

Toronto Centre virtual executive panel on COVID-19: Supervising the New Normal

17 April 2020

 

Toronto Centre virtual executive panel on COVID-19: Supervising the New Normal, recorded on 17 April 2020. Panellists discussed how to maintain global financial stability, keep markets open and functioning, and preserve the financial system’s capacity to finance growth, as the COVID-19 epidemic unfolds. They also discussed developments with “global stablecoins” including the FSB’s consultation on addressing the regulatory, supervisory and oversight challenges raised by “global stablecoin” arrangements.

With Ceyla Pazarbasioglu (Vice President for Equitable Growth, Finance and Institutions, World Bank Group), Tobias Adrian (Financial Counsellor and Director for Monetary and Capital Markets, International Monetary Fund), Dietrich Domanski (Secretary General, FSB), Ross Lecklow (Senior Adviser FinTech, Innovation Hub, Bank for International Settlements), and moderated by Aditya Narain, Deputy Director, Monetary and Capital Markets, International Monetary Fund.

Call with trade associations on COVID-19

15 April 2020

FSB Secretary General Dietrich Domanski discussed the response to COVID-19 with industry associations.

COVID-19 pandemic: Financial stability implications and policy measures taken

| PDF full text (358 KB)

This report sets out the financial stability implications of COVID-19 and policy measures taken to address them. The report was delivered to G20 Finance Ministers and Central Bank Governors ahead of their virtual meeting on 15 April.

The COVID-19 pandemic represents the biggest test of the post-crisis financial system to date. The global financial system faces the dual challenge to sustain the flow of credit amidst declining growth and manage heightened risks. Nevertheless, the global financial system is more resilient and better placed to sustain financing to the real economy as a result of the G20 regulatory reforms in the aftermath of the 2008 global financial crisis.

The FSB is closely monitoring the resilience of key nodes in the financial system that are critical for financial stability. These include: the ability of financial institutions and markets to channel funds to the real economy; the ability of market participants around the world to obtain US dollar funding, particularly in emerging markets; the ability of financial intermediaries, such as investment funds, to effectively manage liquidity risk; and the ability of market participants and financial market infrastructures (including central counterparties) to manage evolving counterparty risks.

The report sets out five principles that underpin the official community’s rapid and coordinated response to support the real economy, maintain financial stability and minimise the risk of market fragmentation. Using these principles, authorities will: monitor and share information on a timely basis to assess and address financial stability risks from COVID-19; recognise and use the flexibility built into existing financial standards to support our response; seek opportunities to temporarily reduce operational burdens on firms and authorities; act consistently with international standards, and not roll back reforms or compromise the underlying objectives of existing international standards; and coordinate on the future timely unwinding of the temporary measures taken.

On the basis of these principles, the FSB is supporting international cooperation and coordination on the COVID-19 response in three ways. First, the FSB is regularly sharing information among financial authorities on evolving financial stability threats, on the policy measures that financial authorities are taking or are considering, and on the effects of those policies. Second, the FSB is assessing potential vulnerabilities in order to better understand the impacts of COVID-19 on financial markets in individual jurisdictions and across the globe and inform discussions of policy issues. Third, FSB members are coordinating on their responses to policy issues, including measures that standard-setting bodies and national authorities take to provide flexibility within international standards or reduce operational burdens.

FSB publishes report on international cooperation to address the financial stability implications of COVID-19

Press enquiries:
+41 61 280 8138
[email protected]
Ref no: 12/2020

The Financial Stability Board (FSB) today published a report delivered to the G20 on international cooperation and coordination to address the financial stability implications from COVID-19.

The COVID-19 pandemic represents the biggest test of the post-crisis financial system to date. The global financial system faces the dual challenge to sustain the flow of credit amidst declining growth and manage heightened risks. Nevertheless, the global financial system is more resilient and better placed to sustain financing to the real economy as a result of the G20 regulatory reforms in the aftermath of the 2008 global financial crisis.

