FSB action plan to assess and address the decline in correspondent banking: Progress report to G20 Summit of November 2018

16 November 2018 | PDF full text (426 KB)

This progress report provides an update on the implementation of the FSB’s four-point action plan to assess and address the decline in correspondent banking.

A decline in the number of correspondent banking relationships remains a source of concern for the international community because, in affected jurisdictions, it may impact the ability to send and receive international payments, or drive some payment flows underground, with potential adverse consequences on growth, financial inclusion and international trade. While impacts to the stability and integrity of the global financial system have not been identified, concerns remain at the national and regional level.

The progress report highlights actions taken to implement the FSB’s four-point action plan on correspondent banking since the FSB’s March 2018 progress report. These include:

  • Strengthening tools for due diligence by correspondent banks – To support the measures that could help improve the efficiency of due diligence procedures, reduce compliance costs and help address perceived uncertainty, the FSB, Basel Committee on Banking Supervision (BCBS) and Committee on Payments and Market Infrastructures (CPMI) organised a workshop to discuss the use of Know Your Customer utilities for correspondent banking due diligence, the quality of payment messages and the use of the Legal Entity Identifier in correspondent banking.

    Other technical solutions addressing or offsetting the reduced availability of correspondent banking are also being considered, including how technological innovations, such as big data and machine learning, might be usefully applied in generating and analysing information and facilitating due diligence processes.

  • Clarifying regulatory expectations – The Financial Action Task Force (FATF) and BCBS have conducted surveys of their memberships to assess the transmission and traction of their guidance on correspondent banking. While there generally has been a high level of dissemination of the guidance, some national authorities may need to do more.

  • Domestic capacity building – The FSB recently convened a workshop that included representation from the private sector, on the coordination and prioritisation of capacity development to strengthen domestic Anti-Money Laundering and Countering the Finance of Terrorism Public supervision. The FSB has also committed to explore how solutions developed to address the reduction in correspondent banking relationships might also be used in the context of trade finance and, in this context, has discussed with the World Trade Organization, International Finance Corporation and Multilateral Development Banks technical assistance that these organisations provide to private sector banks on trade finance.

With the international components of the correspondent banking action plan largely in place, the steps listed above illustrate that the FSB’s focus is now turning to monitoring of implementation and of developments. Monitoring be undertaken by the FSB’s membership, and in particular the BCBS, CPMI, FATF, Global Partnership for Financial Inclusion, International Monetary Fund and World Bank.

FSB Correspondent Banking Data Report – Update

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A decline in the number of correspondent banking relationships remains a source of concern for the international community because, in affected jurisdictions, it may impact the ability to send and receive international payments, or drive some payment flows underground, with potential adverse consequences on growth, financial inclusion and international trade. While impacts to the stability and integrity of the global financial system have not been identified, concerns remain at the national and regional level.

The report – based upon year-end 2017 data from SWIFT – shows that the decline in the number of active correspondents, as measured by the flow of messages, continued in 2017, with a year-on-year reduction of 4.1%. All continents or sub-continents saw a decline in the number of active correspondents in 2017, with the rate of decline ranging between 5.2% and 6.7%, except in Northern America where it was 2.9%. From January 2011 to end-2017, the number of active correspondents declined by 15.5% and active corridors by 7.3%. The number of active corridors (defined as country pairs that processed at least one transaction) also declined in 2017, by 2.4%, and from January 2011 the data shows a decline of 7.3%.

Small economies with a Gross Domestic Product (GDP) of less than USD 10 billion have seen a stronger decline in the ratio of foreign counterparties to local banks (-23.4%), compared economies with a GDP of between USD 10 billion and USD 1 trillion (approximately -18%) and economies with a GDP of above USD 1 trillion (-8.4%). The decline in small economies has not affected, on average, the volume and value of messages they received; these have increased more for small economies compared to the larger economies.

FSB publishes 2018 G-SIB list

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Ref no: 42/2018

The Financial Stability Board (FSB) today published the 2018 list of global systemically important banks (G-SIBs) using end-2017 data and an assessment methodology designed by the Basel Committee on Banking Supervision (BCBS). 

