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Exploring Meritocracy: Luck, Responsibility, and Compliance Challenges

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157 diapositives · 1.7K Views · Aug 07, 2014

The International Association of Risk and Compliance Professionals (IARCP) presents the latest insights in risk and compliance management, focusing on the interplay between meritocracy and ethical responsibilities. Inspired by Ben S. Bernanke's impactful thoughts on economics and fairness, this week's top stories shed light on how luck influences opportunities and obligations within our systems. We delve into innovative methodologies for luck-sharing, the implications of low-interest rates on insurance, and how these elements affect compliance strategies. Join us as we navigate through these critical discussions.

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  1. P age |1 InternationalAssociationofRiskandCompliance Professionals(IARCP) 1200GStreetNWSuite800Washington, DC20005-6705USATel:202-449-9750www.risk-compliance-association.com Top10riskandcompliancemanagementrelatednewsstoriesandworldeventsthat(forbetterorforworse)shapedthe week'sagenda,andwhatisnext DearMember, Didyouknowthat“Economicsisahighlysophisticatedfieldofthoughtthatissuperbatexplainingtopolicymakerspreciselywhythechoicestheymadeinthepastwerewrong.About thefuture,notsomuch.” Whosaidthat? ChairmanBenS.Bernanke,attheBaccalaureateCeremonyatPrincetonUniversity. Thetitleofhisspeech:TheTenSuggestions Mr.Bernanke,areyoujealousofthisTop10list? Whydidyoudevelopexactly10suggestions? Hisspeechisveryinteresting.Wecanevenfindmoreaboutmeritocracy: “Ameritocracyisasysteminwhichthepeoplewhoaretheluckiestintheirhealthandgeneticendowment;luckiestintermsoffamilysupport,encouragement,and,probably,income;luckiestintheireducationalandcareeropportunities;andluckiestinsomanyotherwaysdifficulttoenumerate--thesearethefolkswhoreapthelargestrewards. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  2. P age |2 Theonlywayforevenaputativemeritocracytohopetopassethicalmuster,tobeconsideredfair,isifthosewhoaretheluckiestinallofthoserespectsalsohavethegreatestresponsibilitytoworkhard,tocontributetothebettermentoftheworld,andtosharetheirluckwithothers.” Well,Iwillspendtheweekendthinkingaboutit,especiallythe methodology,howtheycan“sharetheirluckwithothers”. Asaconsultant,Imustdevelopastepbystepluck-sharingmethodology. Well,Ithinkitisbettertomakeit“principles-based”insteadof “rules-based”. Ialreadyhavesomeideas.Theprocesswillhave3Pillars. Pillar1:LuckQuantification. Pillar2:InternalLuckAdequacyAssessmentProcess,andluckstress-testing. Pillar3:LuckTransparency. ItlooksabitlikeBaseliii…Iknow... Accordingtothe“ifallyouhaveisahammer,everythinglookslikeanail” principle,wecanuseaBaseliiiapproachalmosteverywhere. WewilluseaMonteCarlosimulationtoquantifythe“luckiestinsomanyotherwaysdifficulttoenumerate”part,asMr.Bernankesaid. MonteCarloisanicequantitativeriskanalysistechnique. Wewillsimplygenerate20,000,000luckscenarios,wewillfindtherangeofpossibleoutcomesandtheirprobabilities,thenwewillfindaprobabilityweightedluckaverage,andwewillcalculatetheLaR(LuckatRisk). InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  3. P age |3 Yes,youcanusetheBaselIIImodel.Youwillsimplyreplacethe“risks”with“opportunities”. Inbanking,wehavepositiveandnegative(forourprofitability)inputs.Inourluck-sharingmethodologywehaveonlyprofitableinputs. Insteadofinflationweputinheritance–thepassingonproperty,titlesetc.uponthedeathofrelativeswehavenevermet.Yougetthepicture. Insteadofmarketrisk(andtheCreditValuationAdjustmentamendment)weputopportunitytoinvestinGoogle-likefirmswhentheyarestillyoung. Thebestpart:TheProbabilityofDefaultforanycounterpartyiszero–wearelucky,remember? And,Ihaveonlystartedthinkingaboutit. ReadmoreatNumber1below. Anotherveryinterestingstory,aboutbanksandinsurancefirms: “Thechangesinbankingregulationmakemoreimportanttheroleofinsurersasprovidersoflong-termbankfunding” ThisistheopinionorGabrielBernardino,ChairmanofEIOPA(EIOPAistheEuropeanInsuranceandOccupationalPensionsAuthority,oneofthreeEuropeanSupervisoryAuthorities). Healsodiscussesareallyimportantproblemforinsurers:Thelowinterestrates,that… “Ontheliabilitiesside,theyleadtoanincreaseinfirms’obligationsintoday’stermsand,consequently,toadeteriorationoftheirfinancialposition. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  4. P age |4 Ontheassetsside,lowinterestrateshaveanadverseimpactoninvestmentresultsandincreasethereinvestmentriskofassets.” Themorelofthestory:Manyinsurershavearealproblemwiththelowinterestrates. ReadmoreatNumber3below.WelcometotheTop10list. BestRegards, GeorgeLekatisPresidentoftheIARCP GeneralManager,ComplianceLLC1200GStreetNWSuite800, WashingtonDC20005,USA Tel:(202)449-9750 Email:lekatis@risk-compliance-association.comWeb:www.risk-compliance-association.comHQ:1220N.MarketStreetSuite804,WilmingtonDE19801,USA Tel:(302)342-8828 InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  5. P age |5 ChairmanBenS.Bernanke AttheBaccalaureateCeremonyatPrincetonUniversity,Princeton,NewJersey TheTenSuggestions “Iwroterecentlytoinquireaboutthestatusofmyleavefromtheuniversity,andtheletterIgotbackbegan,"Regrettably,Princetonreceivesmanymorequalifiedapplicantsforfacultypositionsthanwecanaccommodate."” ThematicReviewonResolutionRegimes PeerReviewReport FinancialStabilityBoard(FSB)memberjurisdictionshavecommitted,undertheFSBCharterandintheFSBFrameworkforStrengthening AdherencetoInternationalStandards,toundergoperiodicpeerreviews. Tofulfilthisresponsibility,theFSBhasestablishedaregularprogrammeofcountryandthematicpeerreviewsofitsmemberjurisdictions. InterviewwithGabrielBernardino,ChairmanofEIOPA ConductedbyDr.MatthiasSchoder,WirtschaftsForum(Germany) InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  6. P age |6 Globalliquidity:wheredowestand? SpeechbyJaimeCaruana,GeneralManageroftheBankforInternationalSettlements,preparedfortheBankofKoreaInternationalConference2013on"Assessinggloballiquidityinaglobalframework",Seoul. ImplicationsoftheSingleSupervisoryMechanismontheEuropeanSystemofFinancialSupervision:theEBAperspective InterventionofAndreaEnria,ChairmanoftheEBAEuropeanCommission-PublichearingonfinancialsupervisionintheEU-Brussels TheconstructionoftheSingleSupervisoryMechanism(SSM)andthewholeprojectoftheBankingUnionareusuallyjustifiedonthebasisoftheshortcomingsoftheinstitutionalframeworkfortheSingleCurrency,whichhavebeensoclearlyexposedduringthesovereigndebtcrisis. InternationalizationoftheRMBandtheroleofMacaoasafinancialplatform AddressbyMrAnselmoTeng,ChairmanoftheMonetaryAuthorityofMacao,atthe“2013InternationalizationofRMBGlobalForum”, InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  7. P age |7 jointlyorganisedbytheShanghaiInstituteoftheInternationalFinancialCentreoftheShanghaiUniversityofFinanceandEconomicsandtheCentreforInternationalFinanceandRegulation(Australia),Shanghai. TheDigitisationofourEconomies NeelieKroes,Vice-PresidentoftheEuropeanCommissionresponsiblefortheDigitalAgenda,11thEuropeanBusinessSummit,Brussels “Ourworldisgoingonline”. Digital"to-do"list:newdigitalprioritiesfor2013-2014 TheEuropeanCommissionhasadoptedsevennewprioritiesforthedigitaleconomyandsociety. Thedigitaleconomyisgrowingatseventimestherateoftherestoftheeconomy,butthispotentialiscurrentlyheldbackbyapatchy pan-Europeanpolicyframework. Today'sprioritiesfollowacomprehensivepolicyreviewandplacenewemphasisonthemosttransformativeelementsoftheoriginal2010DigitalAgendaforEurope. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  8. P age |8 UnderstandingSupervisoryColleges ViceChairJanetL.Yellen AttheInternationalMonetaryConference,Shanghai,China RegulatoryLandscapes:AU.S.Perspective “I'llsummarizetheconsiderableprogresssince2008tomaketheglobalfinancialsystemmoreresilient,andthenoffermyviewsonwhatmoreshouldbedone”. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  9. P age |9 ChairmanBenS.BernankeAttheBaccalaureateCeremonyatPrincetonUniversity,Princeton,NewJersey TheTenSuggestions It'snicetobebackatPrinceton. Ifinditdifficulttobelievethatit'sbeenalmost11yearssinceIdepartedthesehallsforWashington. Iwroterecentlytoinquireaboutthestatusofmyleavefromtheuniversity,andtheletterIgotbackbegan,"Regrettably,Princetonreceivesmanymorequalifiedapplicantsforfacultypositionsthanwecanaccommodate." I'llextendmybestwishestotheseniorslater,butfirstIwanttocongratulatetheparentsandfamilieshere. Asaparentmyself,Iknowthatputtingyourkidthroughcollegethesedaysisnowalkinthepark. SomeyearsagoIhadacolleaguewhosentthreekidsthroughPrincetoneventhoughneitherhenorhiswifeattendedthisuniversity. Heandhisspousewereveryproudofthataccomplishment,astheyshouldhavebeen. Butmycolleaguealsousedtosaythat,fromafinancialperspective,theexperiencewaslikebuyinganewCadillaceveryyearandthendrivingitoffacliff. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  10. P age |10 Ishouldsaythathealwaysaddedthathewoulddoitalloveragaininaminute. So,welldone,moms,dads,andfamilies. Thisisindeedanimpressiveandappropriatesettingforacommencement. Iamsurethat,fromthislectern,anynumberofdistinguishedspiritualleadershaveruminatedonthelessonsoftheTenCommandments. Idon'thavethatkindofconfidence,and,anyway,covetingyourneighbor'soxordonkeyisnottheproblemitusedtobe,soIthoughtIwouldusemyfewminutestodaytomakeTenSuggestions,ormaybejustTenObservations,abouttheworldandyourlivesafterPrinceton. Pleasenote,thesepointshavenothingwhatsoevertodowithinterestrates. Myqualificationformakingsuchsuggestions,orobservations,besideshavingkindlybeeninvitedtospeaktodaybyPresidentTilghman,isthesameasthereasonthatyourobnoxiousbrotherorsistergottogotobedlater--Iamolderthanyou. Allofwhatfollowshasbeenroad-testedinreal-lifesituations,butpastperformanceisnoguaranteeoffutureresults. ThepoetRobertBurnsoncesaidsomethingaboutthebest-laidplansofmiceandmengangingaftagley,whatever"agley"means. Amorecontemporaryphilosopher,ForrestGump,saidsomethingsimilaraboutlifeandboxesofchocolatesandnotknowingwhatyouaregoingtoget. Theywerebothright. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  11. P age |11 Lifeisamazinglyunpredictable;any22-year-oldwhothinksheorsheknowswheretheywillbein10years,muchlessin30,issimplylackingimagination. Lookwhathappenedtome:AdozenyearsagoIwasmindingmyown businessteachingEconomics101inAlexanderHallandtryingtothinkofgoodexcusesforavoidingfacultymeetings. ThenIgotaphonecall...IncaseyouareskepticalofForrestGump'sinsight,here'saconcretesuggestionforeachofthegraduatingseniors. Takeafewminutesthefirstchanceyougetandtalktoanalumparticipatinginhisorher25th,or30th,or40threunion--youknow,somebodywhowasnearthefrontoftheP-rade. Askthem,backwhentheyweregraduating25,30,or40yearsago,wheretheyexpectedtobetoday. Ifyoucangetthemtoopenup,theywilltellyouthattodaytheyarehappyandsatisfiedinvariousmeasures,ornot,andtheirpersonalstorieswillbefilledwithhighsandlowsandin-betweens. But,Iamwillingtobet,thoselifestorieswillinalmostallcasesbequitedifferent,inlargeandsmallways,fromwhattheyexpectedwhentheystartedout. Thisisagoodthing,notabadthing;whowantstoknowtheendofastorythat'sonlyinitsearlychapters? Don'tbeafraidtoletthedramaplayout. 2.Doesthefactthatourlivesaresoinfluencedbychanceandseeminglysmalldecisionsandactionsmeanthatthereisnopointtoplanning,tostriving? Notatall. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  12. P age |12 Whateverlifemayhaveinstoreforyou,eachofyouhasagrand,lifelongproject,andthatisthedevelopmentofyourselfasahumanbeing. YourfamilyandfriendsandyourtimeatPrincetonhavegivenyouagoodstart. Whatwillyoudowithit? Willyoukeeplearningandthinkinghardandcriticallyaboutthemostimportantquestions? Willyoubecomeanemotionallystrongerperson,moregenerous,moreloving,moreethical? Willyouinvolveyourselfactivelyandconstructivelyintheworld? Manythingswillhappeninyourlives,pleasantandnotsopleasant,but,paraphrasingaWoodrowWilsonSchooladagefromthetimeIwashere,"Whereveryougo,thereyouare." Ifyouarenothappywithyourself,eventheloftiestachievementswon'tbringyoumuchsatisfaction. 3.Theconceptofsuccessleadsmetoconsiderso-calledmeritocraciesandtheirimplications. Wehavebeentaughtthatmeritocraticinstitutionsandsocietiesarefair. Puttingasidetherealitythatnosystem,includingourown,isreally entirelymeritocratic,meritocraciesmaybefairerandmoreefficientthan somealternatives. Butfairinanabsolutesense?Thinkaboutit. Ameritocracyisasysteminwhichthepeoplewhoaretheluckiestintheirhealthandgeneticendowment;luckiestintermsoffamilysupport, InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  13. P age |13 encouragement,and,probably,income;luckiestintheireducationalandcareeropportunities;andluckiestinsomanyotherwaysdifficulttoenumerate--thesearethefolkswhoreapthelargestrewards. Theonlywayforevenaputativemeritocracytohopetopassethicalmuster,tobeconsideredfair,isifthosewhoaretheluckiestinallofthoserespectsalsohavethegreatestresponsibilitytoworkhard,tocontributetothebettermentoftheworld,andtosharetheirluckwithothers. AstheGospelofLukesays(andIamsuremyrabbiwillforgivemeforquotingtheNewTestamentinagoodcause):"Fromeveryonetowhommuchhasbeengiven,muchwillberequired;andfromtheonetowhommuchhasbeenentrusted,evenmorewillbedemanded"(Luke12:48,NewRevisedStandardVersionBible). Kindofgradingonthecurve,youmightsay. 4.Whoisworthyofadmiration? TheadmonitionfromLuke--whichissharedbymostethicaland philosophicaltraditions,bytheway--helpswiththisquestionaswell. Thosemostworthyofadmirationarethosewhohavemadethebestuseoftheiradvantagesor,alternatively,copedmostcourageouslywiththeiradversities. Ithinkmostofuswouldagreethatpeoplewhohave,say,littleformalschoolingbutlaborhonestlyanddiligentlytohelpfeed,clothe,andeducatetheirfamiliesaredeservingofgreaterrespect--andhelp,ifnecessary--thanmanypeoplewhoaresuperficiallymoresuccessful. They'remorefuntohaveabeerwith,too.That'sallthatIknowaboutsociology. 5.SinceIhavecoveredwhatIknowaboutsociology,Imightaswellsaysomethingaboutpoliticalscienceaswell. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  14. P age |14 Inregardtopolitics,IhavealwayslikedLilyTomlin'sline,inparaphrase: "Itrytobecynical,butIjustcan'tkeepup." Weallfeelthatwaysometime. Actually,havingbeeninWashingtonnowforalmost11years,asImentioned,Ifeelthatwayquiteabit. Ultimately,though,cynicismisapoorsubstituteforcriticalthoughtandconstructiveaction. Sure,interestsandmoneyandideologyallmatter,asyoulearnedin politicalscience. Butmyexperienceisthatmostofourpoliticiansandpolicymakersaretryingtodotherightthing,accordingtotheirownviewsandconsciences,mostofthetime. Ifyouthinkthatthebadorindifferentresultsthattoooftencomeoutof Washingtonareduetobasemotivesandbadintentions,youaregivingpoliticiansandpolicymakerswaytoomuchcreditforbeingeffective. Honesterrorinthefaceofcomplexandpossiblyintractableproblemsisafarmoreimportantsourceofbadresultsthanarebadmotives. Forthesereasons,thegreatestforcesinWashingtonareideas,andpeoplepreparedtoactonthoseideas. Publicserviceisn'teasy. But,intheend,ifyouareinclinedinthatdirection,itisaworthyandchallengingpursuit. 6.Havingtakenastabatsociologyandpoliticalscience,letmewrapupeconomicswhileI'matit. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  15. P age |15 Economicsisahighlysophisticatedfieldofthoughtthatissuperbatexplainingtopolicymakerspreciselywhythechoicestheymadeinthepastwerewrong. Aboutthefuture,notsomuch. However,carefuleconomicanalysisdoeshaveoneimportantbenefit,whichisthatitcanhelpkillideasthatarecompletelylogicallyinconsistentorwildlyatvariancewiththedata. Thisinsightcoversatleast90percentofproposedeconomicpolicies. I'mnotgoingtotellyouthatmoneydoesn'tmatter,becauseyouwouldn'tbelievemeanyway. Infact,fortoomanypeoplearoundtheworld,moneyisliterallyalife-or-deathproposition. Butifyouarepartoftheluckyminoritywiththeabilitytochoose,rememberthatmoneyisameans,notanend. Acareerdecisionbasedonlyonmoneyandnotonloveoftheworkoradesiretomakeadifferenceisarecipeforunhappiness. Nobodylikestofailbutfailureisanessentialpartoflifeandoflearning. Ifyouruniformisn'tdirty,youhaven'tbeeninthegame. Ispokeearlieraboutdefinitionsofpersonalsuccessinanunpredictableworld. Ihopethatasyoudevelopyourowndefinitionofsuccess,youwillbeabletodoso,ifyouwish,withaclosecompaniononyourjourney. Inmakingthatchoice,rememberthatphysicalbeautyisevolution'sway ofassuringusthattheotherpersondoesn'thavetoomanyintestinalparasites. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  16. P age |16 Don'tgetmewrong,Iamallforbeauty,romance,andsexualattraction--wherewouldHollywoodandMadisonAvenuebewithout them? Butwhileimportant,thosearenottheonlythingstolookforinapartner.Thetwoofyouwillhavealongtriptogether,Ihope,andyouwillneed eachother'ssupportandsympathymoretimesthanyoucancount. Speakingassomebodywhohasbeenhappilymarriedfor35years,Ican'timagineanychoicemoreconsequentialforalifelongjourneythanthechoiceofatravelingcompanion. 