Financial Stability Board Consults on Resolution-Related Disclosures and Solvent Wind-Down of Derivatives and Trading Portfolios

The Financial Stability Board has published two consultation papers on: (i) Public Disclosure of Resolution Planning and Resolvability; and (ii) Solvent Wind-down of Derivatives and Trading Portfolios. The first consultation paper focuses on disclosures made by financial institutions on their resolution planning and resolvability during “peace time” (i.e., times when there is no resolution commencing or in progress). The second consultation paper focuses on considerations that national regulators and global systemically important banks should take into account when commencing the solvent wind-down of a G-SIB’s derivative and trading book activities. The papers do not constitute proposed guidance, but aim to gather information to determine whether the development of guidance would be useful. Responses to the consultations should be submitted by August 2, 2019. The papers aim to build on the reforms made in accordance with the FSB’s “Key Attributes of Effective Resolution Regimes for Financial Institutions”, published in 2011 and updated in 2014, which established 12 features that the FSB determined should form part of all jurisdictions’ resolution regimes.

The first consultation paper observes that while national regulators are providing increasingly detailed disclosures on their general national resolution approaches, firm-specific disclosures are more limited. It provides an overview of the general and firm-specific approaches to resolution-related disclosures. The paper seeks feedback on specific questions regarding both general disclosure regimes (including whether current practices are useful for market participants and whether disclosures could be further improved) and firm-specific disclosure regimes (including whether current practices are adequate or could be improved and whether disclosure of external and internal total loss-absorbing capacity under the Basel Committee on Banking Supervision’s Pillar 3 disclosure requirements is sufficient for market participants to assess their resolvability).

The second consultation paper notes the potential financial stability risk of a disorderly close-out of the large derivative and trading portfolios held by many G-SIBs. It provides an overview of the concept of a solvent wind-down of such portfolios, which may be used as a recovery option where a G-SIB finds itself under stress or as part of a resolution strategy, and describes the operational and analytical capabilities that firms should demonstrate to ensure an orderly solvent wind-down. It goes on to describe the ways in which firm capabilities could be evaluated by national regulators and proposes methods for cooperation between home and host regulators. The paper seeks feedback on specific questions regarding solvent wind-downs, including whether the development of such wind-down plans should form part of recovery and resolution planning, whether other mechanisms for the evaluation or verification of firm capabilities could be considered and whether national regulators should distinguish between different solvent wind-down scenarios when developing solvent wind-down plans.

View the FSB's consultation paper on Public Disclosures on Resolution Planning and Resolvability.

View the FSB's consultation paper on Solvent Wind-down of Derivatives and Trading Portfolios.
 
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