FSB letter to ISDA on pre-cessation triggers

19 November 2019 | PDF full text (120 KB)

This letter from the Co-Chairs of the FSB’s Official Sector Steering Group (OSSG) encourages the International Swaps and Derivatives Association (ISDA) to add a “pre-cessation” trigger alongside the cessation trigger as standard language in the definitions for new derivatives and in a single protocol, without embedded optionality, for outstanding derivative contracts referencing key Interbank Offered Rates (IBORs). This would help to reduce systemic risk and market fragmentation by ensuring that as much of the swaps market as possible falls back to alternative rates in a coordinated fashion.

Financial institutions must be prepared for the withdrawal of official sector support for LIBOR at end-2021. In March 2019, the Co-Chairs had written to ISDA encouraging consultation on a pre-cessation trigger that would take effect in the event that the UK Financial Conduct Authority, in its capacity as the regulator of LIBOR, found LIBOR no longer to be capable of being representative, for example because of the departure of panel banks at end-2021. The Co-Chairs consider it important for ISDA to find a way to accommodate the majority view from its consultation and include this trigger in as straight-forward a manner as possible.

In this letter, the FSB asks ISDA to take forward this option and, if necessary to broaden and consolidate the consensus, set it out in a further and hopefully conclusive consultation that also invites respondents to identify any critical flaws, fine-tuning improvements or viable alternatives to such an approach.

The work on derivatives contractual robustness is part of ongoing work to reform financial benchmarks. The FSB and member authorities through the OSSG are working to implement and monitor the recommendations of the 2014 FSB report Reforming Major Interest Rate Benchmarks.

Since July 2016, ISDA has undertaken work, at the request of the OSSG, to strengthen the robustness of derivatives markets to the discontinuation of widely-used interest rate benchmarks. The OSSG engages regularly with ISDA and other stakeholders with a view to their taking action to enhance contractual robustness in derivatives products and cash products, such as loans, mortgages and floating rate notes.

FSB MENA group discusses regional financial stability, stablecoins, cyber incidents and implementation of financial reforms

17 November 2019

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Ref no: 42/2019

The Financial Stability Board (FSB) Regional Consultative Group (RCG) for the Middle East and North Africa (MENA) met today in Riyadh at a meeting hosted by the Saudi Arabian Monetary Authority.

Members received a briefing update from the Saudi Arabian authorities on the financial regulatory priorities for their G20 Presidency starting next month. The group also received an update on the FSB’s ongoing work and its plans for 2020, which were discussed at the FSB Plenary meeting earlier this month. RCG members discussed the FSB’s programme of evaluations of the effects of post-crisis reforms, including the evaluation of small and medium- sized enterprises (SME) finance to be published this month. They emphasised the importance of SMEs to economic activity in the region. Members also discussed international work on the transition from LIBOR and other IBORs, and underlined the importance of financial and non-financial firms being prepared for the risk that LIBOR will end once official sector support for the benchmark is withdrawn at end-2021.

Members discussed global and regional financial vulnerabilities, including a weaker global growth outlook, the implications for the region of the “lower for longer” interest rate environment and rising debt burdens, in particular of governments and corporations. At the same time, they noted the protection provided by the resilience of financial institutions and markets in the region. Some members thought challenges for IBOR transition might actually lay the ground for opportunities to deepen the local capital markets.

The group discussed the implications of stablecoins on financial stability and monetary stability. They considered the potential challenges such instruments also pose in areas such as, consumer and investor protection; cross-border capital flows including remittances; market integrity; cyber security; and anti-money laundering/countering the financing of terrorism regulation. However, they emphasised more generally the need for improvements in the speed and access to cross-border payment systems.

Given the increasing risk of cyber incidents, the RCG discussed the FSB’s work to develop effective practices for cyber incident response and recovery. A preliminary set of practices has been drawn from survey responses by authorities, including those in the region. The FSB toolkit will be issued for public consultation in early 2020.

Members discussed implementation of G20 regulatory reforms in non-G20 jurisdictions and jurisdictions’ experiences in tailoring implementation to the specificities of their financial systems.

