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P a g e | 1 Inter n atio na l A s s oci a t ion of R isk a nd Co mpl i a n c e Pr o f e s s io na l s ( I A RCP) 12 0 0 G St re e t N W Su i t e 8 0 0 W a s h i ng t o n, D C 2 000 5 - 67 0 5 U SA T e l : 2 0 2 - 44 9 - 9750 www .ri s k - c ompl i ance-a ss o c i a tion . c om.

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  1. P age |1 InternationalAssociationofRiskandComplianceProfessionals(IARCP) 1200GStreet NWSuite800Washington,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:TheTenSuggestionsMr.Bernanke,areyoujealousofthisTop10list? Whydidyoudevelopexactly10suggestions? Hisspeechisveryinteresting.We canevenfindmoreaboutmeritocracy: “Ameritocracyisasysteminwhichthepeoplewhoaretheluckiestintheirhealthandgeneticendowment;luckiestintermsoffamilysupport,encouragement,and,probably,income;luckiestintheireducationalandcareeropportunities;andluckiestinsomanyotherwaysdifficulttoenumerate--thesearethefolkswhoreapthelargestrewards. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

  2. P age |2 Theonlywayforevenaputativemeritocracy to hope topassethicalmuster,tobeconsideredfair,isifthosewhoaretheluckiestinallofthoserespectsalsohavethegreatestresponsibilitytoworkhard,tocontributetothebettermentoftheworld,and tosharetheirluckwithothers.” 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. MonteCarloisanicequantitativerisk analysistechnique. Wewillsimplygenerate20,000,000luck scenarios,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. Instead ofinflationweputinheritance–thepassingonproperty,titlesetc.uponthedeathofrelativeswehavenevermet.Yougetthepicture. Insteadofmarketrisk(andtheCreditValuationAdjustmentamendment)weputopportunitytoinvestin Google-like firmswhentheyarestillyoung. Thebestpart:TheProbabilityofDefaultforanycounterpartyiszero–we arelucky,remember? And,Ihave onlystartedthinkingaboutit. ReadmoreatNumber1below. Anotherveryinterestingstory,aboutbanks andinsurancefirms: “Thechangesinbankingregulationmakemoreimportanttheroleofinsurersasprovidersoflong-termbankfunding” ThisistheopinionorGabrielBernardino,ChairmanofEIOPA(EIOPAistheEuropean InsuranceandOccupationalPensionsAuthority,oneofthreeEuropeanSupervisoryAuthorities). Healsodiscussesareallyimportantproblemfor insurers:Thelowinterestrates,that… “Ontheliabilitiesside,theyleadtoanincreaseinfirms’obligationsintoday’stermsand,consequently,toadeteriorationoftheirfinancialposition. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

  4. P age |4 Ontheassetsside,low interestrateshaveanadverseimpactoninvestmentresultsandincreasethereinvestmentriskofassets.” Themorelofthestory:Manyinsurershavearealproblemwiththelowinterestrates. ReadmoreatNumber3below.Welcome totheTop10list. 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,undertheFSBCharterandintheFSBFrameworkforStrengtheningAdherencetoInternationalStandards,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 InterventionofAndrea Enria,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'sprioritiesfollow acomprehensivepolicy reviewandplacenewemphasisonthemosttransformativeelementsoftheoriginal2010DigitalAgendaforEurope. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

  8. P age |8 UnderstandingSupervisoryColleges ViceChairJanetL.Yellen AttheInternationalMonetaryConference,Shanghai,China RegulatoryLandscapes:AU.S.Perspective “I'llsummarizetheconsiderableprogresssince2008 tomaketheglobalfinancialsystemmoreresilient,andthenoffermyviewsonwhatmoreshouldbedone”. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

  9. P age |9 ChairmanBenS.BernankeAttheBaccalaureateCeremonyatPrincetonUniversity,Princeton,NewJersey TheTenSuggestions It'snicetobebackatPrinceton. Ifinditdifficult tobelievethatit'sbeenalmost11yearssinceIdepartedthesehallsforWashington. Iwroterecentlytoinquire aboutthestatusofmyleavefromtheuniversity,andtheletterIgotbackbegan,"Regrettably,Princetonreceivesmanymorequalifiedapplicantsforfacultypositionsthanwecanaccommodate." I'llextendmybestwishestotheseniorslater,butfirstIwant tocongratulatetheparentsandfamilieshere. Asaparentmyself,Iknow thatputtingyourkidthroughcollegethesedaysisnowalk in thepark. SomeyearsagoIhadacolleaguewhosentthreekidsthroughPrincetoneventhoughneitherhenorhiswifeattendedthisuniversity. Heandhisspousewereveryproudofthat accomplishment,astheyshouldhavebeen. Butmycolleaguealsousedtosaythat,fromafinancialperspective,theexperiencewaslikebuyinganewCadillac everyyearandthendrivingitoffacliff. 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'soxordonkeyisnottheproblemitused tobe,soIthoughtIwouldusemyfewminutestodaytomakeTenSuggestions,ormaybejustTenObservations,abouttheworldandyourlivesafterPrinceton. Pleasenote,thesepointshavenothingwhatsoevertodowithinterestrates. Myqualificationformakingsuchsuggestions,orobservations,besideshavingkindlybeeninvited to speaktodaybyPresidentTilghman,isthesameas thereasonthatyourobnoxiousbrotherorsistergottogo to bedlater--Iam olderthanyou. Allofwhatfollowshasbeenroad-testedinreal-life situations,butpastperformanceisnoguaranteeoffutureresults. ThepoetRobertBurnsoncesaidsomethingaboutthebest-laidplansofmiceandmengangingaftagley,whatever"agley"means. Amorecontemporaryphilosopher,ForrestGump,saidsomethingsimilaraboutlifeandboxesofchocolatesandnotknowingwhatyouaregoingtoget. Theywerebothright. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

  11. P age |11 Lifeisamazinglyunpredictable;any22-year-oldwhothinks heorsheknowswheretheywillbein10years,muchlessin30,issimplylackingimagination. Lookwhathappened to me:AdozenyearsagoIwasmindingmy own businessteachingEconomics101inAlexanderHallandtryingtothinkofgoodexcusesforavoidingfacultymeetings. ThenIgotaphonecall...IncaseyouareskepticalofForrestGump'sinsight,here'saconcretesuggestionforeachofthegraduatingseniors. Takeafewminutesthefirstchanceyougetandtalkto analumparticipating inhisorher25th,or30th,or40threunion--youknow,somebodywhowasnearthefrontoftheP-rade. Askthem,backwhentheyweregraduating25,30,or40yearsago, wheretheyexpected tobetoday. Ifyoucangetthemtoopenup,theywilltellyouthattodaytheyarehappyandsatisfiedinvariousmeasures,ornot,andtheirpersonalstorieswillbefilledwithhighsandlowsandin-betweens. But,Iamwillingtobet,thoselife storieswill in almostallcasesbequitedifferent, in largeandsmallways,fromwhattheyexpectedwhentheystartedout. Thisisagoodthing, notabadthing;whowantstoknow theendofastorythat'sonlyinitsearlychapters? Don'tbeafraid to letthedramaplayout. 2.Doesthefactthatourlivesaresoinfluencedbychanceandseeminglysmalldecisionsandactionsmeanthatthereisnopointtoplanning,tostriving? Notatall. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