10.Callyourmomanddadonceinawhile. Atimewillcomewhenyouwillwantyourowngrown-up,busy,hyper-successfulchildrentocallyou. Also,rememberwhopaidyourtuitiontoPrinceton.Thosearemysuggestions. They'reprobablyworthexactlywhatyoupaidforthem. Buttheycomefromsomeonewhosharesyouraffectionforthisgreatinstitutionandwhowishesyouthebestforthefuture. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  17. P age |17 ThematicReviewonResolutionRegimes PeerReviewReportForeword FinancialStabilityBoard(FSB)memberjurisdictionshavecommitted,undertheFSBCharterandintheFSBFrameworkforStrengthening AdherencetoInternationalStandards,toundergoperiodicpeerreviews. Tofulfilthisresponsibility,theFSBhasestablishedaregularprogrammeofcountryandthematicpeerreviewsofitsmemberjurisdictions. ThematicreviewsfocusontheimplementationandeffectivenessacrosstheFSBmembershipofinternationalfinancialstandardsdevelopedbystandard-settingbodiesandpoliciesagreedwithintheFSBinaparticularareaimportantforglobalfinancialstability. Thematicreviewsmayalsoanalyseotherareasimportantforglobalfinancialstabilitywhereinternationalstandardsorpoliciesdonotyetexist. Theobjectivesofthereviewsaretoencourageconsistentcross-countryandcross-sectorimplementation;toevaluate(wherepossible)theextenttowhichstandardsandpolicieshavehadtheirintendedresults;andtoidentifygapsandweaknessesinreviewedareasandtomakerecommendationsforpotentialfollow-up(includingviathedevelopmentofnewstandards)byFSBmembers. Thisreportdescribesthefindingsofthefirstpeerreviewonresolutionregimes,includingthekeyelementsofthediscussionintheFSBResolutionSteeringGroupandtheFSBStandingCommitteeonStandardsImplementation. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  18. P age |18 ThedraftreportfordiscussionwaspreparedbyateamchairedbyMartin J.Gruenberg(USFederalDepositInsuranceCorporation),comprisingAlessandradeAldisio(BankofItaly),BaderT.Alsudairi(SaudiArabian MonetaryAgency),FeltonC.Booker(USFederalReserveBoard), ChristineHauner(BaFinGermany),KatharinaHartmann(GermanFederalMinistryofFinance),JunichiKashiyama(JapanFinancial ServicesAgency),BarryKing(UKFinancialServicesAuthority),VincentLee(HongKongMonetaryAuthority),MikeMercer(CanadaDepositInsuranceCorporation),GeofMortlock(AustralianPrudentialRegulatoryAuthority),LiuQin(People’sBankofChina),Reto Schiltknecht(FINMASwitzerland),VirginiaRutledge(InternationalMonetaryFund),andDavidScott(WorldBank).DavidHoelscher, CostasStephanouandRuthWalters(FSBSecretariat)providedsupport totheteamandcontributedtothepreparationofthepeerreviewreport. Definitionsofkeytermsusedinthereport “Bail-inwithinresolution”–restructuringmechanismstorecapitaliseafirminresolutionoreffectivelycapitaliseabridgeinstitution,underspecifiedconditions,throughthewrite-down,conversionorexchangeofdebtinstrumentsandotherseniororsubordinatedunsecuredliabilitiesofthefirminresolutioninto,orfor,equityorotherinstrumentsinthatfirm,theparentcompanyofthatfirmoranewlyformedbridgeinstitution,asappropriatetolegalframeworksandmarketcapacity. “Bail-out”–anytransferoffundsfrompublicsourcestoafailedfirmoracommitmentbyapublicauthoritytoprovidefundswithaviewtosustainingafailedfirm(forexample,bywayofguarantees)thatresultsinbenefittotheshareholdersoruninsuredcreditorsofthatfirm,ortheassumptionofrisksbythepublicauthoritythatwouldotherwisebebornebythefirmanditsshareholders,wherethevalueofthefundstransferredisnotrecoupedfromthefirm,itsshareholdersandunsecuredcreditorsor,ifnecessary,thefinancialsystemmorewidely,orwherethepublicauthorityisnotcompensatedfortherisksassumed. “Bank”–anyfirmthattakesdepositsorrepayablefundsfromthepublic,andthatisdefinedbytherelevantnationallegislationasabank. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  19. P age |19 “Bridgeinstitution”–anentity,authorisedorlicensedinaccordancewithanyapplicablerequirementsundernationallaw,thatisestablishedtotemporarilytakeoverandmaintaincertainassets,liabilitiesandoperationsofafailedfirmaspartoftheresolutionprocess. “Earlyterminationrights”–contractualacceleration,terminationorotherclose-outrightsinfinancialcontractsheldbycounterpartiesofafirmthatmaybetriggeredontheoccurrenceofaneventorcircumstancessetoutinthefinancialcontract,suchasaninsolvencyeventortheentryintoresolutionofthefirm. “Entryintoresolution”–theformaldeterminationbytherelevantauthorityorauthoritiesthatafirmmeetstheconditionsforentryintoresolutionandthatitwillbesubjecttoresolutionpowers. “Financialcontract”–anysecuritiescontract,commoditiescontract,forwardcontract,repurchaseagreement,optionscontract,swapagreementandanysimilaragreementthat,ineverycase,isexplicitlyidentifiedunderthelegalframeworkofthejurisdictionassubjecttodefinedtreatmentinresolutionandinsolvency(forexample,inrelationtoearlyterminationrightsortopreservetheeffectofnettingagreements)thatisdistinctfromother(non-financial)contracts. “Financialconglomerate”–anygroupofcompaniesundercommoncontrolordominantinfluence,includinganyfinancialholdingcompany,thatconductsmaterialfinancialactivitiesinatleasttwooftheregulatedbanking,securitiesorinsurancesectors. “Financialfirm”or“financialinstitution”–anyentitytheprincipalbusinessofwhichistheprovisionoffinancialservicesortheconductoffinancialactivities,including,butnotlimitedto,deposit-taking,credit intermediation,insurance,investmentorsecuritiesbusinessoroperatingfinancialmarketinfrastructure. “Financialgroup”–agroupcomposedofentitieswhoseprimaryactivitiesarefinancialinnature. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  20. P age |20 “Financialmarketinfrastructure(FMI)”–amultilateralsystemamongparticipatingfinancialinstitutions,includingtheoperatorofthesystem,usedforthepurposesof,clearing,settlingorrecordingpayments, securities,derivativesorotherfinancialtransactions. Itincludespaymentsystems,centralsecuritiesdepositories,securitiessettlementsystems,CentralCounterparties(CCPs),andtraderepositories. “Firminresolution”–afirminrelationtowhichresolutionpowersarebeingexercised. Whereresolutionpowershavebeenexercisedinrelationtoafirm,thatfirmisconsideredtobe“inresolution”foraslongasitremainssubjecttomeasurestakenorsupervisedbyaresolutionauthorityortoinsolvencyproceedingsinitiatedbytheresolutionauthority. “Group”–aparentcompany(whichmaybeaholdingcompany)anditsdirectandindirectsubsidiaries,bothdomesticandforeign. “Holdingcompany”or“financialholdingcompany”(ofafinancialgrouporconglomerate)–acompanythatisformedtocontrolfinancialfirms.Thisconceptcoversintermediateorultimatecontrol. “Homejurisdiction”–thejurisdictionwheretheoperationsofafinancialfirmor,inthecaseofaG-SIFI,itsglobaloperations,aresupervisedona consolidatedbasis. “Investmentfirm”or“Securitiesfirm”–anynon-deposit-takinginstitutionthatconductsinvestmentorsecuritiesbusinessonaregularbasis,including:safeguardingandadministeringinvestmentsorsecurities;dealingininvestmentsorsecuritiesasprincipal;anddealingin investmentsorsecuritiesasagent. Forthesakeofbrevity,theterm“investmentfirm”isusedinthismethodology,andshouldbeconstruedwidelytocoveranyfirmthatisclassifiedasaninvestmentfirmorasecuritiesfirm,including broker-dealers,undertheapplicableregulatoryregime. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  21. P age |21 “Intervention”or“officialintervention”–anyactions,includingformalcorrectiveaction,takenbysupervisoryorresolutionauthoritiesinresponsetoweaknessesinafinancialfirmpriortoentryintoresolution. “Legalframework”–thecomprehensivelegalsystemforajurisdictionestablishedbyanycombinationofthefollowing:aconstitution;primarylegislationenactedbyalegislativebodythathasauthorityinrespectofthatjurisdiction;subsidiarylegislationadoptedunderthe primarylegislationofthatjurisdiction;orlegalprecedentandlegalproceduresofthatjurisdiction. “Protectionscheme”–anyschemeorfundthatprotectsdepositors,insurancepolicyholdersorinvestors,asthecasemaybe,fromspecifiedlossesthattheymightotherwiseincurasaresultofthefailureofafinancialfirm. “Publicownership”–ownershiporcontrolofanentitybyapublicauthorityorotheremanationoftheState. “Resolution”–anyactiontakenbyapublicauthorityinrespectofafirmthatmeetstheconditionsforentryintoresolution,includinginparticulartheexerciseofaresolutionpowerspecifiedinKA3,withorwithoutprivatesectorinvolvement,withtheaimofachievingoneormoreofthestatutoryobjectivesofresolution. Resolutionmayincludetheapplicationofproceduresunderinsolvencylawtopartsofafirminresolution,inconjunctionwiththeexerciseofresolutionpowers. “Resolutionauthority”–anauthoritythat,eitheraloneortogetherwithotherauthorities,isresponsiblefortheresolutionoffirmsestablishedinitsjurisdiction(includingresolutionplanningfunctions). Referencesinthisdocumenttoa“resolutionauthority”shouldbereadas“resolutionauthorities”inappropriatecases. