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FSB Launches Evaluation of TBTF for SIBs

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On May 23, the Financial Stability Board (FSB) published a press release announcing the launch of an evaluation of its too-big-to-fail reforms (TBTF) for systemically important banks (SIBs).

The evaluation (i) will focus on the effects of the FSB’s TBTF reforms for SIBs (including increased capital buffers, total loss-absorbing capacity, enhanced supervision and resolution regimes); and (ii) will analyze the impact of the reforms on global systemically important banks and domestic systemically important banks, and will cover all FSB jurisdictions.

The aims of the evaluation are to (i) assess whether the reforms for which implementation has been completed or is well underway are reducing the systemic and moral hazard risk associated with SIBs; and (ii) examine the broader effects of the reforms on the financial system.

The evaluation will be based on the FSB’s July 2017 framework for the post-implementation evaluation of the effects of the G20 financial regulatory reforms.

FSB Report Assesses Fintech Developments and Potential Financial Stability Implications

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On February 14, the Financial Stability Board (“FSB“) published a report assessing Fintech market developments in the financial system and the potential implications for financial stability.

Three Fintech developments were considered: new providers of bank-like services competing or co-operating with established financial services providers; the provision of financial services by large technology companies (BigTech); and reliance on third-party providers for cloud services. These are considered to be developments that are altering, or have the potential to alter, the current structure of the financial system and as a result may have financial implications for financial stability. READ MORE →

FSB Speech on Effective Global Resolution Schemes

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The Financial Stability Board (“FSB“) published a speech by Dietrich Domanski, FSB Secretary General, on effective global resolution schemes on June 12, 2018.

The speech covers matters including the following:

  • Funding in resolution. In November 2017, the FSB consulted on guidance on the development of a plan for funding in resolution. Many respondents welcomed the focus on firm capabilities and the operational aspects of a funding strategy.

With regard to both consultations, the FSB intends to reflect suggestions for changes in the final guidance, which it expects to publish in the coming weeks.

  • Bail-in execution. Also in November 2017, the FSB consulted on guidance to assist authorities in making global systemically important bank (“G-SIB“) bail-in resolution strategies operational. Generally, respondents expressed support for the guidance and its focus on the operational aspects of a bail-in.
  • Monitoring and evaluation. The FSB has started work on a thematic peer review of resolution regimes. A report on the peer review will be published in early 2019. The FSB also plans to evaluate the effects of the reforms aimed at ending “too-big-to-fail”. The key objective of the evaluation is to assess whether reforms have accomplished their objective, or whether there are any unintended consequences that may call for adjustments in regulation.
  • Open issues in implementation. Although the publication of the above two guidance papers will assist authorities and firms in their work to operationalise resolution plans, they do not consider many of the details that will need to be worked through at a jurisdictional level, taking into account local legal and regulatory frameworks. These details will need to be considered as part of resolution planning to ensure that resolution strategies can be credibly and feasibly implemented.

The FSB is also carrying out work on two other aspects of authorities’ resolution planning work. It is comparing approaches in FSB jurisdictions to the public disclosure of information on resolution planning and resolvability. It is also looking at trading book wind-down. The wind-down of trading book activity may form part of a restructuring plan for a firm in resolution. The FSB expects to report its findings later in 2018.

Financial Stability Board Issues Asset Management-Related Policy Recommendations

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On June 22, 2016, the Financial Stability Board (FSB) published for public consultation Proposed Policy Recommendations to Address Structural Vulnerabilities from Asset Management Activities. The document sets out 14 proposed policy recommendations to address the following structural vulnerabilities from asset management activities that could potentially present financial stability risks:

  1. Liquidity mismatch between fund investments and redemption terms and conditions for fund units;
  2. Leverage within investment funds;
  3. Operational risk and challenges in transferring investment mandates in stressed conditions; and
  4. Securities lending activities of asset managers and funds.

The key recommendations for liquidity mismatch and leverage focus on both public and private funds.

The FSB reported that it “intends to finali[z]e the policy recommendations by the end of 2016, some of which will be operationalized by the International Organization of Securities Commissions (IOSCO).”

ESMA and South African and Mexican Authorities to Cooperate Under EMIR on CCPs

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On 26 January 2016, ESMA announced that had entered into a memorandum of understanding (MoU) with each of the Mexican Comisión Nacional Bancaria y de Valores (CNBV) and the South African Financial Services Board (FSB) under the European Markets Infrastructure Regulation (EMIR).