The group expressed support for a set of recommendations developed by a working group of FSB and RCG members, and adopted by the FSB Plenary in early November, to enhance the effectiveness of RCGs as an outreach and feedback mechanism.

Notes to editors

The RCG for the MENA is co-chaired by Ahmed Alkholifey, Governor of the Saudi Arabian Monetary Authority, and Rasheed M. Al Maraj, Governor of the Central Bank of Bahrain. Membership includes financial and regulatory authorities from Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Morocco, Oman, Qatar, Saudi Arabia, Tunisia, Turkey and the United Arab Emirates.

The FSB has six Regional Consultative Groups, established under the FSB Charter, to bring together financial authorities from FSB member and non-member countries to exchange views on vulnerabilities affecting financial systems and on initiatives to promote financial stability.[1] Typically, each Regional Consultative Group meets twice each year.

The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with approximately 70 other jurisdictions through its six Regional Consultative Groups.

The FSB is chaired by Randal K. Quarles, Governor and Vice Chairman for Supervision, US Federal Reserve; its Vice Chair is Klaas Knot, President, De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

[1] The FSB Regional Consultative Groups cover the following regions: Americas, Asia, Commonwealth of Independent States, Europe, Middle East and North Africa, and sub-Saharan Africa.

Insurance Core Principles, Standards, Guidance and Assessment Methodology

14 November 2019

View the Standard

The ICPs are the highest level in the hierarchy of IAIS supervisory material and prescribe the essential elements that must be present in the supervisory regime in order to promote a financially sound insurance sector and provide an adequate level of consumer protection. Standards are directly under the ICPs in the hierarchy of IAIS supervisory material. Standards are linked to specific ICPs and set out key high-level requirements that are fundamental to the implementation of the insurance core principles and should be met for a supervisory authority to demonstrate observance with the core principles. Guidance material typically supports the core principles and/or standards and provides detail regarding how to comply with or implement a core principle or a standard. Guidance material does not set out new requirements but rather describes what is meant by the requirement.

 The ICPs were first issued on 1 October 2011. Individual core principles, with related standards and guidance, were amended in subsequent years to reflect best practices, address changes to the insurance sector and supervisory requirements, align them with standards from other standard setting bodies, as well as to incorporate findings generated by the IAIS’ feedback loop between implementation activities and standard setting.

 In November 2019, the IAIS completed the multi-year process for reviewing and revising the Insurance Core Principles (ICPs).

Assessment Methodology

View the Assessment Methodology

The Assessment Methodology is included in the Insurance Core Principles document. It was issued by IAIS on 1 October 2011 and amended in November 2019. Assessment of a jurisdiction’s observance of the ICPs can facilitate effective implementation by identifying the extent and nature of strengths and weaknesses in a jurisdiction’s supervisory framework – especially those aspects that could affect policyholder protection and financial stability.

Assessments against the ICPs can be conducted in a number of contexts including:

  • self-assessments performed by the jurisdiction itself. These may be performed with the assistance of outside experts and/or followed by peer review and analysis;

  • reviews conducted by third parties; or

  • reviews in the context of the Financial Sector Assessment Program (FSAP) conducted by the International Monetary Fund (IMF) and World Bank

FSB report highlights need to address remaining resolution gaps

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Ref no: 41/2019

The Financial Stability Board (FSB) today published its 2019 Resolution Report. The report provides an update on progress in implementing policy measures to enhance the resolvability of systemically important financial institutions and sets out plans for further work. The report concludes that authorities and firms need to be mindful of any remaining gaps as they work towards making resolution strategies and plans operational in all sectors.

  • Central Counterparties (CCPs) – A policy priority for the FSB is the further strengthening of the resilience and resolvability of CCPs. Its continuing work on financial resources and tools to support orderly resolution will lead to further guidance, on which the FSB will publicly consult during the second quarter of 2020.

  • Banks – Global systemically important banks have been made more resolvable through the build-up of total loss-absorbing capacity (TLAC) and other measures. Notwithstanding this progress, challenges remain. Authorities need to determine the appropriate balance between group-internal distribution of TLAC and non-pre-positioned resources; and access to temporary liquidity in the relevant currencies and in adequate amounts when and where needed by firms going through resolution requires ex ante preparation by firms and authorities.