  12. P age |12 Whateverlife mayhaveinstoreforyou,eachofyouhasagrand,lifelongproject,andthatisthedevelopmentofyourselfasahumanbeing. YourfamilyandfriendsandyourtimeatPrincetonhavegivenyouagoodstart. Whatwillyoudowithit? Willyoukeeplearningandthinkinghardandcritically aboutthemostimportantquestions? Willyoubecomeanemotionallystrongerperson,moregenerous,moreloving,moreethical? Willyouinvolveyourselfactivelyandconstructivelyintheworld? Manythingswillhappeninyourlives,pleasantandnotsopleasant,but,paraphrasingaWoodrowWilsonSchooladagefromthetimeIwashere,"Whereveryougo,thereyouare." Ifyouarenothappywithyourself,eventheloftiestachievementswon'tbringyoumuchsatisfaction. 3.Theconceptofsuccessleadsme to considerso-calledmeritocraciesandtheirimplications. Wehavebeentaughtthatmeritocraticinstitutionsandsocietiesarefair. Puttingasidetherealitythatnosystem,includingour own,isreallyentirelymeritocratic,meritocraciesmaybefairerandmoreefficientthansomealternatives. Butfairinanabsolutesense?Thinkaboutit. Ameritocracyisasysteminwhichthepeoplewhoaretheluckiestintheirhealthandgeneticendowment;luckiestintermsoffamilysupport, InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

  13. P age |13 encouragement,and,probably,income;luckiestintheireducationalandcareeropportunities;andluckiestinsomanyotherwaysdifficult toenumerate--thesearethefolkswhoreapthelargestrewards. Theonlywayforevenaputativemeritocracytohope topassethicalmuster,tobeconsideredfair,isifthosewhoaretheluckiestinallofthoserespectsalsohavethegreatestresponsibilitytoworkhard,tocontributetothebettermentoftheworld,and to sharetheirluck withothers. Asthe GospelofLuke says(andIamsuremyrabbiwillforgivemeforquotingtheNewTestamentin agoodcause):"Fromeveryone towhommuchhasbeengiven,muchwillberequired;andfromtheone towhommuchhasbeenentrusted,evenmorewillbedemanded"(Luke 12:48,NewRevisedStandardVersionBible). Kindofgradingonthecurve,youmightsay. 4.Whoisworthyofadmiration? TheadmonitionfromLuke--whichissharedbymostethicaland philosophicaltraditions,by theway--helpswiththisquestionaswell. Thosemostworthyofadmirationarethosewhohavemadethebestuseoftheiradvantagesor,alternatively,copedmostcourageouslywiththeiradversities. Ithinkmostofuswouldagreethatpeoplewhohave,say,littleformalschoolingbutlaborhonestlyanddiligently to helpfeed,clothe,andeducatetheirfamiliesaredeservingofgreaterrespect--andhelp,ifnecessary--thanmanypeoplewhoaresuperficiallymoresuccessful. They'remorefun tohaveabeerwith,too.That'sallthatIknow aboutsociology. 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,cynicismisapoorsubstituteforcriticalthoughtandconstructive action. Sure,interestsandmoneyandideologyallmatter,asyoulearnedin politicalscience. Butmyexperienceisthatmostofourpoliticiansandpolicymakersaretryingtodotherightthing,accordingtotheirownviewsandconsciences,mostofthetime. Ifyouthinkthatthebadorindifferentresultsthat toooftencomeoutofWashingtonareduetobasemotivesandbadintentions,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 Economicsisahighlysophisticatedfieldofthoughtthatissuperbatexplainingtopolicymakersprecisely whythechoicestheymadeinthepastwerewrong. Aboutthefuture,notsomuch. However,carefuleconomicanalysisdoeshaveoneimportantbenefit,whichisthatit canhelpkillideasthatarecompletelylogicallyinconsistentorwildlyatvariancewiththedata. Thisinsightcoversatleast90percentofproposedeconomicpolicies. I'mnotgoingto tellyouthatmoneydoesn'tmatter,becauseyouwouldn'tbelievemeanyway. In fact,fortoomanypeoplearoundtheworld,moneyisliterallyalife-or-deathproposition. Butifyouarepartoftheluckyminoritywiththeabilitytochoose,rememberthatmoneyisameans,notanend. Acareerdecisionbasedonlyonmoneyandnotonloveoftheworkoradesire to makeadifferenceisarecipeforunhappiness. Nobodylikestofailbutfailureisanessentialpartoflife andoflearning. Ifyouruniformisn'tdirty,youhaven'tbeeninthegame. Ispokeearlieraboutdefinitionsofpersonalsuccessinanunpredictableworld. Ihopethatasyoudevelopyourowndefinitionofsuccess,youwillbeabletodoso,ifyouwish,withaclosecompaniononyourjourney. In makingthatchoice,rememberthatphysicalbeautyisevolution'swayofassuringusthatthe otherpersondoesn'thavetoomanyintestinalparasites. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

  16. P age |16 Don'tgetmewrong,Iamallforbeauty,romance,andsexualattraction--wherewouldHollywoodandMadisonAvenuebewithout them? Butwhileimportant,thosearenottheonlythingstolookforinapartner. Thetwoofyouwillhavealongtriptogether,Ihope,andyouwillneedeachother'ssupportandsympathymoretimesthanyou cancount. Speakingassomebodywhohasbeenhappilymarriedfor35years,Ican'timagineanychoicemoreconsequentialforalifelongjourneythanthechoiceofatravelingcompanion. 10.Callyourmomanddadoncein awhile. Atimewillcomewhenyouwillwantyourowngrown-up,busy,hyper-successfulchildrentocallyou. Also,remember whopaidyourtuition toPrinceton.Thosearemysuggestions. They'reprobablyworthexactlywhatyoupaidforthem. Buttheycomefromsomeonewhosharesyouraffectionforthisgreatinstitutionandwhowishesyouthebestforthefuture. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

