Evaluation of too-big-to-fail reforms: Lessons for the COVID-19 pandemic

28 September 2020

Global crises require bold and comprehensive policy responses. This has been the case after the Global Crisis of 2008-09, and it is certainly the case in the current COVID-19 crisis.

Clearly, the two crises differ. The Global Crisis was rooted in vulnerabilities in the global financial system, which spilled over into the real economy. The COVID-19 crisis is a global health shock which, together with the containment measures, imposes a severe shock on the real economy and threatens to impair the stability of the financial system.

Consequently, the policy responses have differed. In 2009, G20 policy leaders agreed on a comprehensive package of financial sector reforms. The aim since then has been to build resilient financial institutions, to end ‘too big to fail’, to make derivatives markets safer, and to enhance the resilience of non-bank financial intermediation (NBFI). In 2020, governments, central banks, and regulators around the globe engaged in massive programmes to support the liquidity and solvency of the real economy and the financial system. European leaders have taken bold steps towards fending off the corona shock and supporting the European economy and common market. Together with the enhanced robustness of the financial system, these decisive policy measures have so far prevented the spillover of the corona shock to the financial system.

Notwithstanding these differences, these policy responses have in common that, sooner or later, questions about the effectiveness and potential side effects will be asked. In the aftermath of the financial crisis, one of the concerns regarding the policy responses was that higher capital requirements in particular for systemically important banks would lead to higher funding costs for these banks and their corporate clients and cause a contraction in lending. Today, the fiscal measures taken by governments are crucial to support companies, protect jobs, stabilise demand and reduce uncertainty. But they may, over time, also have potentially negative side effects in terms of debt sustainability and blurring the lines between private and public sector activity.

In such situations, structured policy evaluations can help to assess both the effects and the potential side effects of policy measures. Policy evaluation provides useful input for the decision-making processes, and it is an important element of public sector accountability and transparency. In the context of post-crisis financial sector reforms, the Financial Stability Board (FSB) has taken the lead in this regard. In 2017, it developed a structured framework for policy evaluation. Since then, four evaluations have been conducted.

Evaluating post-crisis financial sector reforms: The FSB framework

The period prior to the Global Crisis was characterised by a strong expansion of globally active banks across borders. Macroeconomic conditions were benign. With hindsight, we know that beneath the surface, severe tensions had been building up. The degree of systemic risk in the financial system was underestimated while the resilience of financial intermediaries was overestimated. The fault lines of the global financial system erupted with the crisis – with severe economic, social, and political consequences.

Policymakers acted swiftly in response to the crisis. At the Pittsburgh summit in 2009, G20 leaders decided on a package of reforms and a regular monitoring of implementation. The core objective of the reforms was to reduce the likelihood and severity – and associated public cost – of future financial crises (FSB 2019a).

Monitoring the implementation of these measures at the national level, surveillance of relevant emerging risks, and coordinating appropriate policy responses globally is the task of the FSB. The FSB was established in 2009 as a successor of the Financial Stability Forum. Today, its membership comprises 65 institutions representing 25 jurisdictions.

With the main elements of the post-crisis reforms agreed and implementation of core reforms underway, initial analysis of the effects of these reforms became possible. To that end, the FSB developed a framework for the post-implementation evaluation of the effects of the G20 financial regulatory reforms (FSB 2017). The framework guides analyses of whether reforms are achieving their intended outcomes and helps to identify any material unintended consequences that may have to be addressed, without compromising on the objectives of the reforms. It sets a common framework for the evaluation of policies, but it does not change the responsibility or remit of national policymakers or international standard setting bodies.1

The FSB has so far completed three evaluation projects. The first dealt with reforms of derivatives markets, which aimed at reducing complexity and improving transparency and standardisation in derivatives markets (FSB 2018a). Results suggest that, overall, reforms are achieving their goals. Two further evaluations assessed the implications of the reforms for the financing of infrastructure projects (FSB 2018b) and for the financing of small and medium-sized enterprises (SMEs) (FSB 2019b). Neither finds material and persistent negative effects on financing conditions. If anything, banks with more binding capital requirements lend less, but aggregate lending is not affected.

Evaluation of TBTF reforms

In an ongoing evaluation, FSB members assess the effects of the ‘too-big-to-fail’ (TBTF) reforms. Results of this evaluation have been published in a consultation report in June 2020, and the consultation closes at the end of September 2020 (FSB 2020).

The evaluation examines the extent to which TBTF reforms for systemically important banks that have been implemented to date are achieving their intended objectives. It assesses whether the reforms are reducing the systemic and moral hazard risks associated with systemically important banks. Because these risks cannot be observed directly, the evaluation focuses on the relevant underlying mechanisms and associated indicators: decisions of banks concerning their funding and balance sheets structures that have implications for systemic risks; the feasibility of triggering resolution policies for the public authorities; and the assessment of market participants concerning the credibility of resolution, which affects banks’ funding costs.

