Regulatory framework for haircuts on non-centrally cleared securities financing transactions

7 September 2020 | PDF full text (448 KB)

This report was originally published on 12 November 2015 but the annexes were updated on 19 July 2019, 25 November 2019 and 7 September 2020.

This document sets out the finalised policy recommendations in the framework for haircuts on certain non-centrally cleared securities financing transactions (SFTs), based on the public consultation findings. The framework aims to address financial stability risks associated with SFTs. This work, which was earlier published in October 2014, sets out numerical haircut floors to apply to non-bank-to-non-bank SFTs and updates the implementation dates of the FSB’s recommendations on SFTs.

FSB extends implementation timelines for securities financing transactions

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Ref no: 28/2020

The Financial Stability Board (FSB) today announced extensions to the implementation timelines for minimum haircut standards for non-centrally cleared securities financing transactions (SFTs), to ease operational burdens on market participants and authorities, and thereby assist them in focusing on priorities from the impact of COVID-19.

SFTs such as securities lending and repurchase agreements (repos) play a crucial role in supporting price discovery and secondary market liquidity for a wide variety of securities. However, such transactions can also be used to take on leverage as well as maturity and liquidity mismatched exposures, and therefore can pose risks to financial stability.

As part of its work to enhance the resilience of non-bank financial intermediation, the FSB developed 18 policy recommendations to address financial stability risks that arise from SFTs. These recommendations were published in the FSB’s August 2013 report Policy Framework for Addressing Shadow Banking Risks in Securities Lending and Repos and updated in the November 2015 report Regulatory framework for haircuts on non-centrally cleared securities financing transactions.

The Group of Central Bank Governors and Heads of Supervision decided in March 2020 to defer the implementation of the Basel III framework by one year to January 2023. Since the FSB framework for numerical haircut floors for bank-to-non-bank transactions is expected to be implemented through the Basel III framework in many jurisdictions, the FSB has therefore decided to also extend the implementation dates by one year for its policy recommendations related to minimum haircut standards for non-centrally cleared SFTs. For bank-to-non-bank transactions, the updated implementation date is January 2023 (instead of January 2022). For non-bank-to-non-bank transactions, the updated implementation date is January 2025 (instead of January 2024). This is in line with the re-prioritisation of the FSB’s work in light of the COVID-19 pandemic and will give market participants (both banks and non-banks) more time to prepare for the implementation of the framework of numerical haircut floors set out in minimum haircut standards.

Going forward, the FSB will continue to monitor the implementation of its policy recommendations to address financial stability risks in the SFT markets and to enhance the resilience of non-bank financial intermediation.

Notes to editors

As a result of today’s announcement, the implementation timelines for the FSB’s November 2015 recommendations on haircuts for non-centrally cleared SFTs will now be extended (Recommendations 14-18: see also updated Annexes 1, 3 and 4 of the November 2015 report for details). The implementation of Recommendation 16 will be extended until January 2022 (instead of January 2021), recommendations 14 and 18 will be extended until January 2023 (instead of January 2022), recommendation 17 will be extended until January 2024 (instead of January 2023) and recommendation 15 will be extended until January 2025 (instead of January 2024).

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.

Conflicts of interest and associated conduct risks during the debt capital raising process

1 September 2020

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Measure 1: Regulators should consider requiring firms to manage conflicts of interest that may arise in relation to the pricing of a debt securities offering, keeping the issuer informed of key decisions or actions which can influence the pricing outcome, and giving the issuer an opportunity to express its preference regarding the pricing of an issue during the pricing process.

Measure 2: Regulators should consider requiring firms to take reasonable steps to disclose to the issuer how any risk management transactions it intends to carry out for itself, the issuer, or investor clients, will not compromise the issuer’s interests in relation to pricing of the new issuance.

Measure 3: Regulators should encourage the timely provision of a range of information to investors in a debt securities offering, where distribution of such information is permitted under local law.

Measure 4: Regulators should consider requiring firms to have appropriate controls to identify, prevent where possible and manage any conflicts of interest that arise in the preparation of research on a debt securities offering.

Measure 5: Regulators should consider requiring firms to maintain an allocation policy that sets out their approach for determining allocations in a debt securities offering, and for the firm to regularly assess its compliance with the policy.