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

  18. P age |18 ThedraftreportfordiscussionwaspreparedbyateamchairedbyMartin J.Gruenberg(USFederalDepositInsuranceCorporation),comprisingAlessandradeAldisio(BankofItaly),BaderT.Alsudairi(SaudiArabianMonetary Agency),FeltonC.Booker(USFederalReserveBoard),ChristineHauner(BaFinGermany),KatharinaHartmann(GermanFederalMinistryofFinance),JunichiKashiyama(JapanFinancialServicesAgency),BarryKing(UKFinancialServicesAuthority),VincentLee(HongKongMonetaryAuthority),Mike Mercer(CanadaDepositInsuranceCorporation),GeofMortlock(AustralianPrudentialRegulatoryAuthority),LiuQin(People’sBankofChina),RetoSchiltknecht(FINMASwitzerland),VirginiaRutledge(InternationalMonetaryFund),andDavidScott(WorldBank).DavidHoelscher,CostasStephanouandRuthWalters(FSBSecretariat)providedsupporttothe teamandcontributed to thepreparationofthepeerreviewreport. Definitionsofkeytermsusedinthereport “Bail-inwithinresolution”– restructuringmechanismstorecapitaliseafirminresolutionoreffectivelycapitaliseabridgeinstitution,underspecifiedconditions,throughthewrite-down,conversionorexchangeof debtinstrumentsandotherseniororsubordinatedunsecuredliabilitiesofthefirminresolutioninto,orfor,equityorotherinstrumentsinthatfirm,theparentcompanyofthatfirmoranewlyformedbridgeinstitution,asappropriate to legalframeworksandmarketcapacity. “Bail-out”–anytransferoffundsfrompublicsourcestoafailedfirmoracommitmentbyapublicauthoritytoprovidefundswithaviewtosustainingafailedfirm(forexample,bywayofguarantees)thatresultsinbenefittotheshareholdersoruninsuredcreditorsofthatfirm,ortheassumptionofrisksbythepublicauthoritythatwouldotherwisebebornebythefirmanditsshareholders,wherethevalueofthefundstransferredisnotrecoupedfromthefirm,itsshareholdersandunsecuredcreditorsor,ifnecessary,thefinancialsystemmorewidely,or wherethepublicauthorityisnotcompensatedfortherisksassumed. “Bank”–anyfirmthattakesdepositsorrepayablefundsfromthepublic,andthatisdefinedbytherelevantnationallegislationasabank. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

  19. P age |19 “Bridgeinstitution”–anentity,authorisedorlicensedinaccordancewithanyapplicablerequirementsundernationallaw,thatisestablished totemporarilytakeoverandmaintaincertainassets,liabilitiesandoperationsofafailedfirmaspartoftheresolutionprocess. “Early terminationrights”– contractualacceleration,terminationorotherclose-outrightsin financialcontractsheldbycounterpartiesofafirmthatmaybetriggeredontheoccurrenceofaneventorcircumstancessetoutinthefinancialcontract,suchasaninsolvencyeventortheentryintoresolutionofthefirm. “Entryintoresolution”– theformaldeterminationby therelevantauthorityorauthoritiesthatafirmmeetstheconditionsforentryintoresolutionandthatitwillbesubjecttoresolutionpowers. “Financialcontract”– anysecuritiescontract,commoditiescontract,forwardcontract,repurchaseagreement,optionscontract,swapagreementandanysimilaragreementthat,in every case,isexplicitlyidentifiedunderthelegalframeworkofthejurisdictionassubjecttodefinedtreatmentinresolutionandinsolvency(forexample,inrelationtoearly terminationrightsortopreservetheeffectofnettingagreements)thatisdistinctfromother(non-financial)contracts. “Financialconglomerate”– anygroupofcompaniesundercommoncontrolordominantinfluence,includinganyfinancialholdingcompany,thatconductsmaterialfinancialactivitiesin atleasttwooftheregulatedbanking,securitiesor insurancesectors. “Financialfirm”or“financialinstitution”– anyentitytheprincipalbusinessofwhichistheprovisionoffinancialservicesortheconductoffinancialactivities,including,butnotlimitedto,deposit-taking,creditintermediation,insurance, investmentorsecuritiesbusinessoroperatingfinancialmarketinfrastructure. “Financialgroup”–agroupcomposedofentitieswhoseprimaryactivitiesarefinancial in nature. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

  20. P age |20 “Financialmarket infrastructure(FMI)”– amultilateralsystem amongparticipatingfinancialinstitutions,includingtheoperatorofthesystem,usedforthepurposes of,clearing,settlingorrecordingpayments, securities,derivativesorotherfinancialtransactions. Itincludespaymentsystems,centralsecuritiesdepositories,securitiessettlementsystems,CentralCounterparties(CCPs),andtraderepositories. “Firm inresolution”– afirmin relationtowhichresolutionpowersarebeingexercised. Whereresolutionpowershavebeenexercisedin relation to afirm,thatfirmisconsideredtobe“inresolution”foraslongasitremainssubjecttomeasurestakenorsupervisedbyaresolutionauthorityortoinsolvency proceedingsinitiatedbytheresolutionauthority. “Group”– aparentcompany(whichmaybeaholdingcompany)anditsdirectandindirectsubsidiaries,bothdomesticandforeign. “Holdingcompany”or“financialholdingcompany”(ofafinancialgrouporconglomerate)– acompanythatisformedtocontrolfinancialfirms. Thisconceptcoversintermediateorultimatecontrol. “Homejurisdiction”–thejurisdictionwheretheoperationsofafinancialfirmor,in thecaseofaG-SIFI,itsglobaloperations,aresupervisedonaconsolidatedbasis. “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,includingformal correctiveaction,takenbysupervisoryorresolutionauthoritiesinresponse to weaknessesinafinancialfirmpriortoentryintoresolution. “Legalframework”– thecomprehensivelegalsystemforajurisdictionestablishedbyanycombinationofthefollowing:aconstitution;primarylegislation enactedbyalegislativebodythathasauthorityinrespectofthatjurisdiction;subsidiarylegislationadoptedunderthe primarylegislationofthatjurisdiction;orlegalprecedentandlegalproceduresofthatjurisdiction. “Protectionscheme”– anyschemeorfundthatprotectsdepositors,insurancepolicy holdersorinvestors,asthecasemaybe,fromspecifiedlossesthattheymightotherwiseincurasaresultofthefailureofafinancialfirm. “Publicownership”– ownershiporcontrolofanentitybyapublicauthorityorotheremanationoftheState. “Resolution”– anyactiontakenbyapublicauthorityinrespectofafirmthatmeetstheconditionsforentryintoresolution,includinginparticulartheexerciseofaresolutionpowerspecifiedinKA3,withorwithoutprivatesector involvement,withtheaimofachievingoneormoreofthestatutoryobjectivesofresolution. Resolutionmayincludetheapplicationofproceduresunder insolvencylaw to partsofafirmin resolution, in conjunctionwiththeexerciseofresolutionpowers. “Resolutionauthority”– anauthoritythat,eitheraloneortogetherwithotherauthorities,isresponsiblefortheresolutionoffirmsestablishedinitsjurisdiction(includingresolutionplanningfunctions). Referencesinthisdocumenttoa“resolutionauthority”shouldbereadas “resolutionauthorities”inappropriatecases. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