EMIR provides for co-operation arrangements to be established by ESMA and non-EU authorities whose legal and supervisory framework for CCPs have been deemed equivalent to EMIR by the European Commission. The memoranda set out the terms on which the two authorities will cooperate and share information with ESMA regarding Central Counterparties (CCPs) which are authorised or recognized in Mexico or South Africa, and which have applied for EU recognition under EMIR. As well as establishing these arrangements, the MoUs provide ESMA with adequate tools to monitor the on-going compliance by the CCPs with the recognition conditions contained in EMIR. The MoU with FSB entered into force on 30 November 2015 and the MoU with the CNBV entered into force on 25 January 2016.  Press release. CNBV MoU. FSB MoU.

FSB Consults on Total Loss-Absorbing Capacity for G-SIBs

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On November 10, the Financial Stability Board (FSB) published a consultation paper on proposals on the adequacy of total loss-absorbing capacity (TLAC) of global systemically important banks (G-SIBs) in resolution.

In the consultation, the FSB seeks views on principles on loss absorbing capacity of G-SIBs in resolution, covering issues such as the calibration of the amount of TLAC required, the determination of TLAC-eligible instruments and the consequences of breaches of the requirement.  The deadline for responses to the consultation is February 2, 2015.

IBA Publishes Position Paper on LIBOR

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On October 20, ICE Benchmark Administration Limited (IBA) published a position paper on the evolution of the London Interbank Offered Rate (LIBOR) (also known as ICE LIBOR).

The paper sets out:  IBA’s findings since it became the administrator of LIBOR in February 2014; proposed enhancements following the Financial Stability Board’s publication on Reforming Major Interest Rate Benchmarks; and an invitation for views on the proposals from all stakeholders in LIBOR.  Position Paper.

G20 Communiqué and FSB Progress Report

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The G20 Finance Ministers and Central Bank Governors have published a communiqué following their meeting in Moscow on February 15 and 16.  The communiqué sets out the G20’s policy agenda for reforming financial regulation, which includes:

  • Welcoming the Basel Committee’s increased focus on the comparability of risk-weighted assets.
  • Reiterating the G20’s commitment to ensuring that all global systemically important financial institutions are capable of resolution, and that operational resolution plans for all globally systemically important banks should be developed by the end of June 2013.
  • Stating that the FSB will continue to coordinate the monitoring of implementation of OTC derivative reforms, and with the aid of the Legal Entity Identifier global system which will be launched in March 2013.

Prior to the G20 summit, the FSB published a progress report on financial regulatory reforms, which emphasised that, with risk appetite beginning to return to the financial markets, the FSB’s priorities are completing the G20’s agreed reforms to the OTC derivatives markets, strengthening the oversight and regulation of the shadow banking sector and developing credible policies for ending the concept of “too-big-to-fail.”  The FSB’s report also provided an update on the implementation of the Basel III reforms, the reforms to reduce reliance on Credit Rating Agencies and the resolution regimes.

FSB Consults on Guidance for Recovery and Resolution Planning

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On November 2, the FSB published a consultation paper on proposed guidance for the recovery and resolution planning for systemically important financial institutions (SIFIs), entitled ‘Recovery and Resolution Planning: Making the Key Attributes Requirements Operational’. The proposed guidance is designed to assist national authorities with implementing the recovery and resolution planning requirements (so-called “living-wills”) set out by the FSB in their paper entitled ‘FSB Key Attributes of Effective Resolution Regimes for Financial Institutions’. Under the Key Attributes, firms are responsible for developing recovery actions to restore financial strength and viability.

The consultation paper builds on the FSB’s experience in this area to date and covers:

  • recovery triggers and stress scenarios to be used by firms in their recovery planning;
  • the development of resolution strategies and associated operational resolution plans tailored to different group structures; and
  • the identification of the critical functions and supporting services that would need to be maintained in a crisis for reasons of systemic stability.

 The FSB invites responses by December 7.

FSB Approves Global LEI System

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On May 30, the Financial Stability Board (FSB) approved the establishment of a global legal entity identifier (LEI) system that will provide a unique global identifier for parties to financial transactions. The LEI system was developed as part of the mandate of the Dodd-Frank Act directing the Treasury to collect financial transaction data from financial companies. The FSB projects a launch of the global LEI system by March 2013. FSB Release.