The ability of authorities to resolve systemically important institutes in an orderly manner without exposing taxpayers to losses, while also maintaining continuity of their vital economic functions, is a key element of these reforms. Countries have made significant progress in implementing resolution reforms (Figure 1), and it remains important to continue implementing missing reform elements.2 The feasibility and credibility of resolution policies do not only matter in times of distress. Rather, credible resolution frameworks shape the incentives of banks and the risk assessment of market participants already during the lifetime of these institutions.

Figure 1: Average resolution reform index for G-SIB home jurisdictions and other jurisdictions

Figure 1: Average resolution reform index for G-SIB home jurisdictions and other jurisdictions

The evaluation report shows that indicators of systemic risk and moral hazard have fallen. Systemically important banks are much better capitalised and have built up significant loss-absorbing capacity. Improvements in capitalisation, lower risks, and higher funding costs have contributed to lower return on equity of systemically important institutions, which is consistent with higher resilience. Indeed, funding cost advantages of systemically important banks have fallen (Figure 2), and funding costs now appear to reflect the probability of a bail-in in the event of failure.

Figure 2: Funding cost advantage of systemically important banks

Figure 2: Funding cost advantage of systemically important banks

Going beyond the incentives of individual banks, the evaluation examines the broader effects of the reforms on the financial system. This includes overall financial system resilience and structure, the functioning of financial markets, global financial integration, or the cost and availability of financing. The evaluation shows that effective TBTF reforms bring net benefits to society. Not only are banks more resilient, there are also no signs of material negative side effects. In particular, there has been no reduction in the aggregate supply of credit to the real economy.

However, there are still gaps that need to be addressed. Some obstacles to resolvability remain, and there are gaps in information available to market participants and public authorities. For example, gaps remain with regard to TLAC implementation, funding in resolution, and the valuation of bank assets in resolution. Enhancing disclosures of information relating to the operation of resolution frameworks; the resolvability of SIBs, including TLAC, may help market participants better understand how resolution will work and to assess or price the risks. Public authorities may benefit from enhanced information on who owns TLAC issued by G-SIBs, which is needed to assess the potential impact of a bail-in on the financial system and the economy. Overall, steps taken in this direction can help improve the credibility of resolution regimes.

Lessons for the COVID-19 pandemic

Post-crisis financial sector reforms proved to be highly valuable in the light of the outbreak of the COVID-19 pandemic. Many firms in the non-financial sector have been severely affected by the corona shock and would not have survived without quick and decisive policy interventions across jurisdictions. This downturn of the real economy poses a threat to the financial system. The financial sector reforms implemented as a reaction to the Global Crisis contributed to making the global financial system more resilient, particularly in light of a shock that originated outside the financial sector. Should distress in the financial system materialise, authorities now also have more resolution tools at their disposal to deal with it.

However, the pandemic is still evolving, and the path to recovery remains highly uncertain. Developing common and strong policy responses, encouraging their coherent implementation, and monitoring their efficacy remains crucial.

Policy evaluation is key to ensuring transparency and accountability to the general public. When the post-crisis financial sector reforms were launched more than ten years ago, there was widespread concern that higher capital requirements might lead to a decline in lending to the real economy. Evaluations have shown that this has not been the case, but they also show room for improvements in the current regulatory system. Similarly, policymakers will be confronted with discussions on the effects and potentially negative side effects of the decisions taken to shield the economy from the adverse effects of the COVID-19 pandemic.

Notwithstanding the differences between the Global Crisis and the COVID-19 pandemic, there are broader lessons that can be drawn for policy evaluations in terms of independence and infrastructure.

Independence and transparency are crucial factors for the credibility of policy evaluations. Members of the FSB have been involved in the design of the policies that they are evaluating. As one cannot grade one’s own homework, transparency and stakeholder engagement are thus key (Quarles 2019). The FSB evaluations ensure stakeholder engagement along several dimensions. Academic advisors, who are leading experts in their field, support the FSB working groups. Workshops are organised, bringing together relevant stakeholders of the financial sector in order to solicit their views. Before publishing the final version of the evaluations, a public consultation enables stakeholders to provide fundamental feedback on the evaluation.

Infrastructure for policy evaluations is another important element of an evaluation process. Policy evaluations based on scientific methods and evidence are time consuming, require the input of high-quality data, and an established protocol. The general evaluation framework that the FSB developed in 2017 has provided the analytical and procedural basis for the evaluations that followed. Another core element of an evaluation infrastructure is the availability and access to sufficiently detailed, often granular, data. Finally, evaluations need to draw on existing studies and literature. Repositories of evaluation studies which provide ready access to such literature are thus a core element of an evaluation infrastructure. For instance, the BIS established FRAME (Financial Regulation Assessment: Meta Exercise), an online repository of studies on the effects of financial regulations.3 From October 2020 onward, this repository will also include information on the TBTF reforms.