  22. P age |22 “Resolutionpowers”– powersavailabletopublicauthoritiesunderthelegalframeworkandresolutionregimeforthepurposesofresolution,including inparticularthosesetoutin KA3. “Resolutionregime”– theelementsofthelegalframeworkandthepoliciesgoverningtheapplicationofresolutionpowersbynationalauthorities. Thismayconsistofsector-specificstatutesandrules,ormayconsistofasingleregimecoveringallfirms. TheKAsareneutralas to theformoftheregime,providedthatallfirmsthatcouldbesystemicallysignificantorcriticalintheeventoffailurearesubjecttoaneffectiveresolutionregime. “Systemicallyimportantfinancialinstitution”– afinancial institutionorgroupthat,becauseofitssize,complexityandsystemicinterconnectedness,would,intheviewoftherelevantauthorities,causesignificantdisruption to thedomesticorbroaderfinancialsystemandeconomicactivityifitweretofailinadisorderlymanner. “Systemicallysignificantorcritical”– anactivityoroperationissystemicallysignificantorcriticalifitsinterruption,suspensionordiscontinuationcouldleadtoadisruptionofservicesvitalforthefunctioningofthefinancialsystemorrealeconomy ExecutiveSummaryBackground Theglobalfinancialcrisisdemonstratedtheurgentneedtoimproveresolutionregimessoas toenableauthoritiestoresolvefailingfinancialinstitutions(FIs)quicklywithoutdestabilisingthefinancialsystemorexposingtaxpayerstolossfromsolvencysupport. Followingthecrisis,theFSBpublishedtheKeyAttributesofEffectiveResolutionRegimesforFinancialInstitutionsaspartofthepackageof policymeasurestoaddressthemoralhazardrisksposedbysystemicallyimportantfinancialinstitutions(SIFIs). InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

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

  24. P age |24 Forexample,theproposedEuropeanUnion(EU)Directiveonrecoveryandresolutionforbanksandinvestmentfirms,onceapproved,willrepresentamajorstepforwardin aligningtheresolutionregimesofEUmemberstateswiththeKAs. ResolutionregimesacrossFSBmemberjurisdictionsexhibitabroadrangeofpracticesintermsofscope,mandatesandpowersofauthorities.Thisistobeexpected. TheKAsdonotprescribethespecificformoftheresolutionregimeorparticulartypeofresolutionauthorityaslongasthatregimeisconsistentwiththeKAs. However,jurisdictionssometimeshavedifferentinterpretationsofwhatconstitutesa‘resolutionregime’anditsrelationshiptoordinaryinsolvencyregimesandpowersforordinarysupervisorypurposes. Thisdivergenceininterpretation canmakeitdifficulttodrawdefinitiveconclusionsaboutthealignmentofnationalpowersacrossdifferentsectorswiththeKAs. AdditionalclarificationandguidanceontheapplicationoftheKAsisthereforenecessarytoassistjurisdictionsin implementation,facilitatemonitoring,andensureconsistencyinassessmentsofcompliancewiththeKAs. AnumberoffeaturesofresolutionregimesinFSBjurisdictionsarebroadlyconsistentwiththeKAs. In particular,alljurisdictionsareable tousesomeoftheresolution powersspecifiedinKA3in relationtobanks,althoughtheyarenotexercisedin allcasesbyadministrativeresolutionauthorities. Nearlyalljurisdictionshaveavailableoneorbothoftheresolutionpowersspecifiedin KA3for insurers(portfoliotransferandrun-off),althoughinseveralcasesthosepowersareexercisedbyacourt-appointedadministratororliquidator inthecontextofawindup. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

  25. P age |25 Mostjurisdictionsaccompanyresolutionpowerswithsomeofthesafeguardsspecified in KA5,suchasrespectforthehierarchyofclaimsandarightforcreditors to judicialreviewofresolution actions. Finally,manyjurisdictionsreportthatthey can achieveatleastsomeoftheobjectivesoftheKAsthroughexistingsupervisorypowers– for example,powerstodeveloprecoveryandresolutionplans(RRPs)ortorequireresolvabilityassessmentsforcertainFIs. Nevertheless,therearesignificantdivergencesfrom,orinconsistencieswith,theKAsthatneedtobeaddressed. Moreover,additionalclarificationandguidanceontheapplicationoftheKAsisneededin anumberofareastofacilitateprogress. Themainareaswherefurtherenhancementofresolutionregimesbynationalauthorities,oradditionalguidancebytheFSBandrelevantstandard-settingbodies(SSBs),maybenecessaryareasfollows: Comprehensiveresolutionpowersforbanks–KAs1and3(seerecommendation1a):Althoughresolutionregimesaregenerallymoredevelopedforbanksthanforotherfinancialinstitutions,fewjurisdictionshaveequippedadministrativeauthoritieswiththefullsetofpowerstoresolvebankssetoutin KA3. Forexample,veryfewauthoritieshavethestatutorypowerbothtowritedownand toconvertliabilitiesofafailinginstitution(bail-inwithinresolution). Moreover,insomecasesresolutionactionsmayrequirecourtapprovalorthecooperationofthefailingfirmoritsshareholders,whileinothercasesresolutionactions,suchasthetransfersofassetsandliabilities,arecarriedoutbyanadministratorthatmayneitherbemandated to achievetheobjectivesintheKAsnorsubjecttodirectionbytheresolutionauthority. Resolutionregimesfornon-bankFIs–KA1(seerecommendations1band2b):Resolutionregimesaremostadvancedforbanksand InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