  • Insurance – Resolvability monitoring in the insurance sector highlighted in particular challenges stemming from group-internal interconnectedness.

Speaking about today’s publication, Mark Branson, Chair of the FSB Resolution Steering Group and Chief Executive Officer of the Swiss Financial Market Supervisory Authority FINMA, said: “We have made significant progress in increasing resolvability, but the progress is uneven across sectors. The critical importance of CCPs to the overall safety and soundness of the financial system means that authorities must ensure that CCPs do not themselves become a source of systemic risk or contagion and that any systemically important CCP can be successfully resolved without resort to a government “bailout”. Beyond CCPs, remaining gaps that could affect the effective execution of resolution plans, either at a statutory level or in firms’ operational capabilities, also need to be closed. Continued monitoring of progress by the FSB through its resolvability assessment process for systemic institutions remains crucial.”

Notes to editors

The FSB Resolution Steering Group leads the FSB’s work on resolution regimes, resolution planning and resolvability assessments for all sectors and developed the FSB’s Key Attributes of Effective Resolution Regimes for Financial Institutions.

The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with approximately 70 other jurisdictions through its six Regional Consultative Groups.

The FSB is chaired by Randal K. Quarles, Governor and Vice Chairman for Supervision, US Federal Reserve; its Vice Chair is Klaas Knot, President, De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

2019 Resolution Report: “Mind the Gap”

| PDF full text (1 MB)

This resolution report provides an update on progress in implementing policy measures to enhance the resolvability of systemically important financial institutions and sets out plans for further work. The report concludes that authorities and firms need to be mindful of any remaining gaps as they work towards making resolution strategies and plans operational in all sectors.

  • Central Counterparties (CCPs) – A policy priority for the FSB is the further strengthening of the resilience and resolvability of CCPs. Its continuing work on financial resources and tools to support orderly resolution will lead to further guidance, on which the FSB will publicly consult during the second quarter of 2020.

  • Banks – Global systemically important banks have been made more resolvable through the build-up of total loss-absorbing capacity (TLAC) and other measures. Notwithstanding this progress, challenges remain. Authorities need to determine the appropriate balance between group-internal distribution of TLAC and non-pre-positioned resources; and access to temporary liquidity in the relevant currencies and in adequate amounts when and where needed by firms going through resolution requires ex ante preparation by firms and authorities.

  • Insurance – Resolvability monitoring in the insurance sector highlighted in particular challenges stemming from group-internal interconnectedness.

FSB welcomes insurance holistic framework

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Ref no: 40/2019

The Financial Stability Board (FSB) today welcomed the finalisation and publication of the International Association of Insurance Supervisors’ (IAIS) Holistic Framework for Systemic Risk in the Insurance Sector, for implementation in 2020. 

The key elements of the framework are:

  • An enhanced set of supervisory policy measures for macroprudential purposes, designed to increase the overall resilience of the insurance sector and help prevent insurance sector vulnerabilities and exposures from developing into systemic risk, through ongoing supervisory requirements applied to insurers, enhanced macroprudential supervision and crisis management and planning; and where a potential systemic risk is detected, supervisory powers of intervention that enable a prompt and appropriate response. Supervisors are required to have at their disposal a sufficiently broad set of preventive and corrective measures to be able to respond appropriately based on the nature of the macroprudential concern.

  • A global monitoring exercise by the IAIS designed to assess global insurance market trends and developments and detect the possible build-up of systemic risk in the global insurance sector. This includes an annual assessment by the IAIS of potential systemic risk arising from sector-wide trends with regard to specific activities and exposures, but also the possible concentration of systemic risks at an individual insurer level (using an updated assessment methodology) arising from these activities and exposures.

  • Mechanisms to allow for a collective assessment of potential global systemic risk and a coordinated supervisory response when needed. This involves, at an individual insurer and sector-wide level: i) A collective discussion by the IAIS of the assessment of potential systemic risks and appropriate supervisory responses; and ii) Reporting to the FSB on the outcomes of the global monitoring exercise, including the IAIS assessment of global systemic risk and the supervisory response to identified risks (if any).