Conclusion

The COVID-19 pandemic requires policy responses that are unprecedented and reach a global scale. This column argues that there are important lessons to be learned from the policy response to the Global Crisis. The first lesson concerns the preparedness of the global financial system. An on-going evaluation of too-big-to-fail reforms shows that the global banking system has been more resilient at the onset of the COVID-19 pandemic. Also, thanks to the reforms, policymakers have better tools at their disposal to deal with distress in the financial sector. The second lesson concerns the importance of structured policy evaluations for the accountability and transparency of policy responses to global crises. Such evaluations require good infrastructure, including a structured evaluation framework and data infrastructure.

References

FSB (2017), “Framework for Post-Implementation Evaluation of the Effects of the G20 Financial Regulatory Reforms”, Financial Stability Board, Basel.

FSB (2018a), “Incentives to centrally clear over-the-counter (OTC) derivatives – A post-implementation evaluation of the effects of the G20 financial regulatory reforms – final report”, Financial Stability Board, Basel.

FSB (2018b), “Evaluation of the effects of financial regulatory reforms on infrastructure finance”, Financial Stability Board, Basel.

FSB (2019a), “Progress in implementation of G20 financial regulatory reforms – Summary progress report to the G20 as of June 2019”, Financial Stability Board.

FSB (2019b), “Evaluation of the effects of financial regulatory reforms on small and medium-sized enterprise (SME) financing”, Financial Stability Board, Basel.

FSB (2020), “Evaluation of the effects of too-big-to-fail reforms: consultation report”, Financial Stability Board, Basel.

Quarles, R K (2019), “Ideas of Order: Charting a Course for the Financial Stability Board”, Speech at the Bank for International Settlements – Special Governors Meeting, Hong Kong, 10 February.

Rodrik, D (2019), “Putting Global Governance in its Place”, NBER Working Paper 26213.

Endnotes

  1. In this sense, the FSB framework is similar in spirit to what Rodrik (2019) calls “democracy-enhancing global governance”, including frameworks for (domestic) policy making and the use of scientific evidence, rather than prejudging policy decisions at a supranational level. [←]
  2. The FSB provides information on the implementation of resolution reforms across G20 countries on the FSB website here. [←]
  3. https://stats.bis.org/frame/ [←]

FSB holds virtual roundtable on external audit

25 September 2020

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Ref no: 31/2020

The Financial Stability Board (FSB) held the 2020 Roundtable on External Audit on 23 September. Jeremy Rudin, Superintendent of Canada’s Office of the Superintendent of Financial Institutions, chaired the virtual meeting. Participants comprised senior representatives from FSB member authorities, audit oversight bodies, the International Forum of Independent Audit Regulators (IFIAR), the Committee of European Auditing Oversight Bodies, the International Auditing and Assurance Standards Board and its oversight body the Public Interest Oversight Board, and the six largest global audit networks (“the global networks”).

As in previous roundtables, the objective was to enable constructive dialogue on ways to promote financial stability by enhancing public confidence in the quality of external audits. The discussion focused on current challenges, linked to the economic downturn and volatility in financial markets, to the estimation of expected credit losses, goodwill impairment and other complex components of banks’ financial statements.

Participants acknowledged regulatory authorities’ reliance on the ability of auditors to deal with these challenges and assess the reasonableness of those estimates, which represent a relevant input for the evaluation of safety and soundness and financial stability. Discussions highlighted the importance of auditors exhibiting professional scepticism when they challenge management judgments inherent in complex estimates and consider any potential sources of bias. Participants also noted the importance of enhanced, entity-specific public disclosures that facilitate users’ understanding of the assumptions, processes and methodologies used by management to determine the estimates.

The challenges in addressing going concern assessments of companies affected by COVID-19 were also stressed. There was agreement regarding the importance of reviews underway in the auditing standards and educational material on going concern, and more broadly on the relevance of sound and consistent application of the existing standards.

Participants discussed the benefits of new approaches to the use of technology by auditors, particularly in responding to current operational challenges. There was also interest in the steps of the global networks to enhance consistency of their respective global methodologies and quality controls across member firms and engagement teams. At previous roundtables participants have acknowledged IFIAR’s efforts to advance the oversight capabilities of its member authorities and to leverage their collective knowledge and experience in engaging with the global networks and promoting high quality auditing.

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.