Measure 6: Regulators should encourage firms to consider their issuer client’s preferences e.g. investor profile and composition, when making allocation decisions or recommendations.

Measure 7: Regulators should consider requiring firms to have appropriate controls to identify, avoid where possible and manage any conflicts of interest that arise in the allocation recommendations of a debt securities offering.

Measure 8: Regulators should consider requiring firms to maintain records of allocation decisions to demonstrate that any conflicts of interest are appropriately managed.

Measure 9: Regulators should consider requiring firms to observe proper standards of market conduct, act with integrity, manage conflicts of interest, and to treat clients fairly when negotiating to secure a mandate for a debt capital raising.

Key Attributes Assessment Methodology for the Insurance Sector

25 August 2020 | PDF full text (662 KB)

Methodology for essential criteria to guide the assessment of the compliance of a jurisdiction’s insurance resolution framework.

This methodology sets out essential criteria to guide the assessment of the compliance of a jurisdiction’s insurance resolution framework with the FSB’s Key Attributes of Effective Resolution Regimes for Financial Institutions (‘Key Attributes’). It was developed in collaboration with experts from FSB jurisdictions, relevant standard-setting bodies, the International Monetary Fund and the World Bank. It is designed to promote consistent assessments across jurisdictions and to provide guidance to jurisdictions when adopting or amending their resolution regimes to implement the Key Attributes.

The Key Attributes constitute an ‘umbrella’ standard for resolution regimes for all types of financial institutions. Implementation of the Key Attributes allows authorities to resolve financial institutions in an orderly manner without taxpayer exposure to loss from solvency support, while maintaining continuity of their vital economic functions. However, not all attributes are equally relevant for all sectors. The Key Attributes Assessment Methodology provides an insurance sector-specific interpretation of individual KAs. It stresses that a jurisdiction’s insurance resolution regime should be proportionate to the size, structure and complexity of the jurisdiction’s insurance system.

The FSB also issued a note explaining the application of the insurance KAAM and the Key Attributes during the period of suspension of the designation of Global Systemically Important Insurers (G-SIIs). It states that the Key Attributes continue to apply during the suspension period to any insurer that could be systemically significant or critical in failure. National authorities may apply to certain insurers the requirements specific to G-SIIs, which are the requirements for a crisis management group, institution-specific cross-border cooperation agreements and resolvability assessments). In the event of a 2022 decision to discontinue the G-SII list, the FSB will review the scope of application of G-SII specific requirements in consultation with the International Association of Insurance Supervisors.

FSB publishes Key Attributes Assessment Methodology for the Insurance Sector

Press enquiries:
+41 61 280 8138
[email protected]
Ref no: 27/2020

The Financial Stability Board (FSB) today published a Key Attributes Assessment Methodology for the Insurance Sector (“insurance KAAM”). The methodology sets out essential criteria to guide the assessment of the compliance of a jurisdiction’s insurance resolution framework with the FSB’s Key Attributes of Effective Resolution Regimes for Financial Institutions (‘Key Attributes’). It was developed in collaboration with experts from FSB jurisdictions, relevant standard-setting bodies, the International Monetary Fund and the World Bank. It is designed to promote consistent assessments across jurisdictions and to provide guidance to jurisdictions when adopting or amending their resolution regimes to implement the Key Attributes.

The Key Attributes constitute an ‘umbrella’ standard for resolution regimes for all types of financial institutions. Implementation of the Key Attributes allows authorities to resolve financial institutions in an orderly manner without taxpayer exposure to loss from solvency support, while maintaining continuity of their vital economic functions. However, not all attributes are equally relevant for all sectors. The Key Attributes Assessment Methodology provides an insurance sector-specific interpretation of individual KAs. It stresses that a jurisdiction’s insurance resolution regime should be proportionate to the size, structure and complexity of the jurisdiction’s insurance system.

The FSB also today issued a note explaining the application of the insurance KAAM and the Key Attributes during the period of suspension of the designation of Global Systemically Important Insurers (G-SIIs). It states that the Key Attributes continue to apply during the suspension period to any insurer that could be systemically significant or critical in failure. (National authorities may apply to certain insurers the requirements specific to G-SIIs, which are the requirements for a crisis management group, institution-specific cross-border cooperation agreements and resolvability assessments). In the event of a 2022 decision by the FSB to discontinue the G-SII list, the FSB will review the scope of application of G-SII specific requirements in consultation with the International Association of Insurance Supervisors.

