25 October 2013

FSB: Responses to consultation on resolution regimes to non-bank financial institutions: AGB, AIMA/MFA, EBF, EIOPA, Insurance Europe

AGB

The Association of German Banks stresses that recovery and resolution are issues which are closely linked to one another, so it is absolutely essential that the FSB and CPSS/IOSCO principles use the same terminology and ascribe the same meaning to the terms utilised, that processes are coordinated, that there is the same understanding of the triggers for the various stages and that the competent authorities consult and coordinate with each other.

The same applies to the guidance regarding client asset protection in resolution (Appendix III of the consultative document) and the Recommendations regarding the protection of client assets which are currently being discussed by IOSCO.

Full AGB-response

AIMA/MFA

As no set of rules ensures the absolute safety and soundness of CCPs, there remains a residual risk, however remote, that a CCP failure will occur and that the results could be extremely damaging. AIMA/MFA nonetheless stress that any resolution regime must allocate losses in a fair and predictable manner in order to prevent disproportionate burdens from being placed on certain categories of clearing participants, particularly indirect participants. As clients of clearing members, their members require robust protection of their assets. AIMA/MFA are, thus, extremely concerned about the possibility of a resolution authority using client assets as a potential loss allocation tool during a CCP resolution to cure a direct participant’s default. Use of non-defaulting client assets should not form part of any resolution regime. If such use is permitted, it must only be as a last resort.

Full AIMA/MFA-response

EBF

The EBF remains of the opinion that the priority for the resolution authority is to ensure continuity of the crucial infrastructure services considered as systemically important. In this respect, any consequences in terms of corporate structure of the FMI could be disregarded.

The EBF calls for the recognition of principles regarding close-out netting even in resolution. Close-out netting is a widely used mechanism in financial markets that contributes to effective crisis management and the stability of the markets.

The EBF stresses that loss allocation rules should never be determined by the FMI on its own but they should be drafted together with, at least, all respective authorities and with all clearing members. These rules should be fully transparent to all clients and indirect clients of the FMI. while a satisfactory regime for the resolution of systemically important FMI participants will require SIFIs to have continued access to FMIs (i.e. exchanges, payment, clearing and settlement systems), the rules of many of these systems do not currently provide for continuity of access in the event of resolution. An appropriate balance needs to be found.

Full EBF-response

EIOPA

EIOPA agrees with the view that the protection of policyholders should be considered as part of the resolution framework, together with financial stability. However, further work is required to determine the hierarchy of objectives of resolution and when each one would be addressed. In addition, EIOPA believes that focusing only on systemically relevant insurers is possibly an overly narrow view of the context within which recovery and resolution policy for insurers should be considered.

Full EIOPA-response

Insurance Europe

Insurance Europe is concerned that the Draft Implementation Guidance in its current form fails adequately to adapt the Key Attributes to the specifics of the insurance business model. The concepts of recovery and resolution are treated as if they were identical to the banking business and no consideration is being given to the industry’s unique characteristics presented above. Applying a banking-inspired resolution framework to the insurance sector will have a potentially detrimental effect on financial stability and the protection of policyholders.

Against this background, Insurance Europe would urge the FSB to reassess its guidance in order to ensure that it meets the specific characteristics of the insurance sector, which is currently not the case in many instances. As an example, Insurance Europe does not agree with the assumption that existing tools such as run-off and portfolio transfers may be inadequate to cope with a “sudden deterioration” in the viability of a large, complex insurance group.

Full Insurance Europe response

All responses

Original consultation

© FSB - Financial Stability Board