  26. P age |26 progressivelylesssofor insurers,securitiesor investmentfirmsand FMIs,wherebothmandatesandpowersfallwellshortofthestandardsintheKAs. Thisinpartreflectsthelessadvancedstateofguidanceontheapplication oftheKAs tothosesectors. Forexample,inmanyFSBjurisdictionsthereisnodesignatedadministrativeresolutionauthorityforsecuritiesor investmentfirmsand FMIs. Powersfornon-bankFIsareoftensupervisoryinnatureanddonotachievetheoutcomesspecifiedintheKAsorarelimitedtofirmliquidationorwindupattheinstigationofthesupervisoror, in some cases,throughsomeformofspeciallyadaptedinsolvencyregime. Powerstoresolvefinancialgroups–KA1.1(seerecommendations1c,1d,2cand2d):MostFSBjurisdictionslackpowers totakecontroloftheparentoraffiliatesofafailedFI,problemforG-SIFIs that tend tohaveintegratedandhighlycomplexstructures. FurtherclarityastothenatureofpowersneededforFHCs,non-regulatedoperationalentitiesandbranchesofforeignFIswouldalsobedesirabletoensureaconsistentapproach. Inaddition,fewjurisdictionshaveinplaceacoordinationframeworkthatdesignatesalead authoritywheretwo ormoredomesticresolutionauthoritiesareresponsibleforresolvingdifferententitiesofafinancialgroupwithinthesamejurisdiction. 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,theabilityofexistingmechanismsinmanyjurisdictions togiveeffect to foreignresolutionactionsremainsunclear. Veryfewjurisdictionshaveprovisionsforexpedited(administrativeorcourt-based)proceduresforrecognitionandenforcementofactionstaken byforeignauthorities. Thisisamajorweaknesssinceitmayunderminethelegalcertaintyofresolutionactionsinrelationtoassetsandliabilitiesinotherjurisdictionsandtherebyjeopardisetheeffectiveimplementationofresolutionstrategiesforcross-bordergroups. Informationsharingforthepurposesofresolution–KAs7.6,7.7and12(seerecommendation1f):FewFSBjurisdictionshaveclearanddedicatedstatutoryprovisionsfordomesticauthoritiestoshareconfidentialinformationwithforeignresolutionauthorities. Whilemostjurisdictionsrelyonexisting powers todisclosenon-publicinformationforsupervisorypurposes,thesepowersmaynotbesufficientlybroadtoallow suchinformation tobesharedwithalldomesticandforeignauthoritiesthatarenotsupervisorsbuthavearesponsibilityforplanningorcarryingoutresolution. Unlesshomeandhostauthoritieshavethe capacitytosharesuchinformation,itisunrealistic to expectthemtomeaningfullydiscusscross-borderresolutionstrategiesandplansortocooperateeffectivelyinacrisis. Treatmentoffinancialcontractsinresolution–KA4(seerecommendation1g):Resolutionauthoritiesinmostjurisdictionseitherlackpowers to imposea temporarystayontheexerciseofcontractualaccelerationorearlyterminationrightsinfinancialcontractsthatarisebyreasononlyofentryintoresolutionor inconnectionwiththeexerciseof InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

  28. P age |28 resolutionpowersor, wherethepowerexists,itisnotsubjecttosuitablesafeguards. Funding–KA6(seerecommendation2f):Fundingarrangementsdiffergreatlyacrosssectorsandjurisdictions. Mostjurisdictionsrelyonprivatelyfundedprotectionfundstofinanceresolutionactions,butitisnotclearwhethersucharrangementsareadequateorappropriateinscaleorscope. PublicfinancialsupportthereforeremainsanimportantcomponentofresolutionfundingarrangementsforSIFIs.Mechanismsfortherecoveryofpublicfundsarenotwelldeveloped,whileconditionsontheirusearelargelyabsent. Recoveryandresolutionplanningand actions to improveresolvability–KAs10and11(seerecommendations1h,1iand2g):Inmostjurisdictions,thereisnoexplicitrequirementinstatuteorrulesforRRPsfordomesticSIFIs. Moreover,mostauthoritieslackthepower to requirefirmstomakechangestotheirorganisationalandfinancialstructuressolelyin ordertoimprovetheirresolvabilityandin advanceofresolution. Operationalcapacity toresolvecomplexSIFIs–KA2(seerecommendation2h):Howevergoodaresolutionregimemightlookinstatute,itwillnotbeeffectiveunlessthenationalauthoritiesresponsibleforresolutionhavetheoperationalcapacity–includingstaffwiththeappropriatelevelandrangeofexpertise,andadequateresources–toresolvecomplexfinancialgroupsandSIFIs. Thiscriticaldimension cannotbeverifiedin adesktopexercisesuchasthepeerreviewandwillneed to beassessedinon-siteIMF-WorldBankcountryassessmentsusingsuitablecriteriain theassessmentmethodologyfortheKAs. RigorousmonitoringofimplementationprogressinaligningresolutionregimesinFSBjurisdictionswiththeKAs(seerecommendation3): InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

  29. P age |29 SeveralFSBjurisdictionsareimplementingorconsideringreformstotheirresolutionregimes. Giventheearlystageofthosereforms,arigorousmonitoringframeworkneedstobedevelopedtoensurecomprehensivereportingofprogressbyjurisdictionsin aligningtheirresolutionregimeswiththeKAs. Whilefuture“deepdive”peerreviewswillbeusefulinthatregard,theyshouldbecomplementedbyregularreportsusingastandardisedtemplatetoenhancethereportingofimplementationprogressbyjurisdiction,sectorandKA. Recommendations Basedontheabovefindingsofthepeerreview,therearethreesetsof recommendationsforimplementationbytheFSBitselforrelevantmemberjurisdictions(seebelow). WorkonsomeoftherecommendationsaddressedtotheFSBisalreadyunderway. Mostoftherecommendationsthatinvolve actionsbynationalauthoritiescan – andshould– beimplementednowwithoutwaitingforadditionalFSBguidance. Jurisdictionsmayconsiderestablishingaphasedreformprogram toaddresstheissuesidentifiedbelow. In somecases,earlyworkonresolutionplanningandresolvabilityassessments,includingtheintroductionofresolutionplanningrequirements to allfirmsthatcouldhaveanimpactonfinancialstabilityintheeventoffailure,mayrevealspecificweaknessesorgapsin thepowersneededforeffectiveresolutionandtherebyassistjurisdictionsinthedevelopmentofsuchaprogram. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

  30. P age |30 Recommendation1:FullimplementationoftheKeyAttributes(KAs) FSBmemberjurisdictionsshouldundertakethefollowingactionstointroduce,orrevisetheirexisting,resolutionregimesforfinancialinstitutionsin ordertofullyimplementtheKAs: Reviewing,andrevisingasneeded,resolutionregimesforbankstoensurethatallthepowerssetoutinKA3,including powerstotransferassetsandliabilitiesandpowers towrite-downandconvertdebtwithinresolution,areavailable to administrativeresolutionauthorities; Reviewingtheadequacyandeffectivenessofresolutionregimesfornon-bankFIs,andadoptinganynecessaryreformstoensurethatadministrativeresolutionauthoritieswith adequatepowersaredesignatedforthoseinstitutions; Extendingthescopeofresolutionregimestofinancialholdingcompanies,non-regulatedoperationalentitiesthataresignificant tothecriticalfunctionscarriedoutwithinthegroup,andbranchesofforeignfinancialfirms; Wheremultipleresolutionauthoritiesexist,strengtheningcoordinationframeworksanddesignatingalead authorityforresolvingdomesticentitiesofthesamegroup; Enhancingthemandatesand capacityofresolutionauthoritiestocooperateandcoordinatemeasuresacrossborders; Reviewingthedomesticlegalframeworkforinformationsharing,andrevisingitasneededto ensurethatdomesticauthorities canshareinformationwithallrelevantdomesticandforeignauthoritiesforplanningandcarryingoutresolution; Introducingpowers to imposeatemporarystayontheexerciseofcontractualaccelerationorearlyterminationrightsinfinancialcontracts,subjecttosuitablesafeguardsasdescribedinKA4andAnnexIV to theKAs; InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