One bank (Groupe BPCE) has been added to the list and two banks (Nordea and Royal Bank of Scotland) have been removed from the list and therefore the overall number of G-SIBs decreases from 30 to 29.

FSB member authorities apply the following requirements to G-SIBs:

  • Higher capital buffer: The G-SIBs are allocated to buckets corresponding to of higher capital buffers that national authorities require banks to hold in accordance with international standards. Compared with the 2017 list of G-SIBs, two banks have moved to a lower bucket: Bank of America has moved from bucket 3 to bucket 2 and China Construction Bank has moved from bucket 2 to bucket 1.

  • Total Loss-Absorbing Capacity (TLAC): G-SIBs are required by national authorities to meet the TLAC standard, alongside regulatory capital requirements set out in the Basel III framework. The TLAC standard will be phased in from 1 January 2019 for G-SIBs identified in the 2015 list (provided that they continue to be designated as G-SIBs thereafter).

  • Resolvability: These include group-wide resolution planning and regular resolvability assessments. The resolvability of each G-SIB is also reviewed in a high-level FSB Resolvability Assessment Process (RAP) by senior regulators within the firms’ Crisis Management Groups.

  • Higher supervisory expectations: These include heightened supervisory expectations for risk management functions, risk data aggregation capabilities, risk governance and internal controls.

BCBS today published updated denominators used to calculate banks’ scores and the values of the underlying twelve indicators for each bank in the assessment sample. The BCBS also published the thresholds used to allocate the G-SIBs to buckets, as well as updated links to public disclosures of all banks in the sample.

A new list of G-SIBs will next be published in November 2019.

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 Mark Carney, Governor of the Bank of England. Its Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

2018 list of global systemically important banks (G-SIBs)

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The 2018 list of global systemically important banks (G-SIBs) uses end-2017 data and an assessment methodology designed by the Basel Committee on Banking Supervision (BCBS). 

One bank (Groupe BPCE) has been added to the list and two banks (Nordea and Royal Bank of Scotland) have been removed from the list and therefore the overall number of G-SIBs decreased from 30 to 29.

 

Financial resources to support CCP resolution and the treatment of CCP equity in resolution

15 November 2018 | PDF full text (504 KB)

This discussion paper seeks comment on financial resources to support central counterparty (CCP) resolution and the treatment of equity in CCP resolution. It builds on the FSB Key Attributes of Effective Resolution Regimes for Financial Institutions (Key Attributes) and FSB Guidance on Central Counterparty Resolution and Resolution Planning.

Centrally clearing standardised over-the-counter (OTC) derivatives is a pillar of the G20 Leaders’ commitment to reform OTC derivatives markets in response to the global financial crisis. 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 any CCP can be successfully resolved without resort to a government bailout.

The FSB has concluded that further guidance on the necessary financial resources should be developed in an evidence-based way including by drawing on the practical experience gained from resolution planning by relevant authorities and Crisis Management Groups.

To inform this process, the FSB has, in consultation with the Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions, developed a discussion paper that sets out considerations that may be relevant to evaluating whether existing financial resources and tools are adequate to implement resolution strategies for individual CCPs; and considerations that could guide authorities in developing possible approaches to the treatment of CCP equity in resolution.

The FSB welcomes comments on this discussion paper. Responses should be sent to [email protected] by 1 February 2019. Responses will be published on the FSB’s website unless respondents expressly request otherwise.

FSB 2018 Resolution Report: “Keeping the pressure up“

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This report updates on progress in implementing the framework and policy measures to enhance the resolvability of systemically important financial institutions and sets out the priorities for the FSB’s resolution work going forward. The report finds that jurisdictions have undertaken substantial reforms to mitigate the “too-big-to-fail” (TBTF) problem. Implementation is most advanced in the banking sector where most home and key host jurisdictions of global systemically important banks (G-SIBs) have introduced resolution regimes that are broadly aligned with the FSB’s Key attributes of effective resolution regimes for financial institutions and have launched their resolution planning for G-SIBs. However, for insurance companies and central counterparties (CCPs) progress is less advanced. The report concludes that it is important to keep the pressure up, on firms to continue strengthening their resolvability and complete the build-out of the necessary capabilities, and on authorities and lawmakers to complete and fully implement the necessary reforms.