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  22. P age |22 “Resolutionpowers”–powersavailabletopublicauthoritiesunderthelegalframeworkandresolutionregimeforthepurposesofresolution,includinginparticularthosesetoutinKA3. “Resolutionregime”–theelementsofthelegalframeworkandthepoliciesgoverningtheapplicationofresolutionpowersbynational authorities. Thismayconsistofsector-specificstatutesandrules,ormayconsistofa singleregimecoveringallfirms. TheKAsareneutralastotheformoftheregime,providedthatallfirmsthatcouldbesystemicallysignificantorcriticalintheeventoffailurearesubjecttoaneffectiveresolutionregime. “Systemicallyimportantfinancialinstitution”–afinancialinstitutionorgroupthat,becauseofitssize,complexityandsystemicinterconnectedness,would,intheviewoftherelevantauthorities,causesignificantdisruptiontothedomesticorbroaderfinancialsystemandeconomicactivityifitweretofailinadisorderlymanner. “Systemicallysignificantorcritical”–anactivityoroperationissystemicallysignificantorcriticalifitsinterruption,suspensionordiscontinuationcouldleadtoadisruptionofservicesvitalforthefunctioningofthefinancialsystemorrealeconomy ExecutiveSummaryBackground Theglobalfinancialcrisisdemonstratedtheurgentneedtoimproveresolutionregimessoastoenableauthoritiestoresolvefailingfinancialinstitutions(FIs)quicklywithoutdestabilisingthefinancialsystemorexposingtaxpayerstolossfromsolvencysupport. Followingthecrisis,theFSBpublishedtheKeyAttributesofEffectiveResolutionRegimesforFinancialInstitutionsaspartofthepackageofpolicymeasurestoaddressthemoralhazardrisksposedbysystemicallyimportantfinancialinstitutions(SIFIs). InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  23. P age |23 TheKeyAttributes(KAs)setoutthecoreelementsofeffectiveresolutionregimesthatapplytoanyfinancialinstitutionthatcouldbesystemicallysignificantorcriticalifitfails. ResolutionregimeshavebeenidentifiedasapriorityareabytheFSB. Asaresult,theimplementationoftheKAsbyFSBmemberjurisdictionswillundergointensivemonitoringanddetailedreporting. Toensuretimelyandeffectiveimplementation,theFSBwillcarryoutaniterativeseriesofpeerreviewsontheimplementationoftheKAs. TheobjectiveofthisfirstpeerreviewistoevaluateFSBjurisdictions’existingresolutionregimesandanyplannedchangestothoseregimesusingtheKAsasabenchmark. ThereviewcomparesnationalresolutionregimesbothacrossindividualKAs(focusingprimarilyonKAsthatcovercoreprovisionsofthoseregimes)andacrossdifferentfinancialsectors(banking,insurance,securities,andfinancialmarketinfrastructure(FMIs)). ItprovidesrecommendationsforfutureworkbytheFSBanditsmembersinsupportofaneffectiveandcredibleresolutionregimeforSIFIs,whichisacriticalcomponentofthepolicyframeworkforendingtoo-big-to-fail. Mainfindings WhilemajorlegislativereformshavealreadybeenundertakenbysomeFSBjurisdictions(particularlythosedirectlyaffectedbythefinancialcrisis)todevelopnew,orreviseexisting,resolutionregimes,itisclearthatimplementationoftheKAsisstillatanearlystage. ThisisnotsurprisingastheKAsareanewinternationalstandardandthereformsneededtoimplementthemmayinvolvesignificantlegislativechanges. SeveralFSBjurisdictionsareintheprocessofadoptingthosereformstofurtherstrengthentheirresolutionregimes. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  24. P age |24 Forexample,theproposedEuropeanUnion(EU)Directiveonrecoveryandresolutionforbanksandinvestmentfirms,onceapproved,willrepresentamajorstepforwardinaligningtheresolutionregimesofEUmemberstateswiththeKAs. ResolutionregimesacrossFSBmemberjurisdictionsexhibitabroad rangeofpracticesintermsofscope,mandatesandpowersofauthorities.Thisistobeexpected. TheKAsdonotprescribethespecificformoftheresolutionregimeorparticulartypeofresolutionauthorityaslongasthatregimeisconsistentwiththeKAs. However,jurisdictionssometimeshavedifferentinterpretationsofwhatconstitutesa‘resolutionregime’anditsrelationshiptoordinaryinsolvencyregimesandpowersforordinarysupervisorypurposes. ThisdivergenceininterpretationcanmakeitdifficulttodrawdefinitiveconclusionsaboutthealignmentofnationalpowersacrossdifferentsectorswiththeKAs. AdditionalclarificationandguidanceontheapplicationoftheKAsisthereforenecessarytoassistjurisdictionsinimplementation,facilitatemonitoring,andensureconsistencyinassessmentsofcompliancewiththeKAs. AnumberoffeaturesofresolutionregimesinFSBjurisdictionsarebroadlyconsistentwiththeKAs. Inparticular,alljurisdictionsareabletousesomeoftheresolution powersspecifiedinKA3inrelationtobanks,althoughtheyarenotexercisedinallcasesbyadministrativeresolutionauthorities. NearlyalljurisdictionshaveavailableoneorbothoftheresolutionpowersspecifiedinKA3forinsurers(portfoliotransferandrun-off),althoughinseveralcasesthosepowersareexercisedbyacourt-appointedadministratororliquidatorinthecontextofawindup. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  25. P age |25 Mostjurisdictionsaccompanyresolutionpowerswithsomeofthe safeguardsspecifiedinKA5,suchasrespectforthehierarchyofclaims andarightforcreditorstojudicialreviewofresolutionactions. Finally,manyjurisdictionsreportthattheycanachieveatleastsomeoftheobjectivesoftheKAsthroughexistingsupervisorypowers–for example,powerstodeveloprecoveryandresolutionplans(RRPs)ortorequireresolvabilityassessmentsforcertainFIs. Nevertheless,therearesignificantdivergencesfrom,orinconsistencieswith,theKAsthatneedtobeaddressed. Moreover,additionalclarificationandguidanceontheapplicationoftheKAsisneededinanumberofareastofacilitateprogress. Themainareaswherefurtherenhancementofresolutionregimesbynationalauthorities,oradditionalguidancebytheFSBandrelevantstandard-settingbodies(SSBs),maybenecessaryareasfollows: Comprehensiveresolutionpowersforbanks–KAs1and3(seerecommendation1a):Althoughresolutionregimesaregenerallymoredevelopedforbanksthanforotherfinancialinstitutions,fewjurisdictionshaveequippedadministrativeauthoritieswiththefullsetofpowerstoresolvebankssetoutinKA3. Forexample,veryfewauthoritieshavethestatutorypowerbothtowritedownandtoconvertliabilitiesofafailinginstitution(bail-inwithinresolution). Moreover,insomecasesresolutionactionsmayrequirecourtapprovalorthecooperationofthefailingfirmoritsshareholders,whileinothercasesresolutionactions,suchasthetransfersofassetsandliabilities,are carriedoutbyanadministratorthatmayneitherbemandatedtoachievetheobjectivesintheKAsnorsubjecttodirectionbytheresolution authority. Resolutionregimesfornon-bankFIs–KA1(seerecommendations1band2b):Resolutionregimesaremostadvancedforbanksand InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  26. P age |26 progressivelylesssoforinsurers,securitiesorinvestmentfirmsandFMIs,wherebothmandatesandpowersfallwellshortofthestandardsintheKAs. ThisinpartreflectsthelessadvancedstateofguidanceontheapplicationoftheKAstothosesectors. Forexample,inmanyFSBjurisdictionsthereisnodesignatedadministrativeresolutionauthorityforsecuritiesorinvestmentfirmsandFMIs. Powersfornon-bankFIsareoftensupervisoryinnatureanddonotachievetheoutcomesspecifiedintheKAsorarelimitedtofirmliquidationorwindupattheinstigationofthesupervisoror,insomecases,throughsomeformofspeciallyadaptedinsolvencyregime. Powerstoresolvefinancialgroups–KA1.1(seerecommendations1c,1d,2cand2d):MostFSBjurisdictionslackpowerstotakecontroloftheparentoraffiliatesofafailedFI,problemforG-SIFIsthattendtohaveintegratedandhighlycomplexstructures. FurtherclarityastothenatureofpowersneededforFHCs,non-regulatedoperationalentitiesandbranchesofforeignFIswouldalsobedesirabletoensureaconsistentapproach. Inaddition,fewjurisdictionshaveinplaceacoordinationframeworkthatdesignatesaleadauthoritywheretwoormoredomesticresolution authoritiesareresponsibleforresolvingdifferententitiesofafinancialgroupwithinthesamejurisdiction. Cross-bordereffectivenessofresolutionmeasures–KA7(seerecommendations1eand2e):Thefinancialcrisisdemonstratedtheneedtostrengthenarrangementsforcross-bordercooperationindealingwithfailingFIs. However,nationallegalframeworksforcross-bordercooperationinresolutionare,overall,lesswell-developedacrossallsectorsthanotherareasoftheKAs. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  27. P age |27 Onlyafewjurisdictionscurrentlyempowerandencouragetheirresolutionauthoritiesthroughstatutorymandatestocooperateandcoordinatewhereverpossiblewithforeignresolutionauthorities. Moreover,theabilityofexistingmechanismsinmanyjurisdictionstogiveeffecttoforeignresolutionactionsremainsunclear. Veryfewjurisdictionshaveprovisionsforexpedited(administrativeor court-based)proceduresforrecognitionandenforcementofactionstaken byforeignauthorities. Thisisamajorweaknesssinceitmayunderminethelegalcertaintyofresolutionactionsinrelationtoassetsandliabilitiesinotherjurisdictionsandtherebyjeopardisetheeffectiveimplementationofresolutionstrategiesforcross-bordergroups. Informationsharingforthepurposesofresolution–KAs7.6,7.7and12(seerecommendation1f):FewFSBjurisdictionshaveclearanddedicatedstatutoryprovisionsfordomesticauthoritiestoshareconfidentialinformationwithforeignresolutionauthorities. Whilemostjurisdictionsrelyonexistingpowerstodisclosenon-publicinformationforsupervisorypurposes,thesepowersmaynotbesufficientlybroadtoallowsuchinformationtobesharedwithalldomesticandforeignauthoritiesthatarenotsupervisorsbuthavearesponsibilityforplanningorcarryingoutresolution. Unlesshomeandhostauthoritieshavethecapacitytosharesuchinformation,itisunrealistictoexpectthemtomeaningfullydiscusscross-borderresolutionstrategiesandplansortocooperateeffectivelyinacrisis. Treatmentoffinancialcontractsinresolution–KA4(seerecommendation1g):Resolutionauthoritiesinmostjurisdictionseitherlackpowerstoimposeatemporarystayontheexerciseofcontractualaccelerationorearlyterminationrightsinfinancialcontractsthatarisebyreasononlyofentryintoresolutionorinconnectionwiththeexerciseof InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  28. P age |28 resolutionpowersor,wherethepowerexists,itisnotsubjecttosuitable safeguards. Funding–KA6(seerecommendation2f):Fundingarrangementsdiffergreatlyacrosssectorsandjurisdictions. Mostjurisdictionsrelyonprivatelyfundedprotectionfundstofinanceresolutionactions,butitisnotclearwhethersucharrangementsareadequateorappropriateinscaleorscope. PublicfinancialsupportthereforeremainsanimportantcomponentofresolutionfundingarrangementsforSIFIs.Mechanismsfortherecoveryofpublicfundsarenotwelldeveloped,whileconditionsontheirusearelargelyabsent. Recoveryandresolutionplanningandactionstoimproveresolvability–KAs10and11(seerecommendations1h,1iand2g):Inmostjurisdictions,thereisnoexplicitrequirementinstatuteorrulesforRRPsfordomesticSIFIs. Moreover,mostauthoritieslackthepowertorequirefirmstomakechangestotheirorganisationalandfinancialstructuressolelyinordertoimprovetheirresolvabilityandinadvanceofresolution. OperationalcapacitytoresolvecomplexSIFIs–KA2(seerecommendation2h):Howevergoodaresolutionregimemightlookinstatute,itwillnotbeeffectiveunlessthenationalauthoritiesresponsibleforresolutionhavetheoperationalcapacity–includingstaffwiththeappropriatelevelandrangeofexpertise,andadequateresources–toresolvecomplexfinancialgroupsandSIFIs. Thiscriticaldimensioncannotbeverifiedinadesktopexercisesuchasthepeerreviewandwillneedtobeassessedinon-siteIMF-WorldBankcountryassessmentsusingsuitablecriteriaintheassessmentmethodologyfortheKAs. RigorousmonitoringofimplementationprogressinaligningresolutionregimesinFSBjurisdictionswiththeKAs(seerecommendation3): InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  29. P age |29 SeveralFSBjurisdictionsareimplementingorconsideringreformstotheirresolutionregimes. Giventheearlystageofthosereforms,arigorousmonitoringframework needstobedevelopedtoensurecomprehensivereportingofprogressbyjurisdictionsinaligningtheirresolutionregimeswiththeKAs. Whilefuture“deepdive”peerreviewswillbeusefulinthatregard,theyshouldbecomplementedbyregularreportsusingastandardisedtemplatetoenhancethereportingofimplementationprogressbyjurisdiction,sectorandKA. Recommendations Basedontheabovefindingsofthepeerreview,therearethreesetsofrecommendationsforimplementationbytheFSBitselforrelevantmemberjurisdictions(seebelow). WorkonsomeoftherecommendationsaddressedtotheFSBisalreadyunderway. Mostoftherecommendationsthatinvolveactionsbynationalauthoritiescan–andshould–beimplementednowwithoutwaitingforadditional FSBguidance. Jurisdictionsmayconsiderestablishingaphasedreformprogramto addresstheissuesidentifiedbelow. Insomecases,earlyworkonresolutionplanningandresolvabilityassessments,includingtheintroductionofresolutionplanningrequirementstoallfirmsthatcouldhaveanimpactonfinancialstabilityintheeventoffailure,mayrevealspecificweaknessesorgapsinthepowersneededforeffectiveresolutionandtherebyassistjurisdictionsinthedevelopmentofsuchaprogram. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  30. P age |30 Recommendation1:FullimplementationoftheKeyAttributes(KAs) FSBmemberjurisdictionsshouldundertakethefollowingactionstointroduce,orrevisetheirexisting,resolutionregimesforfinancialinstitutionsinordertofullyimplementtheKAs: Reviewing,andrevisingasneeded,resolutionregimesforbankstoensurethatallthepowerssetoutinKA3,includingpowerstotransferassetsandliabilitiesandpowerstowrite-downandconvertdebtwithinresolution,areavailabletoadministrativeresolutionauthorities; Reviewingtheadequacyandeffectivenessofresolutionregimesfornon-bankFIs,andadoptinganynecessaryreformstoensurethatadministrativeresolutionauthoritieswithadequatepowersaredesignatedforthoseinstitutions; Extendingthescopeofresolutionregimestofinancialholdingcompanies,non-regulatedoperationalentitiesthataresignificanttothecriticalfunctionscarriedoutwithinthegroup,andbranchesofforeignfinancialfirms; Wheremultipleresolutionauthoritiesexist,strengtheningcoordinationframeworksanddesignatingaleadauthorityforresolvingdomesticentitiesofthesamegroup; Enhancingthemandatesandcapacityofresolutionauthoritiestocooperateandcoordinatemeasuresacrossborders; Reviewingthedomesticlegalframeworkforinformationsharing,andrevisingitasneededtoensurethatdomesticauthoritiescanshareinformationwithallrelevantdomesticandforeignauthoritiesforplanningandcarryingoutresolution; Introducingpowerstoimposeatemporarystayontheexerciseofcontractualaccelerationorearlyterminationrightsinfinancialcontracts,subjecttosuitablesafeguardsasdescribedinKA4andAnnexIVtotheKAs; InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  31. P age |31 h.IntroducingaRRPrequirementforalldomesticallyincorporatedfirmsthatcouldbesystemicallysignificantorcriticaliftheyfail;and i.Empoweringsupervisoryorresolutionauthoritiestorequirefinancialinstitutionstoadoptchangestotheirstructure,organisationorbusinesspracticeswhereitisnecessarytoimprovetheirresolvability. Recommendation2:AdditionalclarificationandguidanceontheapplicationoftheKAs TheFSBshouldprovideadditionalclarificationandguidanceontheapplicationoftheKAstoassistjurisdictionsinimplementation,facilitatemonitoring,andensureconsistencyinassessmentsofcompliancewiththeKAs,by: Clarifyingthenatureofresolutionpowersascomparedwiththeordinarycorporateinsolvencyregimeandpowersforordinarysupervisorypurposes; WorkingwithSSBstodevelopguidanceonthefeaturesandpowersnecessaryforresolutionregimesineachnon-bankfinancialsectortomeetthestandardsoftheKAs; DevelopingguidanceonthenatureofpowersneededforFHCs,significantnon-regulatedoperationalentities,andbranchesofforeignfinancialfirms; Developingguidanceandidentifyinggoodpracticesforcoordinationwheretwoormoredomesticresolutionauthoritiesareresponsibleforresolvingentitiesofthesamefinancialgroup; Takingstockofmechanismstogiveeffecttoforeignresolutionmeasures–suchasadministrativeandjudicialpowersofrecognitionandcontractualmechanismsrequiringcounterpartiestorecognisetheexerciseofpowersbyaforeignresolutionauthority–andevaluatingtheir effectiveness(e.g.intermsoftimingandpredictability)intheimplementationofcross-borderresolutionstrategies; InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  32. P age |32 • Takingstockofresolutionfundingarrangementsacrossjurisdictionsandidentifyinggoodpracticessothattemporarypublicfundingdoesnotgiverisetomoralhazardandissubjecttoconditionsandmechanismsforrecoveryfromprivatesectorsources; • Clarifyingthenatureandscopeofthepowersthatauthoritiesshould havetorequirefirmstotakemeasurestoimprovetheirresolvability;and • EnsuringthattheassessmentmethodologyfortheKAscontainssuitablecriteriatoassesstheoperationalcapacityofresolutionauthorities. • Recommendation3:On-goingimplementationmonitoring • TheFSBshouldundertakemonitoringandreportingontheimplementationoftheKAsby: • Developingastandardisedreportingtemplatetofacilitatetheanalysisofimplementationprogressbyjurisdiction,sectorandKA; • Undertakingfollow-uppeerreviewsfocusedonresolutionpowers, cross-bordercooperationandinformationsharing,andrecoveryandresolutionplanning;and • Carryingout,incoordinationwithrelevantSSBs,peerreviewsontheapplicationoftheKAstoindividualnon-bankingsectors(insurance,investmentandsecuritiesfirms,FMIs)oncerelevantguidancebythosebodiesisissued. • Introduction • Background • Theglobalfinancialcrisisdemonstratedtheurgentneedtoimproveresolutionregimessoastoenableauthoritiestoresolvefailingfinancialinstitutionsquicklywithoutdestabilisingthefinancialsystemorexposingtaxpayerstolossfromsolvencysupport. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  33. P age |33 Followingthecrisis,anumberofjurisdictionshaveadopted,orarecurrentlypreparing,legislationtostrengthentheirresolutionregimes,whilesomeprogresshasalsobeenmadeinestablishingcrisismanagementgroups(CMGs)forglobalsystemicallyimportantfinancialinstitutions(G-SIFIs)andenhancingcross-bordercooperation. TheFSBadoptedtheKeyAttributesofEffectiveResolutionRegimesforFinancialInstitutionsinNovember2011aspartofthepackageofpolicymeasurestoaddressthemoralhazardrisksposedbySIFIs. TheKeyAttributes(KAs)representanewinternationalstandardthatsetsoutthecoreelementsofeffectiveresolutionregimesthatapplytoanyfinancialinstitutionthatcouldbesystemicallysignificantorcriticalifitfails(seeBox1). Workisongoingacrossanumberofresolution-relatedworkstreams. TheseincludethedevelopmentbytheFSBofanassessmentmethodologyfortheKAswhichcontainsexplanatorymaterialandadditionalguidanceonvariousaspectsofrecoveryandresolution planning;andworkbytherelevantstandard-settingbodies(SSBs)–namely,theCommitteeonPaymentandSettlementSystems(CPSS)andtheInternationalOrganisationofSecuritiesCommissions(IOSCO),andtheInternationalAssociationofInsuranceSupervisors(IAIS)–on,respectively,theapplicationoftheKAstofinancialmarketinfrastructure(FMI)andinsurers. ResolutionregimeshavebeenidentifiedasapriorityareaundertheFSBCoordinationFrameworkforImplementationMonitoring. Asaresult,theimplementationoftheKAsbyFSBmemberjurisdictionswillundergointensivemonitoringanddetailedreporting. Toensuretimelyandeffectiveimplementation,theFSBwillcarryoutaniterativeseriesofpeerreviewsontheimplementationoftheKAs. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  34. P age |34 Box1:KeyAttributesofEffectiveResolutionRegimesforFinancialInstitutions TheKeyAttributessetoutthecoreelementsthattheFSBconsiderstobenecessaryforaneffectiveresolutionregime. Theirimplementationshouldallowauthoritiestoresolvefinancialinstitutionsinanorderlymannerwithouttaxpayerexposuretolossfromsolvencysupport,whilemaintainingcontinuityoftheirvitaleconomicfunctions. Theysetoutessentialfeaturesintwelveareasthatshouldbepartoftheresolutionregimesofalljurisdictions,whichrelateto: Scope Resolutionauthority Resolutionpowers Set-off,netting,collateralisation,segregationofclientassets Safeguards Fundingoffirmsinresolution Legalframeworkconditionsforcross-bordercooperation CrisisManagementGroups(CMGs) Institution-specificcross-bordercooperationagreements(COAGs) Resolvabilityassessments Recoveryandresolutionplanning Accesstoinformationandinformationsharing. NotallresolutionpowerssetoutintheKeyAttributesaresuitableforallsectorsandallcircumstances. TopromoteeffectiveandconsistentimplementationacrossjurisdictionstheFSBwillcontinuetoworkwithitsmemberstodevelopfurtherguidance,takingintoaccounttheneedforimplementationtoaccommodatedifferentnationallegalsystemsandmarketenvironmentsandsector-specificconsiderations(e.g.insurance,FMIs). TheKeyAttributesalsocontainspecificrequirementsforresolvabilityassessments,recoveryandresolutionplanning,andthedevelopmentof InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  35. P age |35 • COAGsbetweenhomeandhostauthorities,whichmustbemetforG-SIFIs. • AnnexesItoIVofthedocumentprovidemorespecificguidancetoassistauthoritiesinimplementingtheKeyAttributeswithrespectto: • COAGs(AnnexI) • Resolvabilityassessments(AnnexII) • RecoveryandResolutionPlans(AnnexIII) • Temporarystaysonearlyterminationrights(AnnexIV). • 2.Objectivesandscopeofthereview • TheobjectiveofthepeerreviewistoevaluateFSBmemberjurisdictions’existingresolutionregimesandanyplannedchangestothoseregimesusingtheKAsasabenchmark. • Thereviewprovidesacomparativeanalysisoftheoveralllegal,institutionalandpolicyframeworkofexistingresolutionregimes,bothacrossindividualKAsandacrossdifferentfinancialsectors(banking,insurance,securitiesorinvestmentfirms,andFMIs). • Indoingso,thereviewhasmadeuseofthedraftassessmentmethodologyfortheKAsthatiscurrentlyunderpreparation. • Thebroadscopeofthereviewismotivatedbythefactthatitisthefirstinanumberofproposedthematicpeerreviewsinthisarea. • SincetheKAswereonlyrecentlydevelopedasaninternationalstandard,theireffectiveimplementationwillrequiresubstantialfollow-upworkbynationalauthorities,SSBsandfirms,includinglegislativechangesinmanyjurisdictions. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  36. P age |36 ThereviewfocusesprimarilyonthoseKAsthatcoverthecoreprovisionsofnationalresolutionregimesapplicabletoanyfinancialinstitutionthatcouldbesystemicallyimportantorcriticalifitfails. TheseareKA1(scopeofresolutionregime),KA2(existence,mandateandgovernanceofresolutionauthorities),KA3(resolutionpowers)andKA6(fundingarrangementstosupportresolution). ThepeerreviewalsocoversotherprovisionsinnationalresolutionregimesinlessdepthsoastoavoidunnecessaryoverlapswithworkundertakenbyotherFSBworkstreams. TheseincludeKA4(legalframeworkgoverningset-offrights,contractualnetting,collateralisationarrangements,andsegregationofclientassets),KA5(existenceofsafeguards),KA7(legalframeworkforcross-border cooperation),andKA12(accesstoinformationandinformationsharing). KA10(resolvabilityassessments)andKA11(recoveryandresolution planning)arecoveredonlyasregardstowhethernationalauthoritieshavedevelopedframeworksforcarryingoutresolvabilityassessmentsandrecoveryandresolutionplanningforfinancialinstitutions(FIs)intheirjurisdiction. ThereviewdoesnotexaminetheimplementationofthoseattributesforindividualG-SIFIsanddoesnotincludeKA8(crisismanagementgroups)andKA9(institution-specificcross-borderagreements)thatapplyonlytoG-SIFIs. ThedepthofcoverageacrosssectorsreflectsdifferencesinreformstoresolutionregimesandprogressinpolicyworkbyrelevantSSBsacrossthosesectors. Asignificantpartofthereviewisdedicatedtobanking,sincemostoftheresolution-relatedreformsinrecentyearshavebeenfocusedonthatsector. Thereviewgivesdueconsiderationtosectoralspecificitiesandrecognisesthatnotallpowersandcharacteristicsofresolutionregimes InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  37. P age |37 • setoutintheKAsaresuitableorrelevantforallsectorsandunderallcircumstances. • TheprimarysourceofinformationforthepeerreviewistheresponsestoaquestionnairebyFSBmemberjurisdictions,whichwasmostlybasedonessentialcriteriasetoutinthedraftassessmentmethodology. • ThereviewalsomadeuseofavailablereportsorguidancebySSBsrelatingtoresolution-relatedconsiderationsforspecificsectors. • ThereportanditsAnnexesarestructuredasfollows: • SectionIIandAnnexAreviewtheresolution-relatedactionsundertakeninresponsetotheglobalfinancialcrisis,includinglessonslearnedandlegislativereformsinitiatedduringorintheaftermathofthecrisis; • SectionIIIdescribesthemainfeaturesofexistingresolutionregimes,organisedbyKeyAttribute,andissupplementedbyfurtherdetailinAnnexesBandD; • SectionIVandAnnexCsummariseplannedresolutionregimereformsbyFSBjurisdictions;and • SectionVsummarisesthekeyfindingsandprovidesrecommendationstopromotethetimelyandconsistentimplementationoftheKeyAttributes. • II.Actionsundertakeninresponsetothefinancialcrisis • Duringthefinancialcrisisthatbeganin2007,mostFSBmemberjurisdictionstookpolicymeasurestosupportandenhanceconfidencein theirdomesticfinancialsystem. • Anumberofthosejurisdictionsalsotookactions–oftenonanadhocbasis–tointervenein,resolve,restructureorwindupfinancialinstitutions(FIs)deemedsystemicallysignificant. • MostoftheaffectedFIswerebanks. