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The Financial Stability Board (FSB) has today published three guidance papers to assist authorities and firms in implementing the recovery and resolution planning requirements under the Key Attributes of Effective Resolution Regimes for Financial Institutions (‘the Key Attributes’) endorsed by the G20 at Cannes:
(1) Guidance on Developing Effective Resolution Strategies;
(2) Guidance on Identification of Critical Functions and Critical Shared Services; and
(3) Guidance on Recovery Triggers and Stress Scenarios.
The guidance was issued for public consultation in November 2012 and has been revised in light of the comments received during that consultation.
Recovery and resolution planning is part of the set of policy measures to address systemically important financial institutions that was endorsed by the G20 in November 2011 to address the problem of firms that are “too big to fail”. It is required for all global systemically important financial institutions (G-SIFIs) and for any other firm assessed by national authorities as potentially having an impact on financial stability in the event of its failure. Effective recovery and resolution planning and the development of credible resolution strategies for large, cross-border firms are essential for reducing the moral hazard associated with such firms.
Christine Cumming, First Vice President of the Federal Reserve Bank of New York and Chair of the FSB Cross-border Crisis Management Group, noted that: “Within the FSB and within individual Crisis Management Groups, we have advanced our thinking on the development of effective resolution strategies and the identification of conditions relating to firms’ legal, operational and financial structures and their effect on resolvability. Considerable progress has been made in this regard, and authorities have further benefited from the public comments received. The guidance notes reflect the experience of FSB members to date.”
Paul Tucker, Deputy Governor of the Bank of England and Chair of the FSB Resolution Steering Group, noted that: “Today's publication marks a further important step towards making the largest, most complex financial firms resolvable without taxpayer solvency support.Key jurisdictions are well on the way to having the necessary legislative regimes in place. Resolution strategies are being framed in line with the FSB's Guidance Papers. Next steps will need to include regulatory measures to remove impediments, and changes to firms' financial or organisational structure where necessary."
Guidance on Developing Effective Resolution Strategies
Guidance on Identification of Critical Functions and Critical Shared Services
Guidance on Recovery Triggers and Stress Scenarios