FIA and ISDA has submitted a joint response to the Bank of England's Discussion Paper on central counterparty resolution execution and resolvability outcomes. The associations welcome the Bank's work and support the goal of ensuring resolution tools can be applied in a credible, predictable and operationally effective manner.
The response stresses that default fund contributions are designed to mutualise default risk and should not become a mechanism for absorbing non-default losses, and cautions against changes to the creditor hierarchy that would weaken the No Creditor Worse Off (NCWO) safeguard. It encourages the Bank to give greater prominence to loss-absorption and recapitalisation options that sit ahead of clearing member resources, including right-sized CCP equity, parent-group support considered ex-ante, and other pre-committed resources.
The associations also support credible mechanisms, such as mandated profit-sharing, to return value to clearing members who fund a successful resolution. On partial tear-up, they support commercially reasonable pricing while highlighting hedging, liquidity and contagion effects, and call for greater transparency around resolvability assessments and third-country coordination.
Read the full response here.