The FSB is closely monitoring the resilience of key nodes in the financial system that are critical for financial stability. These include: the ability of financial institutions and markets to channel funds to the real economy; the ability of market participants around the world to obtain US dollar funding, particularly in emerging markets; the ability of financial intermediaries, such as investment funds, to effectively manage liquidity risk; and the ability of market participants and financial market infrastructures (including central counterparties) to manage evolving counterparty risks.

The report sets out five principles that underpin the official community’s rapid and coordinated response to support the real economy, maintain financial stability and minimise the risk of market fragmentation. Using these principles, authorities will: monitor and share information on a timely basis to assess and address financial stability risks from COVID-19; recognise and use the flexibility built into existing financial standards to support our response; seek opportunities to temporarily reduce operational burdens on firms and authorities; act consistently with international standards, and not roll back reforms or compromise the underlying objectives of existing international standards; and coordinate on the future timely unwinding of the temporary measures taken.

On the basis of these principles, the FSB is supporting international cooperation and coordination on the COVID-19 response in three ways. First, the FSB is regularly sharing information among financial authorities on evolving financial stability threats, on the policy measures that financial authorities are taking or are considering, and on the effects of those policies. Second, the FSB is assessing potential vulnerabilities in order to better understand the impacts of COVID-19 on financial markets in individual jurisdictions and across the globe and inform discussions of policy issues. Third, FSB members are coordinating on their responses to policy issues, including measures that standard-setting bodies and national authorities take to provide flexibility within international standards or reduce operational burdens.

Notes to editors

Yesterday the FSB published a letter from its Chair, Randal K. Quarles, to G20 Finance Ministers and Central Bank Governors setting out the FSB’s work to tackle the implications for the financial system of COVID-19.

Additional information on the FSB’s response to COVID-19 is 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 Randal K. Quarles, Vice Chairman, US Federal Reserve; its Vice Chair is Klaas Knot, President, De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

FSB Chair’s letter to G20 Finance Ministers and Central Bank Governors: April 2020

14 April 2020 | PDF full text (263 KB)

This letter was sent by the FSB’s Chair, Randal K. Quarles, to G20 Finance Ministers and Central Bank Governors ahead of their virtual meeting on 15 April.

The letter highlights the twin challenge that the global financial system must respond to in the face of COVID-19: First, a dramatically increased need for credit throughout the global economy, to bridge this period of highly restricted activity. Second, marked uncertainty about the value of a wide range of assets, which greatly complicates the operation of markets and the intermediation of this heightened credit need.

The FSB and its member jurisdictions have taken swift, coordinated and decisive actions to support local and global market functioning. The FSB is employing its experience in tackling ongoing and emerging risks to the global financial system:

  • Assessing vulnerabilities. The FSB is drawing on its diverse membership to assess current vulnerabilities in the financial system and providing risk assessments to policymakers. It is analysing the resilience of critical nodes in the global financial system. These include the ability of the financial system to finance the real economy, including businesses and households; obtain US dollar funding, including in emerging markets; meet liquidity demands without forced asset sales; and effectively manage counterparty risks.
  • Information sharing. FSB members are exchanging information daily on their financial policy responses. These comprise to date about 850 discrete actions to address the financial and economic fallout related to COVID-19, including actions to support lending, funding, and market functioning.
  • Coordinating policy responses. The FSB and standard-setting bodies (SSBs) are working to ensure that efforts to combat economic and financial fallout from the crisis are coordinated. This includes guiding authorities on ways to use the existing flexibility built into international standards, while also preserving collective support for these standards

Looking beyond COVID-19, the letter also sets out ongoing FSB policy work in several areas to promote a global financial system that supports a strong recovery after the pandemic. This includes: non-bank financial intermediation; supporting a smooth transition away from LIBOR; harnessing the benefits of technological innovation; and promoting efficient and resilient cross-border payments.