In October 2016, the Financial Stability Board (FSB) set out how it would assess the implementation of the key attributes of effective resolution regimes for financial institutions in the banking sector. The FSB’s methodology should help when assessing a jurisdiction’s compliance with the FSB’s “Key Attributes”, promote consistent assessment across jurisdictions, and provide guidance to jurisdictions when adopting or amending national resolution regimes to implement the Key Attributes across financial sectors.
The Key Attributes of Effective Resolution Regimes for Financial Institutions (the Key Attributes Document) was first published and adopted by the FSB in October 2011 and was endorsed as a new international standard for resolution regimes by the G20 Heads of State and Government in November 2011.
It applies to resolution regimes for any type of financial institution that could be systemically significant or critical if it fails.
In October 2014 additional sector-specific and implementation guidance was issued by the FSB and incorporated into the Key Attributes Document as annexes. The Key Attributes Document can be accessed by clicking here.
The Key Attributes Document set out the core 12 elements (the ‘Key Attributes’) considered to be necessary to achieve a resolution of financial institutions without severe systemic disruption and without exposing taxpayers to the risk of loss, while at the same time protecting vital economic functions through mechanisms that make it possible for shareholders and unsecured and uninsured creditors to absorb losses in a manner that respects the hierarchy of claims.
The FSB have now developed an assessment methodology which should guide the assessment of a jurisdiction’s compliance with the Key Attributes, promote consistent assessment across jurisdictions and provide guidance to jurisdictions when adopting or amending national resolution regimes to implement the Key Attributes across financial sectors.
The publication of the assessment methodology on 19 October 2016 follows on from a consultation document issued in August 2013 and reflects comments and suggestions received in response to that consultation and incorporates experiences from field tests and a peer review of the assessment methodology. Preparation of the methodology also involved representatives from IOSCO, the World Bank and the IMF.
The assessment methodology for the banking sector is the first step in implementing a modular approach that entails the development of self-contained and free-standing methodologies that are tailored to the specific features of a particular sector and facilitate the assessment of resolution regimes for different types of institutions, for example banks, insurers and financial market infrastructures.
The methodology proposes a set of essential criteria that the assessors should use to assess and grade compliance with the Key Attributes. It also has explanatory notes with examples, explanations and cross-references to other relevant Key Attributes.
Elke König, Chair of the FSB Resolution Steering Group and Chair of the European Single Resolution Board welcomed the publication of the Key Attributes Assessment Methodology for the Banking Sector. She said that:
“a consistent implementation in substance and scope of the Key Attributes across jurisdictions is essential to achieving the objectives of post-crisis reforms. The FSB’s resolution progress report that we published this August shows that implementation progress is uneven and that there remains substantial work to put in place effective resolution regimes and operationalise resolution plans for cross-border firms.
The Assessment Methodology is a useful tool to facilitate an informed and consistent analysis of compliance with the Key Attributes and will assist jurisdictions in their reform efforts.
I therefore encourage all jurisdictions to use the Assessment Methodology to evaluate their bank resolution regimes.”
It is contemplated that the primary audience for the methodology will be assessors, resolution authorities and authorities responsible for developing legislation related to resolution regimes.