  • An assessment by the IAIS of the consistent implementation of the enhanced supervisory policy measures and powers of intervention.

In light of the finalised holistic framework, the FSB, in consultation with the IAIS and national authorities, has decided to suspend Global Systemically Important Insurers (G-SII) identification as from the beginning of 2020.

In November 2022, the FSB will, based on the initial years of implementation of the holistic framework, review the need to either discontinue or re-establish an annual identification of G-SIIs by the FSB in consultation with the IAIS and national authorities.

The FSB will receive from the IAIS an annual update of the outcomes of the global monitoring exercise, including the IAIS assessment of systemic risk in the global insurance sector and the supervisory response to identified risks (if any). The IAIS will continue its annual data collection from individual insurers, complemented by data collection from supervisors to support its assessment of sector-wide trends with regard to specific activities and exposures.

Notes to editors

The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with approximately 70 other jurisdictions through its six Regional Consultative Groups.

The FSB is chaired by Randal K. Quarles, Governor and Vice Chairman for Supervision, US Federal Reserve; its Vice Chair is Klaas Knot, President, De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

Common Framework for the Supervision of Internationally Active Insurance Groups

View the Standard

The Common Framework for the Supervision of Internationally Active Insurance Groups (ComFrame) establishes supervisory standards and guidance focusing on the effective group-wide supervision of Internationally Active Insurance Groups (IAIGs).

ComFrame is a comprehensive and outcome-focused framework aimed at facilitating effective group-wide supervision of IAIGs, by providing qualitative and (in a future phase) quantitative supervisory minimum requirements tailored to the international activity and size of IAIGs. This should help supervisors address group-wide risks and avoid supervisory gaps. One of the main objectives of ComFrame is to support coordination of supervisory activities between the group-wide supervisor (GWS) and other involved supervisors. As such, ComFrame will provide supervisors with a common language for the supervision of IAIGs.

By coordinating supervisory activities and exchange of information about IAIGs between group-wide and other involved supervisors, the implementation of ComFrame should result in more efficient supervisory processes, for the benefit of both supervisors and IAIGs.

ComFrame builds on, and expands upon, the high-level standards and guidance currently set out in the Insurance Core Principles (ICPs), which generally apply on both an insurance legal entity and group-wide level.

Assessment Methodology

View the Assessment Methodology

The ComFrame Assessment Methodology is included in the Insurance Core Principles and ComFrame document. It was issued by IAIS in November 2019.

In general, the assessment methodology described for the ICPs is applicable to ComFrame. However, given the nature of ComFrame, which provides quantitative and qualitative supervisory requirements tailored to the international activity and size of IAIGs, there are some additional considerations provided in the ComFrame Assessment Methodology, which should be taken into account when assessing observance of ComFrame requirements.

Holistic Framework for the assessment and mitigation of systemic risk in the insurance sector (“Holistic Framework“)

View the Standard

The holistic framework is an integrated set of supervisory policy measures, a Global Monitoring Exercise, and implementation assessment activities.

  • Supervisory material: an enhanced set of supervisory policy measures for macroprudential purposes, designed to increase the overall resilience of the insurance sector and help prevent insurance sector vulnerabilities and exposures from developing into systemic risk. When a potential systemic risk is detected, supervisory powers of intervention enable a prompt and appropriate response. The holistic framework related supervisory material is integrated into the ICPs and ComFrame.

  • Global Monitoring Exercise: the IAIS Global Monitoring Exercise (GME) is designed to assess global insurance market trends and developments and detect the possible build-up of systemic risk in the global insurance sector. This includes, at an individual insurer and sector-wide level, a collective discussion at the IAIS on the assessment of potential systemic risks and appropriate supervisory responses and reporting to the Financial Stability Board (FSB) on the outcomes.

  • Implementation assessment: an IAIS assessment of the consistent implementation of enhanced supervisory policy measures and powers of intervention.

Assessment Methodology

Handbook for Assessing Implementation of IAIS Supervisory Material (June 2017)

Implementation assessment is an integral part of the holistic framework. The assessment of implementation is based on the assessment methodology of the ICPs and ComFrame