Starting early next year, the FSB is going to evaluate the effects of the TBTF reforms in order to determine whether they are achieving their objectives and whether they have had any material unintended consequences. The evaluation will be completed in 2020.

FSB publishes 2018 Resolution Report and publicly consults on financial resources to support CCP resolution

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Ref no: 41/2018

The Financial Stability Board (FSB) published today its 2018 Resolution Report and is also launching for public consultation a discussion paper on financial resources to support central counterparty (CCP) resolution and on the treatment of CCP equity in resolution.

2018 Resolution Report

The report updates on progress in implementing the framework and policy measures to enhance the resolvability of systemically important financial institutions and sets out the priorities for the FSB’s resolution work going forward. The report finds that jurisdictions have undertaken substantial reforms to mitigate the “too-big-to-fail” (TBTF) problem. Implementation is most advanced in the banking sector where most home and key host jurisdictions of global systemically important banks (G-SIBs) have introduced resolution regimes that are broadly aligned with the FSB’s Key attributes of effective resolution regimes for financial institutions and have launched their resolution planning for G-SIBs. However, for insurance companies and CCPs progress is less advanced. The report concludes that it is important to keep the pressure up, on firms to continue strengthening their resolvability and complete the build-out of the necessary capabilities, and on authorities and lawmakers to complete and fully implement the necessary reforms.

Starting early next year, the FSB is going to evaluate the effects of the TBTF reforms in order to determine whether they are achieving their objectives and whether they have had any material unintended consequences. The evaluation will be completed in 2020.

Discussion paper on financial resources to support CCP resolution and the treatment of CCP equity in resolution

The FSB also invites comments on its discussion paper on CCP financial resources and the treatment of CCP equity in resolution. Centrally clearing standardised over-the-counter (OTC) derivatives is a pillar of the G20 Leaders’ commitment to reform OTC derivatives markets in response to the global financial crisis. 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 any CCP can be successfully resolved without resort to a government bailout. The FSB has concluded that further guidance on the necessary financial resources should be developed in an evidence-based way, including by drawing on the practical experience gained from resolution planning by relevant authorities and Crisis Management Groups. To inform this process, the FSB discussion paper sets out considerations that may be relevant to evaluating whether existing financial resources and tools are adequate to implement resolution strategies for individual CCPs; and considerations that could guide authorities in developing possible approaches to the treatment of CCP equity in resolution.

The discussion paper will be delivered to the G20 Leaders’ Summit in Buenos Aires later this month.

The FSB welcomes comments on this discussion paper. Responses should be sent to [email protected] by 1 February 2019. Responses will be published on the FSB’s website unless respondents expressly request otherwise.

Speaking about today’s releases, Mark Branson, Chair of the FSB Resolution Steering Group and Chief Executive Officer of the Swiss Financial Market Supervisory Authority FINMA, said: “Despite the very substantial progress in improving banks’ resolvability, the ‘steady state’ for resolution plans has not yet been reached. Important legal, technical and operational challenges remain. And more work is needed to develop effective resolution regimes for insurers and central counterparties. As part of this work the FSB is today releasing a consultation paper on how to evaluate the financial preparedness of CCPs for resolution. The subsequent guidance will form an important part of efforts to allow for the effective resolution of CCPs.”

Notes to editors

The FSB Resolution Steering Group leads the FSB’s work on resolution regimes, resolution planning, and resolvability assessments for all sectors and developed the Key Attributes of Effective Resolution Regimes for Financial Institutions.

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 Mark Carney, Governor of the Bank of England. Its Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

Release of IAIS proposed holistic framework for the assessment and mitigation of systemic risk in the insurance sector and implications for the identification of G-SIIs and for G-SII policy measures

14 November 2018 | PDF full text (165 KB)

This communication updates on the FSB’s decision, in consultation with the International Association of Insurance Supervisors (IAIS) and national authorities, not to engage in an identification of G-SIIs in 2018. This decision was taken in light of the progress by the IAIS in developing a holistic framework for the assessment and mitigation of systemic risk in the insurance sector.

