The Financial Stability Board (FSB) published on Monday 4th May a new consultative report: “Guidance on financial resources to support CCP resolution and on the treatment of CCP equity in resolution.” The report builds on the concepts developed in the FSB 2018 Discussion Paper, taking into account the feedback received by the clearing community.
The report aims to set out considerations for authorities and Crisis Management Groups (CMGs) “with regard to evaluating whether existing financial resources and tools are adequate to implement the resolution strategy for individual CCPs and considerations that could guide authorities in developing possible approaches to the treatment of CCP equity in resolution.”
In the consultation, the FSB proposes a five-step process to assess the capabilities of CCPs to absorb losses and to cover other costs in resolution, focusing on identification of scenarios that might lead to resolution, evaluation of existing resources and analysis of potential gaps that may cause further resolution costs. Additionally, it sets forth guidance to address the treatment of CCP equity in resolution, by “providing 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.”
With this consultative report, the FSB intends to continue supporting jurisdictions in quantifying operational inefficiencies, to the extent permitted by the analytical and operational challenges to effective quantitative analysis, as a previous step for “resolution authorities and other relevant authorities to continue discussing these matters within the CMGs and develop appropriate quantitative methodologies in order to make further progress” to strengthen the resolvability of CCPs.
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