The ICMA has submitted comments to the CPSS and IOSCO, in relation to the bail-in aspect of their joint consultative report on Recovery and Resolution of Financial Market Infrastructures.
Whilst being supportive of official endeavours to establish effective resolution regimes, the ICMA continues to perceive that there are some significant overriding challenges which will need to be overcome in the final design of any unsecured creditor bail-in regime. In particular, the ICMA stresses that other applicable measures to increase the quality and quantity of capital, and the stability of the financial system should be completed before bringing in a bail-in regime; and that it is essential that equity and all other capital instruments are fully wiped out before any unsecured creditor bail-in applies. Accordingly, the ICMA is particularly pleased to note that the CPSS and IOSCO acknowledge that bail-in “…would respect the creditor hierarchy…”.
The ICMA is also pleased to note that the CPSS and IOSCO fully acknowledge that the capital/liability structure of FMIs is typically not like that of banks or investment firms. It is entirely proper that careful and detailed consideration therefore be given to the applicability of the bail-in concept in the context of FMIs. The ICMA observes that FMIs themselves are a diverse group of entities with varied capital/liability structures adapted to their particular circumstances. Accordingly, it seems reasonable to conclude that any introduction of the bail-in concept in respect of FMIs will need to involve a flexible framework, allowing for application, where applicable, in a suitably tailored way.
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