FIA, the International Swaps and Derivatives Association (ISDA), and the Institute of International Finance (IIF), (collectively the Associations), submitted a comment on the Financial Stability Board’s (FSB) consultation paper “Financial resources to support CCP resolution and the treatment of CCP equity in resolution.” The Associations welcomed the FSB’s work on providing guidance on CCP resolution but commented that the guidance should be more prescriptive to avoid an unlevel playing field among jurisdictions and to promote financial stability. The Associations’ response made the following recommendations:
- The process should be further developed into a CCP capital requirements framework
- Non-confidential parts of resolution plans should be made transparent
- Resolution authorities, in coordination and cooperation with CCP supervisors, should test the resolution plans and playbooks regularly
- CCP equity should be fully loss bearing in line with corporate finance principles
- The No Creditor Worse Off (NCWO) counterfactual should be clarified
- Participants should be compensated for the use of recovery and resolution tools
- There should be a clear boundary between CCP recovery and resolution
- Resolution tools should not make the crisis worse
- Resources to cover losses should be different from those set aside for recapitalization
- It is important to align incentives between CCPs, clearing members and clients to ensure all actors behave in a way that supports resilience, recovery and resolution.
- CCPs should have more skin in the game in two tranches
The Associations will continue to work with the FSB as they develop their recommendations.