  31. P age |31 h.IntroducingaRRPrequirementforalldomesticallyincorporatedfirmsthatcouldbesystemicallysignificantorcriticaliftheyfail;and i.Empoweringsupervisoryorresolutionauthoritiestorequirefinancialinstitutions to adoptchanges totheirstructure,organisationorbusinesspracticeswhereitisnecessarytoimprovetheirresolvability. Recommendation2:Additionalclarificationandguidanceon theapplicationoftheKAs TheFSBshouldprovideadditionalclarificationandguidanceontheapplicationoftheKAsto assistjurisdictionsinimplementation,facilitatemonitoring,andensureconsistencyinassessmentsofcompliancewiththeKAs,by: Clarifyingthenatureofresolutionpowersascomparedwiththeordinarycorporateinsolvencyregimeandpowersforordinarysupervisorypurposes; WorkingwithSSBs todevelopguidanceonthefeaturesandpowersnecessaryforresolutionregimesineachnon-bankfinancialsectortomeetthestandardsoftheKAs; DevelopingguidanceonthenatureofpowersneededforFHCs,significantnon-regulatedoperationalentities,andbranchesofforeignfinancialfirms; Developingguidanceandidentifyinggoodpracticesforcoordinationwheretwo ormoredomesticresolutionauthoritiesareresponsibleforresolvingentitiesofthesamefinancialgroup; Takingstock ofmechanismstogiveeffectto foreignresolutionmeasures–suchasadministrativeandjudicialpowersofrecognitionandcontractualmechanismsrequiringcounterpartiestorecognisetheexerciseofpowersbyaforeignresolutionauthority–andevaluatingtheireffectiveness(e.g. intermsoftimingandpredictability)intheimplementationofcross-borderresolutionstrategies; InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

  32. P age |32 • Takingstock ofresolutionfundingarrangementsacrossjurisdictionsandidentifyinggoodpracticessothat temporarypublicfundingdoesnotgiverisetomoralhazardandissubjecttoconditionsandmechanismsforrecoveryfromprivatesectorsources; • Clarifyingthenatureandscopeofthepowersthatauthoritiesshould have to requirefirmsto takemeasurestoimprovetheirresolvability;and • EnsuringthattheassessmentmethodologyfortheKAscontainssuitablecriteriatoassesstheoperationalcapacityofresolutionauthorities. • Recommendation3:On-going implementationmonitoring • TheFSBshouldundertakemonitoringandreportingontheimplementationoftheKAsby: • Developingastandardisedreportingtemplatetofacilitatetheanalysisofimplementationprogressbyjurisdiction,sectorandKA; • Undertakingfollow-uppeerreviewsfocusedonresolutionpowers,cross-bordercooperationandinformationsharing,andrecoveryandresolutionplanning;and • Carryingout, in coordinationwithrelevantSSBs,peerreviewsontheapplicationoftheKAstoindividualnon-bankingsectors(insurance,investmentandsecuritiesfirms,FMIs)oncerelevantguidancebythosebodiesisissued. • Introduction • Background • Theglobalfinancialcrisisdemonstratedtheurgentneedtoimproveresolutionregimessoas to enableauthoritiestoresolvefailingfinancialinstitutionsquicklywithoutdestabilisingthefinancialsystemorexposingtaxpayers to lossfromsolvencysupport. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

  33. P age |33 Followingthecrisis,anumberofjurisdictionshaveadopted,orarecurrentlypreparing,legislation to strengthentheirresolutionregimes,whilesomeprogresshas alsobeenmadeinestablishingcrisismanagementgroups(CMGs)forglobalsystemicallyimportantfinancialinstitutions(G-SIFIs)andenhancingcross-bordercooperation. TheFSBadoptedtheKeyAttributesofEffectiveResolutionRegimesforFinancialInstitutionsin November2011aspartofthepackageof policymeasurestoaddressthemoralhazardrisks posedbySIFIs. TheKeyAttributes(KAs)representanewinternationalstandardthatsetsoutthecoreelementsofeffectiveresolutionregimesthatapply to anyfinancialinstitutionthatcouldbesystemicallysignificantorcriticalifitfails(seeBox1). Workisongoingacrossanumberofresolution-relatedworkstreams. TheseincludethedevelopmentbytheFSBofanassessmentmethodologyfortheKAswhichcontainsexplanatorymaterialandadditionalguidanceonvarious aspectsofrecoveryandresolution planning;andworkbytherelevantstandard-settingbodies(SSBs)– namely,theCommitteeonPaymentandSettlementSystems(CPSS)andtheInternationalOrganisationofSecuritiesCommissions(IOSCO),andtheInternationalAssociationofInsuranceSupervisors(IAIS)– on,respectively,theapplicationoftheKAstofinancialmarketinfrastructure(FMI)andinsurers. Resolutionregimeshavebeenidentifiedasapriorityarea undertheFSBCoordinationFrameworkforImplementationMonitoring. Asaresult,theimplementationoftheKAsbyFSBmemberjurisdictionswillundergointensivemonitoringanddetailedreporting. Toensuretimelyandeffectiveimplementation,theFSBwillcarryoutaniterativeseriesofpeerreviewsontheimplementationoftheKAs. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

  34. P age |34 Box1:KeyAttributesofEffectiveResolutionRegimesforFinancialInstitutions TheKeyAttributessetoutthecoreelementsthatthe FSBconsiderstobenecessaryforaneffectiveresolutionregime. Theirimplementationshouldallow authorities to resolvefinancialinstitutionsin anorderlymannerwithouttaxpayerexposuretolossfromsolvencysupport,whilemaintainingcontinuityoftheirvitaleconomicfunctions. Theysetoutessentialfeaturesintwelveareasthatshouldbepartoftheresolutionregimesofalljurisdictions,whichrelateto: Scope Resolutionauthority Resolutionpowers Set-off,netting,collateralisation,segregationofclientassets Safeguards Fundingoffirmsinresolution Legalframeworkconditionsforcross-bordercooperation CrisisManagementGroups(CMGs) Institution-specific cross-bordercooperationagreements(COAGs) Resolvabilityassessments Recoveryandresolutionplanning Access to informationandinformationsharing. NotallresolutionpowerssetoutintheKeyAttributesaresuitableforallsectorsandallcircumstances. TopromoteeffectiveandconsistentimplementationacrossjurisdictionstheFSBwillcontinue to workwithitsmembers todevelopfurtherguidance,takingintoaccounttheneedforimplementationtoaccommodatedifferentnationallegalsystemsandmarketenvironmentsandsector-specificconsiderations(e.g.insurance,FMIs). TheKeyAttributesalsocontainspecific requirementsforresolvabilityassessments,recoveryandresolutionplanning,andthedevelopmentof InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

