• Comments on Financial Stability Board Proposal For Cooperation, Information-Sharing With Non-Crisis Management Group Host Authorities Due December 1, 2014
  • October 28, 2014
  • Law Firm: Colodny Fass P.A. - Fort Lauderdale Office
  • On October 17, 2014, the Financial Stability Board ("FSB") issued draft guidance for public comment on cooperation and information-sharing with host authorities of jurisdictions not represented on crisis management groups ("CMGs") where a global systemically important financial institution ("G-SIFI") has a systemic presence (non-CMG host authorities).

    Comments are due by December 1, 2014.

    Entitled "FSB Key Attributes of Effective Resolution Regimes for Financial Institutions" ("Key Attributes"), the proposal would require home and key host authorities of G-SIFIs to maintain CMGs, with the objective of enhancing preparedness for, and facilitating the management and resolution of a cross-border financial crisis affecting the firm.

    Because CMG membership is generally limited for reasons of operational efficiency and effective decision-making, it is possible that some jurisdictions where operations of a firm are locally systemic to the host jurisdiction, but not material to the resolution of the overall group are not represented on the CMG (non-CMG host jurisdictions). However, those jurisdictions may be directly impacted by the firm's failure. Therefore, the Key Attributes require cooperation and information-sharing between CMGs and non-CMG host jurisdictions.

    The FSB's draft guidance sets forth the process for identifying non-CMG host jurisdictions, criteria for assessing the systemic nature of a G-SIFI's presence in a non-CMG host jurisdiction, cooperation and information-sharing arrangements with a non-CMG host jurisdiction, and classes of information to be shared between home authorities and non-CMG host jurisdictions.

    Christine Cumming, First Vice President of the Federal Reserve Bank of New York and Chair of the FSB Cross-Border Crisis Management Group said "Arrangements for effective communication, cooperation and information sharing are critical to build the trust and dialogue among home and host authorities of G-SIFIs that are needed to achieve an orderly cross-border resolution. We have made much progress with the establishment of Crisis Management Groups for global systemic firms. We need to make sure that we also address the information needs of jurisdictions not represented on these groups. The guidance issued for consultation, together with the Key Attributes guidance on legal gateways and confidentiality arrangements to support the exchange of non-public information, will assist in this effort."

    Comments on the consultative document

    The FSB welcomes comments and responses to the questions in the consultative document by Monday, December 1, 2014. Responses, which must be sent to [email protected], will be published on the FSB Web site unless respondents expressly request otherwise.

    About the Key Attributes

    According to the FSB, the Key Attributes are the international standard for resolution regimes for financial institutions-a key component of the FSB's policy framework to address the moral hazard and systemic risks associated with institution that are "too big to fail."

    They were released by the FSB in November 2011 following their endorsement by G20 Leaders at the Cannes Summit.

    Annex I to the Key Attributes on "Information Sharing for Resolution Purposes," sets out principles for the design of national legal gateways and confidentiality regimes to allow the exchange with domestic and foreign authorities of non-public information that is necessary for planning and carrying out resolution.

    The FSB's report to the G20 on Progress and Next Steps Towards "Ending Too Big To Fail" (TBTF Report) of September 2013 recommended further actions required from the G20, the FSB and other international bodies to complete the policy initiative to end "too big to fail." It noted the need for the FSB to develop recommendations for cooperation and sharing information with host authorities of jurisdictions where a G-SIFI has a systemic presence, but that do not participate in the CMG of that G-SIFI.

    The FSB Cross-Border Crisis Management Working Group convenes representatives from CMGs and conducts work on guidance to support the resolution planning work within CMGs.

    The Key Attributes set out the core elements that the FSB considers to be necessary for an effective resolution regime. Their implementation should allow authorities to resolve financial institutions in an orderly manner without taxpayer exposure to loss from solvency support, while maintaining continuity of their vital economic functions.

    The Key Attributes contain12 essential features that should be part of the resolution regimes of all jurisdictions, according to the FSB.

    They relate to:

    1. Scope
    2. Resolution authority
    3. Resolution powers
    4. Set-off, netting, collateralisation, segregation of client assets
    5. Safeguards
    6. Funding of firms in resolution
    7. Legal framework conditions for cross-border cooperation
    8. Crisis Management Groups
    9. Institution-specific cross-border cooperation agreements
    10. Resolvability assessments
    11. Recovery and resolution planning
    12. Access to information and information sharing.

    When the FSB adopted the Key Attributes in 2011, it was agreed to develop further guidance on their implementation, taking into account the need for implementation to accommodate different national legal systems and market environments and sector-specific considerations (e.g., insurance, financial market infrastructures) to promote effective and consistent implementation across jurisdictions.

    On October 15, 2014, the FSB adopted additional guidance that elaborates on specific Key Attributes relating to information sharing for resolution purposes and sector-specific guidance that sets out how they should applied for insurers, financial market infrastructures and the protection of client assets in resolution.

    The newly adopted guidance documents have been incorporated as annexes into the 2014 version of the Key Attributes document. No changes were made to the text of the twelve Key Attributes of October 2011. The 12 Key Attributes remain the umbrella standard for resolution regimes covering financial institutions of all types that could be systemic in failure.

    The FSB will continue its work to develop further guidance as needed to promote the effective and consistent implementation of the Key Attributes.

    The Annexes to the Key Attributes provide guidance on their implemention and interpretation. They do not form part of the Key Attributes standard. Where components of the Annexes have been deemed important for purposes of assessing compliance with the Key Attributes, those components are explicitly reflected in the Key Attributes Assessment Methodology. The Annexes to the Key Attributes fall into two categories:

    General guidance on the implementation of the Key Attributes (Appendix I):

    I-Annex 1: Information sharing for Resolution Purposes (KAs 7 and 12)

    I-Annex 2: Institution-specific Cross-border Cooperation Agreements (KA 9)

    I-Annex 3: Resolvability Assessments (KA 10)

    I-Annex 4: Recovery and Resolution Plans (KA 11)

    I-Annex 5: Temporary Stays on Early Termination Rights (KA 4)

    Sector-specific Guidance (Appendix II)

    II-Annex 1: Resolution of FMIs and FMI Participants

    II-Annex 1: Resolution of Insurers

    II-Annex 1: Protection of Client Assets in Resolution

    The sector-specific guidance recognizes that not all Key Attributes are equally relevant for all sectors and that some require further explanation and interpretation, or some adaptation in order to be effectively implemented in a certain sector. The sector-specific guidance sets out how the Key Attributes should understood in a sector-specific context. It complements the Key Attributes, and the sector-specific guidance on individual Key Attributes should be considered in conjunction with the Key Attribute to which it relates. There should be no inference that a particular Key Attribute or element of a Key Attribute does not apply simply because there is no supporting provision in the relevant Annex.

    About the FSB

    The FSB was established to coordinate the work of national financial authorities and international standard setting bodies, as well as to develop and promote the implementation of effective regulatory, supervisory and other financial sector policies in the interest of financial stability. It converges 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 65 other jurisdictions through its six regional consultative groups.

    The FSB is chaired by Mark Carney, Governor of the Bank of England. Its Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.