FSB proposes a toolbox of financial resources and tools for the resolution of central counterparties (CCPs)

The FSB has released a consultation report addressing the financial resources and tools necessary for the resolution of CCPs. Ensuring the effective resolution of systemically important CCPs is vital for financial stability and maintaining confidence in the financial system, especially in the context of G20 regulatory reforms following the 2008-09 financial crisis, which elevated the systemic importance of CCPs.
The FSB’s journey began in 2017 when it issued guidance on CCP Resolution and Resolution Planning, followed by additional guidance in 2020 focusing on CCP financial resources and equity treatment in resolution. In collaboration with the CPMI and the IOSCO, the FSB conducted joint workshops in 2020-2021 and published a joint report in March 2022 on CCP Financial Resources for Recovery and Resolution. Subsequently, in April 2022, the FSB decided to undertake further qualitative work on financial resources and tools for systemically important CCP resolution, leading to the release of this consultation paper in 2023.
The present consultation report defines four parameters essential for CCP resolution resources and tools: (A) loss absorption and recapitalization, (B) reliability and availability, (C) mitigation of adverse effects on financial stability, and (D) alignment with recovery and resolution goals.
These parameters are further elaborated through six analytical dimensions, covering aspects such as purpose, timeliness, legal considerations, impact on financial stability, costs, and impact on CCP business models.
The analysis indicates that no single resource or tool can satisfy all parameters without drawbacks, emphasizing the need for a toolbox approach. This approach allows resolution authorities to choose from a set of resources and tools tailored to their jurisdiction’s needs while considering costs and benefits. The FSB proposes this toolbox approach as a global standard for CCP resolution.
Implementation of the toolbox approach involves amending the FMI Annex of the Key Attributes and the 2020 Guidance. The FSB plans to monitor its implementation, particularly for systemically important CCPs in multiple jurisdictions.
The toolbox approach offers optionality and risk diversification, improving the effectiveness of CCP resolution while mitigating undesirable consequences. The FSB is seeking comments and supporting evidence on this report, encouraging stakeholders to provide feedback by 20 November 2023, with responses to be published on the FSB’s website.