  35. P age |35 • COAGsbetweenhomeandhostauthorities,whichmustbemetforG-SIFIs. • AnnexesItoIVofthedocumentprovidemorespecificguidancetoassistauthoritiesinimplementingtheKeyAttributeswithrespectto: • COAGs(AnnexI) • Resolvabilityassessments(AnnexII) • RecoveryandResolutionPlans(AnnexIII) • Temporarystaysonearly terminationrights(AnnexIV). • 2.Objectives andscopeofthereview • TheobjectiveofthepeerreviewistoevaluateFSBmemberjurisdictions’existingresolutionregimesandanyplannedchangestothoseregimesusingtheKAsasabenchmark. • Thereviewprovidesacomparativeanalysisoftheoveralllegal,institutionalandpolicy frameworkofexistingresolutionregimes,both acrossindividualKAsandacrossdifferentfinancialsectors(banking,insurance,securitiesorinvestmentfirms,andFMIs). • In doingso,thereviewhasmadeuseofthedraftassessmentmethodologyfortheKAsthatiscurrentlyunderpreparation. • Thebroadscopeofthereviewismotivatedbythefactthatitisthefirstinanumberofproposedthematicpeerreviewsinthisarea. • SincetheKAswereonlyrecentlydevelopedasaninternationalstandard,theireffectiveimplementationwillrequiresubstantialfollow-upworkbynationalauthorities,SSBsandfirms, includinglegislativechangesin manyjurisdictions. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

  36. P age |36 ThereviewfocusesprimarilyonthoseKAsthatcoverthecoreprovisionsofnationalresolutionregimesapplicableto anyfinancialinstitutionthatcouldbesystemicallyimportantorcriticalifitfails. TheseareKA1(scopeofresolutionregime),KA2(existence,mandateandgovernanceofresolutionauthorities),KA3(resolutionpowers)andKA6(fundingarrangementstosupportresolution). ThepeerreviewalsocoversotherprovisionsinnationalresolutionregimesinlessdepthsoastoavoidunnecessaryoverlapswithworkundertakenbyotherFSBworkstreams. TheseincludeKA4(legalframeworkgoverningset-offrights,contractualnetting,collateralisationarrangements,andsegregationofclientassets),KA5(existenceofsafeguards),KA7(legalframeworkforcross-bordercooperation),andKA12(accesstoinformationandinformationsharing). KA10(resolvabilityassessments)andKA11(recoveryandresolution planning)arecoveredonlyasregardstowhethernationalauthoritieshavedevelopedframeworks forcarryingoutresolvabilityassessmentsandrecoveryandresolutionplanningforfinancialinstitutions(FIs)intheirjurisdiction. Thereviewdoesnotexamine theimplementationofthoseattributesforindividualG-SIFIs anddoesnotincludeKA8(crisismanagementgroups)andKA9(institution-specific cross-borderagreements)thatapplyonly to G-SIFIs. ThedepthofcoverageacrosssectorsreflectsdifferencesinreformstoresolutionregimesandprogressinpolicyworkbyrelevantSSBsacrossthosesectors. Asignificantpartofthereviewisdedicatedtobanking,sincemostoftheresolution-relatedreformsin recentyearshavebeenfocusedonthatsector. Thereviewgivesdueconsiderationtosectoralspecificitiesandrecognisesthatnotall powersandcharacteristicsofresolutionregimes InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

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

  38. P age |38 In somecases,thebanks wererelativelysmallanddomesticallyoriented,butweredeemed tobesystemicintheprevailingfinancialmarketenvironment. Mostofthosejurisdictionstook actionunderexistingsector-specificpowers to restructureandwind-upfailingFIs. In anumberofcasesthosepowersandauthoritiesprovedinadequate,leadingsomejurisdictionsto adoptemergencylegislation toenable thenecessaryresolutionactions. In theUnitedKingdom(UK),emergencylegislation enabledtheresolutionofseveralbanksthroughnationalisation,thetransferof depositsandassetstothirdpartiesandtheestablishmentofbridgebanks;thetime-limitedemergencylegislationwassubsequentlyreplacedwithanewstatutoryspecialresolutionregime. In theUnitedStates(US),emergencylegislationenabledthepurchaseoftroubledassetsfromFIs. Germanyrecapitalisedbankswithstatefundsandrestructuredthem,includingbytransferringbadassetstoassetmanagementcompanies(AMCs)throughanewlyestablishedagencythatprovidedthenecessaryfundingand actedasumbrellafortheAMCs. TheNetherlandsadoptedlegislationfortherecapitalisationortransferofassetsandliabilitiesofbanksor insurersto anotherFIorabridgeinstitutionandtheinterventioninaparentorholdingcompany. TheSwissauthoritiesreinforcedthecapitalbaseofasystemicbankbysubscribingto mandatoryconvertiblenotesandfinancingthetransferofsomeofthebank’silliquidassetstoaspecialpurposevehicle;theseactionswereimplementedthroughemergencylegislation. FranceadoptedlegislationallowingstatefinancialsupporttobeprovidedtoFIs. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

  39. P age |39 Russia adoptedaspecialresolutionregimeforsystemicallyimportantbanksempoweringthedepositinsurertoprovide capitalandliquiditysupport. Spainadoptedlegislationestablishinganewresolutionauthoritywiththepowertorecapitaliseandrestructurebanks;severalsmallerbanks weregranted capitalandliquiditysupport,andweresold to otherbankswithassistancefromtheresolutionauthorityintheformofassetguaranteesandcapitalandliquiditysupport. FinancingfortheresolutionandrestructuringoffailingFIscamefrompublicsources–generallynationalgovernmentsandcentralbanks–withonlylimitedrecourse to theprivatesector. France,NetherlandsandtheUKreliedsolelyontreasuryfinancing. Russia reliedoncontributionsbythetreasuryandloansbythecentralbanktotheresolutionauthority. Somejurisdictions,includingFrance,GermanyandSpain,establishedspecialpublicentities to providefundingandexpertise. Afewjurisdictionsalsoreportedtheuseofprivatesectorfundsforresolutionactions,mainlyasaresultofusing industry-fundeddepositinsurancefunds. TheUSreliedonacombinationoftreasury,centralbankanddepositinsurerfunds. Mostjurisdictionsintend to recoupfinancialassistancebythesaleofFIsandassets acquiredinthecourseofresolutionactionsandtoreplenishdepositinsurancefundsthroughindustrycontributions. ThefinancialcrisishighlightedtheneedtosignificantlyenhanceexistingresolutionregimesinFSBjurisdictions. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