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  38. P age |38 Insomecases,thebankswererelativelysmallanddomesticallyoriented,butweredeemedtobesystemicintheprevailingfinancialmarketenvironment. Mostofthosejurisdictionstookactionunderexistingsector-specific powerstorestructureandwind-upfailingFIs. Inanumberofcasesthosepowersandauthoritiesprovedinadequate,leadingsomejurisdictionstoadoptemergencylegislationtoenablethenecessaryresolutionactions. IntheUnitedKingdom(UK),emergencylegislationenabledtheresolutionofseveralbanksthroughnationalisation,thetransferofdepositsandassetstothirdpartiesandtheestablishmentofbridgebanks;thetime-limitedemergencylegislationwassubsequentlyreplacedwithanewstatutoryspecialresolutionregime. IntheUnitedStates(US),emergencylegislationenabledthepurchaseoftroubledassetsfromFIs. Germanyrecapitalisedbankswithstatefundsandrestructuredthem,includingbytransferringbadassetstoassetmanagementcompanies(AMCs)throughanewlyestablishedagencythatprovidedthenecessaryfundingandactedasumbrellafortheAMCs. TheNetherlandsadoptedlegislationfortherecapitalisationortransferofassetsandliabilitiesofbanksorinsurerstoanotherFIorabridgeinstitutionandtheinterventioninaparentorholdingcompany. TheSwissauthoritiesreinforcedthecapitalbaseofasystemicbankbysubscribingtomandatoryconvertiblenotesandfinancingthetransferofsomeofthebank’silliquidassetstoaspecialpurposevehicle;theseactionswereimplementedthroughemergencylegislation. FranceadoptedlegislationallowingstatefinancialsupporttobeprovidedtoFIs. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  39. P age |39 Russiaadoptedaspecialresolutionregimeforsystemicallyimportantbanksempoweringthedepositinsurertoprovidecapitalandliquiditysupport. Spainadoptedlegislationestablishinganewresolutionauthoritywiththepowertorecapitaliseandrestructurebanks;severalsmallerbanksweregrantedcapitalandliquiditysupport,andweresoldtootherbankswithassistancefromtheresolutionauthorityintheformofassetguaranteesandcapitalandliquiditysupport. FinancingfortheresolutionandrestructuringoffailingFIscamefrompublicsources–generallynationalgovernmentsandcentralbanks–withonlylimitedrecoursetotheprivatesector. France,NetherlandsandtheUKreliedsolelyontreasuryfinancing. Russiareliedoncontributionsbythetreasuryandloansbythecentralbanktotheresolutionauthority. Somejurisdictions,includingFrance,GermanyandSpain,establishedspecialpublicentitiestoprovidefundingandexpertise. Afewjurisdictionsalsoreportedtheuseofprivatesectorfundsfor resolutionactions,mainlyasaresultofusingindustry-fundeddepositinsurancefunds. TheUSreliedonacombinationoftreasury,centralbankanddepositinsurerfunds. MostjurisdictionsintendtorecoupfinancialassistancebythesaleofFIsandassetsacquiredinthecourseofresolutionactionsandtoreplenishdepositinsurancefundsthroughindustrycontributions. ThefinancialcrisishighlightedtheneedtosignificantlyenhanceexistingresolutionregimesinFSBjurisdictions. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  40. P age |40 Implicitrelianceonpublicsupportwasshowntobeapolicythatpenalisedtaxpayers,contributedtomoralhazardandwasnotviableinthelongterm. Manyjurisdictionsrecognisedtheneedtoenhanceresolutionpowers,undertakemoreformalrecoveryandresolutionplanning,strengthenarrangementsfordomesticandcross-bordercooperationindealingwithfailingFIs,anddevelopmechanismstorecoupanypublicfundsusedinresolution. Somejurisdictions,particularlythosethatweredirectlyaffectedbythefinancialcrisis,drewthelessonthatthegeneralcorporateinsolvencylawwasnotsuitableforresolvingsystemicFIs,andhavealreadyundertakenmajorlegislativereformstodevelopnew,orrevisetheirexisting,resolutionregimes. Thesereformsincludemeasurestointroducenewresolutiontoolsandtoexpandresolutionauthoritytonon-bankfinancialinstitutions(seeAnnexA). Severalotherjurisdictionsareimplementingorconsideringreformstotheirregimes(seesectionIV). III.Keyfeaturesofresolutionregimes ThissectionsummarisesthekeyfeaturesofresolutionregimesofFSBmemberjurisdictionsbyindividualKA. ThissummaryiscomplementedbyAnnexesBandD,whichrespectivelysetoutselectedanddetailedfeaturesofresolutionregimesinFSBjurisdictions. 1.Scopeofresolutionregimes(KA1) KA1requiresthatallfinancialinstitutionsthatcouldbesystemicallysignificantorcriticalintheeventoffailure,includingbanks,securities InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  41. P age |41 andinvestmentfirms,insurersandFMIs,besubjecttoaresolutionregimethathasthefeaturessetoutintheKAs. Inordertobecapableofresolvingfinancialgroups,thoseregimesshouldextendtobranchesofforeignFIs,financialholdingcompanies(FHCs), andnon-regulatedoperationalentitiesthataresignificanttothebusinessofafinancialgroup. AllFSBjurisdictionsreportthattheyhavespecificpowerstorestructureand/orwindupbanksthataredistinctfromordinarycorporateinsolvency(seeTable1AinAnnexD),althoughtheextenttowhichthesector-specificregimesdifferfromordinarycorporateinsolvencyisnotalwaysclear. Eightjurisdictionsreportthattheuseofcertainpowersisrestrictedtosystemicallyimportantbanks. Mostjurisdictionsalsohavespeciallyadaptedinsolvencyregimesforinsurancefirmsthattypicallyrelyonacombinationofordinaryinsolvencylawsupplementedbypowersforsupervisoryauthorities(seeTable1BinAnnexD). ResolutionregimesforsecuritiesorinvestmentfirmsandFMIsareevenlesswellestablished. ThirteenFSBjurisdictionsindicatethattheyhavespecificpowerstorestructureand/orwindupsecuritiesorinvestmentfirmsoutsideofordinarycorporateinsolvency(seeTable1CinAnnexD),whileonlyeightjurisdictionsreporthavingsector-specificpowersinplaceforrestructuringand/orwindingupallorsomeclassesofFMI(seeTable1DinAnnexD). Threeofthosejurisdictions18notethat,wherecertainFMIs(suchasCCPs)areauthorisedasbanks,theyarecurrentlywithinthescopeofthatjurisdiction’sbankresolutionregime. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  42. P age |42 WorkisongoingbyCPSSandIOSCOtoclarifyhowtheKAsshouldbeappliedtoFMIs,soastoprovideabasisforjurisdictionstodesignandimplementresolutionregimesforthissector. Itshouldbeemphasised,however,thatsector-specificpowerstorestructureand/orwindupFIsarenotnecessarilyalignedwiththeKAs. Inmanycases,thereportedpowersaresupervisoryinnature,requiretheconsentofshareholdersorarelimitedtoliquidationorwindingupofthefirmattheinstigationofthesupervisoror,insomecases,throughsomeformofspeciallyadaptedinsolvencyregime. Thiswasespeciallythecaseinrelationtotherangeofpowersavailableinmanyjurisdictionsinrespectofinsurers,securitiesorinvestmentfirms,andFMIs. Thesetypesofpowersareusefulsupplementstothecoreresolution powersoutlinedinKA3butdonotconstituteontheirownaresolutionregimethatmeetsthestandardsoftheKeyAttributes. Whilemanyjurisdictionsreportthattheyhavespecificpowerstorestructureandwindupholdingcompaniesthatareregulatedasbankingorinsurancegroups,onlyeightofthemhavetheabilitytousethosepowersforFHCsthatarenotthemselvesabankorotherregulatedinstitution. Sucharestrictionwouldlimittheresolutionstrategiesavailabletodealwithafinancialgroup,andappropriateresolutionpowersshouldthereforeapplymorebroadlytonon-regulatedFHCs. InmostFSBjurisdictions,theresolutionframeworkcannotbeappliedtonon-regulatedoperationalentitieswithinafinancialgroup. Authoritiesinonlysevenjurisdictionshavedirectpowersinrelationtonon-regulatedoperationalentitiesthatcanbeexercisedintheresolutionofthewholeorapartofthefinancialgrouporconglomeratetowhichthoseentitiesbelong;thenatureofthosepowersalsovariesacrossjurisdictions. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  43. P age |43 Non-regulatedoperationalentitiesmayprovideservicesthatarenecessaryforthecontinuityofsystemicallyimportantfunctionscarriedoutwithinthegroup,andalackofappropriatepowersinrelationtosuchentitiesmayresultinanabruptwithdrawalofthoseservicesthatjeopardisestheresolutionobjectiveofmaintainingthosefunctions. Inamajorityofcases,authoritiesreportthattheyhavepowersoverbranchesofforeignfinancialinstitutions. Insomecases,thosepowersarelimitedtoactionsundertheordinarycorporateinsolvencyregime(suchasthepowertoring-fencelocalassetsandrealisethemtomeettheclaimsofcreditorsofthebranch)underthejurisdictionorsupervisionofdomesticcourts. Inmanyjurisdictions,powersinrespectofbranchesaremuchlesscomprehensivethanthoseavailableforlocallyincorporatedentities(seeKA7). 