Addressing SIFIs – Implementation
The FSB has designated policy measures for systemically important financial institutions (SIFIs) as one of the priority areas for implementation monitoring. The task of regular monitoring and reporting in this area is carried out by the FSB in collaboration with standard-setting bodies.
The FSB published in October 2019 its fifth annual report on the implementation and effects of the G20 financial regulatory reforms. Below is an extract from this report on the status of implementation of too-big-to-fail reforms.
Processes for identifying G-SIFIs are in place.
Lists of G-SIBs are reviewed annually, and the BCBS published in July 2018 its revised assessment framework for G-SIBs.
The IAIS is developing a holistic framework to mitigate systemic risk in the insurance sector. In light of progress with that framework, the FSB, in consultation with the IAIS and national authorities, 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.
The assessment methodologies for identifying non-bank non-insurer global systemically important financial institutions (NBNI G-SIFIs) will be finalised after the work on addressing structural vulnerabilities from asset management activities is completed.
Implementation of the policy framework for G-SIFIs has advanced the most for G-SIBs.
Implementation of Higher Loss Absorbency as well as of reporting and disclosure requirements for G-SIBs is proceeding on a timely basis.
Supervisory frameworks have improved and supervisory colleges have been established for almost all G-SIBs. The effectiveness of colleges has improved since 2015 in terms of information-sharing, coordinated risk assessment and crisis preparedness. Yet challenges remain, including those related to legal constraints on information-sharing, supervisory resource constraints and expectation gaps between home and host supervisors.1
The level of compliance with the BCBS Principles on risk data aggregation and risk reporting is still to be improved. Overall implementation progress remains very limited,2 while the BCBS continues to monitor progress and has made additional recommendations to further promote their adoption.
Implementation of the TLAC Standard continues. External TLAC requirements have now been finalised in all advanced economy G-SIB home jurisdictions.3 Furthermore, all G-SIBs subject to the January 2019 implementation deadline met or exceeded the minimum TLAC ratios, as outlined in the FSB’s review of TLAC implementation.4
Implementation of internal TLAC is less advanced and approaches to its distribution and calibration differ among G-SIB hosts. More work is needed to ensure the appropriate intra-group distribution of TLAC across home and host jurisdictions and balance between resources pre-positioned at material subsidiaries or subgroups as internal TLAC and those that would be readily available to be deployed flexibly where needed in times of stress. Furthermore, few jurisdictions have introduced the BCBS requirements on cross-holdings of other G-SIBs’ TLAC or specific disclosure requirements for TLAC.
Substantial work remains in achieving effective resolution regimes and operationalising plans for systemically important banks and non-bank financial institutions (Graph 2).
Almost all G-SIB home and key host jurisdictions have in place comprehensive bank resolution regimes that align with the FSB Key Attributes of Effective Resolution Regimes for Financial Institutions. However, implementation of the Key Attributes is still incomplete in some FSB jurisdictions. The powers most often lacking are bail-in (14 jurisdictions) and to impose a temporary stay on the exercise of early termination rights (nine jurisdictions). Reforms underway in several FSB jurisdictions address some, but not all, of these gaps.
More work is needed to address operational capabilities and execution aspects of bank resolution strategies, such as operationalising bail-in execution as well as ensuring access to temporary liquidity, operational continuity and continuity of access to financial market infrastructures for banks in resolution.
Bank resolution planning frameworks have been adopted in most (16) jurisdictions, with planning most advanced for G-SIBs and in jurisdictions that are home to them. The range of banks subject to resolution planning and some of the requirements tend to vary, particularly for banks other than G-SIBs or D-SIBs. Notwithstanding the progress made, important work remains to ensure that bank resolution plans can be put fully into effect.5
Crisis Management Groups (CMGs) are established for all G-SIBs, but institution-specific cross-border cooperation agreements (CoAgs) are still not in place for some G-SIBs.6
Implementation of resolution reforms is less advanced in the insurance sector. The majority of FSB jurisdictions do not have in place comprehensive insurance resolution regimes that are aligned with the Key Attributes, and lack powers and tools needed to operationalise resolution plans. Two jurisdictions introduced or strengthened powers and tools to resolve insurers in 2018.
Many jurisdictions do not yet have in place comprehensive resolution arrangements for CCPs. Authorities have continued to establish CMGs for the 13 CCPs identified as systemically important in more than one jurisdiction,7 and to agree institution-specific CoAgs that underpin their operation. However, not all CMGs have been established or agreed CoAgs, and resolution planning remains at an early stage for most CCPs.
Status of implementation
1 See the BCBS Progress report on the implementation of principles for effective supervisory colleges (December 2017).↩
2 See BCBS report on Progress in adopting the Principles for effective risk data aggregation and risk reporting (June 2018).↩
3 Banks that are currently headquartered in an emerging market economy and designated as G-SIBs will comply with the minimum TLAC requirements starting from 2025.↩
4 See FSB Review of the Technical Implementation of the Total Loss-Absorbing Capacity (TLAC) Standard (July 2019).↩
6 See the FSB Eighth Report on the implementation of resolution reforms (forthcoming).↩
7 These CCPs were reported as systemically important in more than one jurisdiction by agreement between home and host authorities on the basis of a set of criteria set out in the FSB Guidance on CCP Resolution and Resolution Planning.↩