Financial Stability Board Proposes Guidance to Support G-SIB Resolution Planning

by Shearman & Sterling LLP

Shearman & Sterling LLP

The Financial Stability Board has launched a consultation on proposed guidance on two aspects of recovery and resolution of global systemically important banks. The first consultation proposes guidance on the principles of bail-in execution, and the second on the funding strategy elements of an implementable resolution plan. Both of these proposals relate to the implementation of the FSB's Key Attributes of Effective Resolution Regimes for Financial Institutions, published in 2011.

The first consultation on bail-in execution proposes a set of principles to assist resolution authorities developing bail-in resolution strategies and making resolution plans for G-SIBs operational. The FSB's Key Attributes provide for the bail-in powers that resolution authorities should have to carry out bail-in within a resolution and the Total Loss-absorbing Capacity standard sets the minimum requirements for the instruments and liabilities that should be available for bail-in. The FSB is proposing the new guidance because these omit operational aspects of executing bail-in and they consider that guidance is needed to address the challenges that have emerged in operationalizing bail-in. The operational aspects of bail-in require resolution authorities to have processes to: (i) identify the instruments and liabilities within the scope of bail-in; (ii) conduct valuations; (iii) develop a bail-in process that applies and complies with relevant securities and exchange laws; (iv) effect a transfer of the rights to new owners and obtain relevant regulatory approvals; and (v) communicate effectively with affected parties and the market. The proposed principles cover these six aspects of bail-in and identify actions that authorities should take to implement bail-in in a credible, timely, consistent and transparent manner. The proposed principles aim to take into account the implications of different approaches to bail-in by discussing particular challenges that may arise under the different approaches.

The second consultation paper proposes additional guidance for national regulators and resolution authorities on the development of an implementable resolution funding plan. The additional guidance, which will supplement existing guidance on liquidity risk management and resolution planning, proposes a set of key funding strategy elements covering: (i) the capability of a firm to support monitoring, reporting and estimating funding needs in resolution and to execute a funding strategy; (ii) the authority's development of a resolution funding plan; (iii) the firm's assets and private sources of funding and the mobilization of unencumbered assets as collateral; (iv) the identification of access to temporary public sector funding and operationalizing that access as well as strategies to exit such funding; and (v) information sharing and coordination between authorities, including the allocation of responsibilities between home and host authorities.

Responses to both proposals are requested by February 2, 2018.

View the consultation paper on principles on bail-in execution.

View the consultation paper on funding strategy elements of an implementable resolution plan.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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