2.Resolutionauthority(KA2) KA2requiresjurisdictionstohaveadesignatedadministrativeresolutionauthority(orauthorities)thatis(are)operationallyindependentandadequatelyresourced. Thestatutoryobjectivesandfunctionsofresolutionauthoritiesshouldrequirethemtopursuefinancialstability,protectdepositors,insurancepolicyholdersandinvestors(asappropriate);avoidunnecessarydestructionofvalue;andconsiderthepotentialimpactoftheiractionsonfinancialstabilityinotherjurisdictions. Wherethereismorethanoneresolutionauthorityinajurisdiction,theirrolesshouldbeclearlydefinedandcoordinated,andtheresolutionregimeshouldidentifyaleadauthoritytocoordinateresolutionofamulti-sectorfinancialgroupwithinthatjurisdiction. Responsibilityandpowersfortheresolutionof(atleastsome)FIsare conferredononeormorepublicauthoritiesinallFSBmemberjurisdictions(seeTable1). InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  44. P age |44 Thedivisionofresolutionpowersandresponsibilitiesbetweenthoseauthoritiesvariesconsiderably:theKAsarenotprescriptiveinthisregard. Manyjurisdictionsconfertheprimaryresponsibilityandpowersfortheresolutionofbanksonsupervisoryauthoritieswithdifferentdegreesoffunctionalseparation,whiletheresolutionauthorityisseparatefromthemainsectoralsupervisorinonlyaminorityofcases. WhileallFSBjurisdictionsreportthattheirresolutionauthoritiesareoperationallyindependent,thishasnotbeenverifiedinthepeerreview. Fortheinsurancesector,almostallFSBjurisdictionscurrentlyhaveprudentialsupervisorsthatcaninterveneintroubledorfailinginstitutionsinavarietyofways(suchaslicensewithdrawal,appointmentofadministrator,orcourtpetitionforwindingup),althoughmostjurisdictionsrequirethecourtstoappointanadministratororliquidatortocarryouttheresolution. InmanyFSBjurisdictions,thereisnoadministrativeauthority responsibleforrestructuringandwindingupsecuritiesorinvestmentfirmsandFMIs. Thisreflectsthelimitedscopeandpowersforresolvingsystemicallyimportantnon-bankSIFIsundertheexistingregimes(seethediscussioninKAs1and3). Theinvolvementofpublicadministrativebodiesinthosesectorsrelatestotheirroleasmarketconductoroversightauthorities,withmeasurestoaddressormanagefailinginstitutionstypicallylimitedtostandardinsolvencyprocedures. Indeed,inmanycaseswherejurisdictionsreporttheexistenceofa resolutionauthorityforsecuritiesorinvestmentfirmsandFMIs,thatauthorityisactuallyasupervisorthatisonlyabletoexercisecertain powersunderasector-specificregimeforrestructuringorwindingup,butdoesnothavetheadministrativeresolutionpowersspecifiedinKA3. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  45. P age |45 Aspreviouslynoted,thereareafewexceptionswheretheresponsibleauthorityhaspowersinrelationtocertaincategoriesofFMIthataresimilartothoseforothertypesofFI. TheKAsrecognisethatnotallattributesandresolutionpowersarerelevantforallfinancialsectors;howeverthedesignationofanadministrativeauthorityorauthoritieswiththeresponsibility,powersandmeanstoresolvesystemicallyimportantfirmsisanessentialelementofaneffectiveregimeacrossallsectors. Whileresolutionmeasuresmaybeimplementedbyanadministratorthatisappointedandsupervisedbyacourt(asisthecaseinseveralFSBjurisdictions),theobjectivesofthatadministratorshouldbealignedwithKA2.3. Inthosejurisdictionswithmultipleresolutionauthorities,nearlyallreporthavingsomeformofcoordinationarrangementsinplacebetweentheauthorities,althoughtheadequacyofthosearrangementshasnotbeenanalysedinthepeerreview. However,severaljurisdictionsdonotappointa‘leadauthority’tocoordinatetheresolutionofdomesticentitiesofthesamegroup. Theresponsesofsomejurisdictionsindicatethattheboundariesbetweentherespectiverolesandresponsibilitiesofthoseauthoritieswithresolutionfunctionsarenotalwaysclear,whichmayhampereffectiveresolution. VeryfewjurisdictionshavestatutoryobjectivesinplacefortheirresolutionauthoritiesthatarefullyalignedwiththeKAs. However,manysuchauthorities(includingprudentialsupervisors,marketconductauthorities,centralbanks,financeministries,deposit insuranceandotherprotectionschemes)mayhavebroaderresponsibilitiesrelatedtofinancialstability,andtheobjectivesrelatingtotheirroleinresolutionmaynotnecessarilybereflectedinaseparatestatuteorotherpublicpolicydocument. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  46. P age |46 Althoughnearlyallauthoritieshaveformalobjectives(oftennotrelatedspecificallytotheirresolutionfunctions)tomaintainfinancialstabilityandprotectdepositorsorpolicyholders,mostdonothavemandatestoavoiddestructionofvalue(beyondmaximisingrecoveriesinliquidation)ortoconsidertheimpactofresolutionactionsonotherjurisdictions. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  47. P age |47 3.Resolutionpowers(KA3) KA3setsouttherangeofresolutionpowersthatshouldbeavailableinresolutionregimes. Theseincludepowerstotransferassets,rightsandliabilitiesof,orsharesin,failinginstitutionstoapurchaser,bridgeinstitutionorassetmanagementcompany(AMC);towritedownandconvertdebtofthefirminresolution(bail-in);toappointanadministrator;andtooperatethefirminresolutionandtakeactionsnecessarytorestructureorwinddownitsoperations. Authoritiesresponsibleforresolvinginsurersshouldalsohavepowerstotransferportfoliosand“run-off”theinsurancebusinessofafirminresolution. Allpowersshouldbeexercisablewithoutanyrequirementforcreditor consentorshareholderapproval. Regimesshouldprovideforresolutiontobetriggeredwhenafirmis,orislikelytobe,nolongerviable,andbeforeitisbalance-sheetinsolventandtheequityhasbeenfullywipedout. MostFSBjurisdictionsreportthattheyareabletoprovidefortimelyentryintoresolutionortheexerciseofresolutionpowersatorbeforethepointofnon-viability,andbeforethefirmisbalance-sheetinsolvent.Inmostcases,thereportednon-viabilitytriggersforinsurers,securitiesorinvestmentfirmsandFMIsapplylaterthanforbanks,whichmaybeduetothefactthattheyreflecttriggersavailableundercorporateinsolvencyregimes. Jurisdictionsreportthatresolutionpowersareconsiderablymoredevelopedforbanks(seeTable2)thanforinsuranceand,especially,forsecuritiesorinvestmentfirmsandFMIs. WhilesomeoftheresolutionpowersspecifiedintheKAsmaynotbenecessarytoresolvecertaintypesofnon-bankFIs,nospecialpowers InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  48. P age |48 (outsideordinaryinsolvency)areavailableforsecuritiesorinvestmentfirmsandFMIsinmostjurisdictions. InallFSBjurisdictions,asupervisoryorresolutionauthorityhasthepowertoappointanadministratorortoapplytothecourtforsuchan appointment(seeTable2inAnnexD). InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  49. P age |49 Thepowersofthatadministratorvary,butmostjurisdictionsreportthat theadministratorhasawiderangeofpowers,includingtooperatethefirmandtomanageordisposeofitsassets. Insomecases,thepowersoftheadministratorarerestrictedtothepowersofthefirm’smanagement,whichsuggeststhattheadministratorcannotoverrideshareholders’rightsforactionsthatrequireshareholderapprovalundertheconstitutionoftheFIorapplicablecorporatelaw. Inothercases,theadministratorhasthesamepowersastheappointing authority,ortheauthorityisabletoconfersuchpowersontheadministrator. Mostjurisdictionsalsoprovideforpowerstotransferassetsandliabilitiesfromafailedbank. However,inmanycasesthosepowersareexercisedbytheappointedadministratoranditisnotclearwhethertheadministratorcanbemandatedtoachievetheobjectiveslaidoutintheKAs. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  50. P age |50 Itisalsonotclearinallcaseswhethertransferpowerscanbeexercised(ifnotsanctionedbythecourt)withouttheneedforshareholderapprovalorcreditorconsent. Transferpowersaregenerallylesswell-establishedinthecaseofinsurers,andevenlesssointhecaseofsecuritiesorinvestmentfirmsandFMIs. Inamajorityofjurisdictions,authoritieshavethepowertoestablishandoperateabridgeinstitution,althoughthatpowerisnotalwaysbasedonexpressstatutoryauthority. Inmostcaseswheretheuseofabridgeinstitutionisavailable,itisusedonlyforbanks;relativelyfewjurisdictionsreporthavingbridgepowersforinsurers,securitiesorinvestmentfirmsorFMIs. Similarly,inamajorityofjurisdictions,authoritieshavethepowertoestablishanassetmanagementcompany,andtotransferassetsofafailingentityintoitalthough,aswithbridgeinstitutions,thispowerislargelyconfinedtothebankingsector. Bail-inwithinresolution,ascontemplatedbytheKAs,requirespowersthatenableauthoritiesto: writedownequityinandunsecuredcreditorclaimsagainstafirminresolutiontotheextentnecessarytoabsorbthelossesofthefirm;and convertallorpartsofunsecuredcreditorclaimsintoequityofthefirminresolution,itsparentcompanyoranysuccessorinresolution(suchasabridgeinstitution). Onlytwojurisdictionsreportthatbothpowersareconferredbystatuteontheirresolutionauthority,whileanotherjurisdictionreportsthatitisabletobothwritedownandconvertliabilitieswithinresolutionusingotherpowers. Severalotherjurisdictionsreportthattheycanachieve,atleasttosomedegree,theeconomiceffectofbail-inthroughexistingpowers,suchastransferandbridgebankpowers,althoughthosepowersalonearenot InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com