LEI ROC to become governance body for OTC derivatives identifiers

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Ref no: 30/2020

The Financial Stability Board (FSB) today confirmed the Regulatory Oversight Committee (ROC) of the Global Legal Entity Identifier System as the International Governance Body (IGB) for the globally harmonised identifiers used to track over-the-counter (OTC) derivatives transactions.

G20 Leaders agreed at the Pittsburgh Summit in 2009, as part of a package of reforms to strengthen the resilience of the OTC derivatives markets, that all OTC derivatives transactions should be reported to trade repositories. A lack of transparency in these markets was one of the key problems identified by the global financial crisis. Trade reporting, by providing authorities with data on trading activity, is key to identify potential vulnerabilities to financial stability in these markets.

Globally harmonised identifiers and data elements can help authorities obtain a comprehensive global view of the OTC derivatives markets. The Unique Product Identifier (UPI) will identify the products reported to trade repositories consistently across FSB jurisdictions. The Unique Transaction Identifier (UTI) will identify individual transactions reported to trade repositories and allow authorities to follow their modifications during their whole lifecycle. The Critical Data Elements (CDE) will capture other important characteristics of the transactions. Reference to the Legal Entity Identifier (LEI) in the harmonised derivatives identifiers and data elements will allow consistent monitoring of legal entities’ trading activity, exposures and interconnectedness in the global OTC derivatives markets. The ROC, which is already the governance body of the Global LEI System, will be responsible for the governance of the UPI, the UTI, and the CDE, which includes the oversight of the UPI service provider designated by the FSB, The Derivatives Service Bureau (DSB). The ROC has been tasked with finalising appropriately rigorous oversight arrangements of DSB.

In October 2019 the FSB, identified the ROC as best positioned to be the IGB for the UTI, UPI and CDE, provided that the ROC made appropriate adjustments to its existing governance to make it fit for the purpose of overseeing the harmonised derivatives identifiers and data elements. After taking note of the planned adjustments to the ROC’s Charter and Procedural Guidelines, the FSB confirms the ROC as IGB and transfers the governance of the harmonised derivatives identifiers and data elements to the ROC as of 1 October 2020.

The governance arrangements for the UPI and UTI that have been put in place were developed by the FSB Working Group on UTI / UPI Governance (GUUG), established in 2016, co-chaired by François Laurent (Principal Adviser, DG Statistics, European Central Bank) and until July 2019 by Eric Pan (Director, Office of International Affairs, U.S. Commodity Futures Trading Commission) and since September 2019 by Daniel Bucsa (Deputy Director, Data and Reporting, Division of Market Oversight, U.S. Commodity Futures Trading Commission). The GUUG has also performed the functions of the interim IGB until this transfer to the ROC.

Notes to editors

The FSB announced in May 2019 that it had designated The Derivatives Service Bureau (DSB) Ltd as the service provider for the future UPI system.

The FSB Chair confirmed the transfer of all governance and oversight responsibilities in relation to the harmonised derivatives identifiers and data elements to the ROC in a letter to the ROC Chair.

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 Middle East and North Africa group discusses economic and financial market developments

19 September 2020

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Ref no: 29/2020

The Financial Stability Board (FSB) Regional Consultative Group (RCG) for the Middle East and North Africa (MENA) held its 18th meeting (virtually) today to discuss recent global and regional macroeconomic and financial market developments.

Members exchanged views on the latest financial stability implications of COVID-19, as well as any medium- or long-term threats to regional financial stability that might arise from the COVID-19 pandemic and its economic implications, including their policy responses.

The group received an update on the FSB’s deliverables to the Saudi Arabian G20 Presidency, with an emphasis on the initiatives where the RCGs have provided input. This includes the FSB’s work on BigTech firms in Emerging Market and Developing Economies (EMDEs), benchmark transition, enhancing cyber resilience and cross-border payments, as well as addressing regulatory, and supervisory and oversight challenges raised by “global stablecoin” arrangements. RCG members also exchanged views and shared experiences on how the recommendations from the “global stablecoin” report could be implemented in their jurisdictions.

Notes to editors

The RCG for the MENA is co-chaired by Ahmed Alkholifey, Governor of the Saudi Arabian Monetary Authority, and Rasheed M. Al Maraj, Governor of the Central Bank of Bahrain. Membership includes financial and regulatory authorities from Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Morocco, Oman, Qatar, Saudi Arabia, Tunisia, Turkey and the United Arab Emirates.

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. [←]

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

9 September 2020

Summary of document history

Summary of document history

On 4 September the FSB hosted a virtual workshop as part of the consultation process for its evaluation of the too-big-to-fail reforms. The virtual workshop included presentations and discussions by a range of academic, regulatory, non-governmental organisation and industry stakeholders on the analysis and findings of the evaluation.

The workshop and other feedback to the consultation provided input to the final evaluation report that was published in April 2021.

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

View the Standard

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 (868 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

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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.