FSB welcomes IAIS proposed insurance systemic risk framework and decides not to engage in an identification of G-SIIs in 2018

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Ref no: 40/2018

The FSB welcomes the publication today of the International Association of Insurance Supervisors (IAIS) consultation document on a proposed holistic framework for the assessment and mitigation of systemic risk in the insurance sector. It sets out the Activities-Based Approach for sector-wide risk monitoring and management, as a key component of the framework, and tools for dealing with the build-up of risk within individual insurers. The FSB notes that a new holistic framework, appropriately implemented, would provide an enhanced basis for mitigating systemic risk in the insurance sector.

The IAIS will further refine the proposed holistic framework, taking account of the public consultation feedback, including feedback on the scope of application of the supervisory measures to ensure proportional application. The specific measures to be incorporated in the IAIS supervisory material (Insurance Core Principles and Common Framework for the Supervision of Internationally Active Insurance Groups, ComFrame) will then be exposed for further public consultation. The IAIS will finalise the holistic framework in 2019, for implementation in 2020.

In light of the progress with the proposed holistic framework, the FSB, in consultation with the IAIS and national authorities, has decided not to engage in an identification of global systemically important insurers (G-SIIs) in 2018. The FSB will assess the IAIS’s recommendation to suspend G-SII identification from 2020 once the holistic framework is finalised in November 2019. In November 2022, the FSB will, based on the initial years of implementation of the holistic framework, review the need to either discontinue or re-establish an annual identification of G-SIIs by the FSB in consultation with the IAIS and national authorities.

In the period until the holistic framework is implemented, the relevant group-wide supervisors have committed to continue applying existing enhanced supervisory policy measures as described in the IAIS consultative document on the holistic framework published today, as applicable.

The FSB will receive from the IAIS an annual update of the IAIS assessment of systemic risk in the global insurance sector and of the supervisory response. The IAIS will continue its annual global monitoring exercise, including the annual data collection from individual insurers building on the current G-SII data collection template and instructions and implement additional data collection from supervisors as necessary to support an assessment of sector-wide trends with regard to specific activities and exposures.

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 Mark Carney, Governor of the Bank of England. Its Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

Reforming major interest rate benchmarks: Progress report

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This progress report updates on implementation of its recommendations to reform major interest rate benchmarks. The report sets out the progress made on the development of overnight nearly risk-free rates (RFRs), and markets based on these rates, and on further reforms to interbank offered rates (IBORs).

Interest rate benchmarks play a key role in global financial markets. The FSB started its work on reforms to IBORs in response both to cases of attempted manipulation and to the decline in liquidity in key interbank unsecured funding markets. In 2014, the FSB set out recommendations to reform major interest rate benchmarks, such as key IBORs, and has been monitoring progress on implementation since then.

The progress report considers three key areas:

  • IBORs: Although LIBOR has been strengthened, authorities have warned that publication of LIBOR may cease once official sector support for the benchmark is withdrawn at end-2021. Work has continued among the other major IBORs (EURIBOR and TIBOR) to strengthen existing methodologies to make them more grounded in actual transactions, as well as to strengthen regulatory frameworks and supervision. In other jurisdictions, actions are also underway to implement further regulatory reforms.

  • Alternative reference rates: In the markets which face the disappearance of IBORs, notably markets currently reliant on LIBOR, there needs to be an orderly transition to new reference rates that are sufficiently robust for such extensive use. Since the 2017 progress report, a great deal of progress has been made to identify RFRs and other alternative reference rates in currency areas currently reliant on LIBOR benchmarks, as well as to plan for and in some markets begin to execute transition to those RFRs.

  • Enhancing contractual robustness: Significant work continues on the part of FSB member authorities, national working groups, the International Swaps and Derivatives Association and other trade associations on the important task of strengthening contractual robustness to the risk of discontinuation of major interest-rate benchmarks. This issue goes beyond derivatives markets and applies to many types of cash products including syndicated loans, bonds and mortgages.

The FSB will publish a further progress report in late 2019.