Banking and Finance Law Daily FSB publishes guidance on support for central counterparty resolution
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Monday, November 16, 2020

FSB publishes guidance on support for central counterparty resolution

By Colleen M. Svelnis, J.D.

The guidance is intended to support resolution authorities in assessing the adequacy of financial resources for CCP resolution.

The Financial Stability Board has announced the publication of final guidance on financial resources to support central counterparty (CCP) resolution and on the treatment of CCP equity in resolution. The final report, Guidance on Financial Resources to Support CCP Resolution and on the Treatment of CCP Equity in Resolution, is intended to support resolution authorities and crisis management groups in assessing the adequacy of financial resources for CCP resolution and to assist in developing a framework for implementing effective resolution regimes. The final document also provides guidance on approaches to the treatment of CCP equity in resolution.

The FSB also published an overview of the responses to the draft version of the guidance, which was released in May 2020.

Central clearing of standardized over-the-counter (OTC) derivatives is a key pillar of the G20 Leaders’ commitment to reform OTC derivatives markets in response to the global financial crisis. The international policy framework for CCPs needs to reflect the evolving role of central clearing in order to address risks to financial stability in an effective manner.

Part I of the guidance proposes five steps to guide the authorities in assessing the adequacy of a CCP’s financial resources and the potential financial stability implications of their use. The authorities should:

  • identify hypothetical default and non-default loss scenarios (and a combination of them) that may lead to a resolution of a CCP;
  • conduct a qualitative and quantitative evaluation of existing resources and tools available in the resolution of the CCP;
  • assess potential resolution costs;
  • compare existing resources and tools to resolution costs and identify any gaps; and
  • evaluate the availability, costs and benefits of potential means of addressing any identified gaps.

Part II of the guidance addresses the treatment of CCP equity in resolution. It provides a framework for resolution authorities to evaluate the exposure of CCP equity to losses in recovery, liquidation and resolution, and how (where it is possible) the treatment of CCP equity in resolution could be adjusted.

MainStory: TopStory FinancialIntermediaries FinancialStability

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