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.

FSB Financial Statements: 2019/2020

24 August 2020 | PDF full text (1 MB)

This report provides the FSB’s audited financial statements for the financial year April 2019 to March 2020. The report also details the FSB’s governance structure.

The FSB will publish its annual report on the implementation and effects of the financial reforms in November.

Virtual workshop on the evaluation of the effects of too-big-to-fail reforms

21 August 2020 | PDF full text (144 KB)

Join the FSB’s virtual consultation workshop on the evaluation of the effects of too-big-to-fail reforms at 13.00 (CEST) on Friday 4 Sep. The workshop will cover market perceptions of the reforms; banks’ responses and broader effects.

Panellists will discuss the conclusions from the evaluation and audience members will be able to join the conversation.

FSB Continuity of Access to FMIs for firms in resolution: streamlined information collection to support resolution planning

14 August 2020 | PDF full text (450 KB)

This questionnaire provides a common template for gathering information about continuity of access to financial market infrastructures (FMIs) for firms in resolution. The template takes the form of a questionnaire that all FMIs are encouraged to complete. The responses to the questionnaire should be published or made available in other ways to firms that use the FMI services and their resolution authorities to inform their resolution planning. The use of a common questionnaire should reduce the “many to one” nature of inquiries from FMI participants and authorities to FMIs for resolution planning and streamline the provision of this information from FMIs to firms and authorities.

The questionnaire follows from a workshop held in May 2019 with stakeholders about the implementation of the FSB’s Guidance on Continuity of Access to Financial Market Infrastructures (FMIs) for a Firm in Resolution. The Guidance sets out arrangements and safeguards to facilitate continued access to critical clearing, payment, settlement, custody and other services provided by FMIs in cases where firms need to be resolved.

The FSB developed the questionnaire in consultation with FMIs, FMI participants, FMI oversight authorities and with the assistance of the Secretariats of the International Organization of Securities Commissions and of the Committee on Markets and Payments Infrastructures. It covers general information on the FMI and its legal structure; (the rulebook/contractual provisions regarding termination; and arrangements and operational processes to facilitate continued access in resolution.

FSB publishes questionnaire on continuity of access to FMIs for firms in resolution

Press enquiries:
+41 61 280 8138
[email protected]
Ref no: 26/2020

The Financial Stability Board (FSB) today published a common template for gathering information about continuity of access to financial market infrastructures (FMIs) for firms in resolution. The template takes the form of a questionnaire that all FMIs are encouraged to complete. The responses to the questionnaire should be published or made available in other ways to firms that use the FMI services and their resolution authorities to inform their resolution planning. The use of a common questionnaire should reduce the “many to one” nature of inquiries from FMI participants and authorities to FMIs to inform resolution planning and should streamline the provision of this information from FMIs to firms and authorities.

The questionnaire follows from a workshop held in May 2019 with stakeholders about the implementation of the FSB’s Guidance on Continuity of Access to Financial Market Infrastructures (FMIs) for a Firm in Resolution. The Guidance sets out arrangements and safeguards to facilitate continued access to critical clearing, payment, settlement, custody and other services provided by FMIs in cases where firms need to be resolved.

The FSB developed the questionnaire in consultation with FMIs, FMI participants, FMI oversight authorities and with the assistance of the Secretariats of the Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions. It covers: general information on the FMI and its legal structure; the rulebook/contractual provisions regarding termination; the phase prior to resolution, during signs of distress at the FMI participant; the resolution phase; and arrangements and operational processes to facilitate continued access in resolution. The experience with the use of the questionnaire will be reviewed after one year, in consultation with FMIs, FMI participants and FMI oversight authorities.

The FSB will hold a webinar for stakeholders on 23 September to explain the questionnaire and answer questions. Representatives of FMIs, FMI participants and authorities who would like to attend should contact [email protected] for more details.

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.

Central Banking interview on the FSB’s too-big-to-fail evaluation

12 August 2020

Claudia Buch (Vice-President of the Deutsche Bundesbank) spoke with Daniel Hinge (Central Banking) about the FSB’s evaluation on too-big-to-fail reforms.