FSB launches consultation on CCP resolution
The Financial Stability Board is making progress toward its goal of establishing global standards for resolving clearinghouses that have passed the point of recovery. On Feb. 1, the international body, which consists of representatives from central banks and finance ministries of the G20 nations, published a consultation paper on draft guidance for resolution planning for central counterparties.
The consultation paper builds on a "discussion note" issued in August 2016 that outlined the group's views on the essential aspects of CCP resolution planning. The focus on resolution planning is a core element of a broader effort launched by international regulators in 2015 to strengthen regulatory, oversight and supervisory requirements for derivatives clearinghouses in recognition of their greater importance to the stability of the global financial system.
"With CCPs an increasingly important part of the financial system, particularly following post-crisis reforms to mandate central clearing of certain standardized over-the-counter derivatives, it is vital that CCPs do not themselves become a new source of too-big-to-fail risk,” the FSB said.
The draft guidance covers a range of issues that authorities should consider when developing frameworks for resolving failing CCPs. These include:
- Policy objectives for CCP resolution planning to maintain financial stability
- Powers that resolution authorities should have to ensure the effective resolution of CCPs, including potential indicators for considering when a CCP should enter resolution
- Use of loss allocation tools in resolution and provisions necessary to protect creditor rights so the triggering of resolution by authorities does not leave creditors worse off than if the authorities had not stepped in
- Steps authorities should take for CCP resolution planning, including assessing resolvability and considerations about the formation of crisis management groups for systemically important CCPs
The FSB said it expects to finalize the guidance in June 2017 in advance of the G20 summit that will take place in Germany. The FSB added that it plans to undertake further work on the topic of "financial resources for CCP resolution" and determine by the end of 2018 whether it should develop further guidance on this issue.
FIA has consistently supported the efforts by international regulators to enhance CCP resiliency, recovery and resolution. In October, FIA joined with four other financial trade associations in responding to the August discussion note on CCP resolution. The associations welcomed the note as "an important step toward addressing the financial disruption that could occur in the unlikely event that a CCP fails" and outlined seven principles that regulators should consider in developing CCP resolution regimes and strategies.