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

  41. P age |41 andinvestmentfirms,insurersandFMIs,besubjecttoaresolutionregimethathasthefeaturessetoutintheKAs. Inordertobecapableofresolvingfinancialgroups,thoseregimesshouldextend tobranchesofforeignFIs,financialholdingcompanies(FHCs),andnon-regulatedoperationalentitiesthataresignificant tothebusinessofafinancialgroup. AllFSBjurisdictionsreportthattheyhavespecificpowers torestructureand/orwindupbanks thataredistinctfromordinarycorporateinsolvency(seeTable1AinAnnexD),althoughtheextenttowhichthesector-specificregimesdifferfromordinarycorporateinsolvencyisnotalwaysclear. Eightjurisdictionsreportthattheuseofcertainpowersisrestrictedtosystemicallyimportantbanks. Mostjurisdictionsalsohavespeciallyadaptedinsolvencyregimesforinsurancefirmsthattypicallyrelyonacombinationofordinaryinsolvencylawsupplementedbypowersforsupervisoryauthorities(seeTable1B inAnnexD). Resolutionregimesforsecuritiesor investmentfirmsandFMIsareevenlesswellestablished. ThirteenFSBjurisdictionsindicatethattheyhavespecificpowerstorestructureand/orwindupsecuritiesor investmentfirmsoutsideofordinarycorporateinsolvency(seeTable1CinAnnexD),whileonlyeightjurisdictionsreporthavingsector-specificpowersinplaceforrestructuringand/orwindingupallorsomeclassesofFMI(seeTable1DinAnnexD). Threeofthosejurisdictions18notethat,wherecertainFMIs(suchasCCPs)areauthorisedasbanks,theyarecurrentlywithinthescopeofthatjurisdiction’sbankresolutionregime. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

  42. P age |42 WorkisongoingbyCPSSandIOSCOtoclarifyhow theKAsshouldbeappliedtoFMIs,soas to provideabasisforjurisdictionstodesignandimplementresolutionregimesforthissector. Itshouldbeemphasised,however,thatsector-specificpowers torestructureand/orwindupFIsarenotnecessarilyalignedwiththeKAs. In manycases,thereportedpowersaresupervisoryinnature,require theconsentofshareholdersorarelimitedtoliquidationorwindingupofthefirmattheinstigationofthesupervisoror,in somecases,throughsomeformofspeciallyadaptedinsolvencyregime. Thiswasespeciallythecaseinrelationtotherangeofpowersavailablein manyjurisdictionsinrespectofinsurers,securitiesorinvestmentfirms,andFMIs. ThesetypesofpowersareusefulsupplementstothecoreresolutionpowersoutlinedinKA3butdonotconstituteontheir ownaresolutionregimethatmeetsthestandardsoftheKeyAttributes. Whilemanyjurisdictionsreportthattheyhavespecificpowers torestructureandwindupholdingcompaniesthatareregulatedasbankingor insurancegroups,onlyeightofthemhavetheability to usethosepowersforFHCsthatarenotthemselvesabankorotherregulatedinstitution. Sucharestrictionwouldlimittheresolutionstrategiesavailable to dealwithafinancialgroup,andappropriateresolutionpowersshouldthereforeapplymorebroadlytonon-regulatedFHCs. In mostFSBjurisdictions,theresolutionframeworkcannotbeappliedtonon-regulatedoperationalentitieswithinafinancialgroup. Authoritiesinonlysevenjurisdictionshavedirectpowersinrelation tonon-regulatedoperationalentitiesthatcanbeexercisedintheresolution ofthewholeorapartofthefinancialgrouporconglomeratetowhichthoseentitiesbelong;thenatureofthosepowersalsovariesacrossjurisdictions. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

  43. P age |43 Non-regulatedoperationalentitiesmayprovideservicesthatarenecessaryforthecontinuityofsystemicallyimportantfunctionscarriedoutwithinthegroup,andalackofappropriatepowersinrelation to suchentitiesmayresultinanabruptwithdrawalofthoseservicesthatjeopardises theresolutionobjectiveofmaintainingthosefunctions. In amajorityofcases,authoritiesreportthattheyhavepowersoverbranchesofforeignfinancialinstitutions. In some cases,those powersarelimitedtoactionsundertheordinarycorporateinsolvencyregime(suchasthepowertoring-fencelocalassetsandrealisethemtomeettheclaimsofcreditorsofthebranch)underthejurisdictionorsupervisionofdomesticcourts. In manyjurisdictions,powersin respectofbranchesaremuchlesscomprehensivethanthoseavailableforlocallyincorporatedentities(seeKA7). 2.Resolutionauthority(KA2) KA2requiresjurisdictionstohaveadesignatedadministrativeresolutionauthority(orauthorities)thatis(are)operationallyindependentandadequatelyresourced. Thestatutoryobjectivesandfunctionsofresolutionauthorities shouldrequirethemtopursuefinancialstability,protectdepositors,insurancepolicyholdersandinvestors(asappropriate);avoidunnecessarydestructionofvalue;andconsiderthepotentialimpactoftheiractionsonfinancialstabilityinotherjurisdictions. Wherethereismorethanoneresolutionauthorityin ajurisdiction,theirrolesshouldbeclearlydefinedandcoordinated,andtheresolutionregimeshouldidentifyalead authoritytocoordinateresolutionofamulti-sectorfinancialgroupwithinthatjurisdiction. Responsibilityandpowersfortheresolutionof(atleastsome)FIsareconferredononeormorepublicauthoritiesin allFSBmemberjurisdictions(seeTable1). InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

  44. P age |44 Thedivisionofresolutionpowersandresponsibilitiesbetweenthoseauthoritiesvariesconsiderably:theKAsarenotprescriptiveinthisregard. Manyjurisdictionsconfertheprimaryresponsibilityandpowersfortheresolutionofbanksonsupervisoryauthoritieswithdifferentdegreesoffunctionalseparation,whiletheresolutionauthorityisseparatefromthemainsectoralsupervisor inonlyaminorityofcases. WhileallFSBjurisdictionsreportthattheirresolutionauthoritiesareoperationallyindependent,thishasnotbeenverifiedinthepeerreview. Fortheinsurancesector,almostallFSBjurisdictionscurrentlyhaveprudentialsupervisorsthatcaninterveneintroubledorfailinginstitutionsinavarietyofways(suchaslicensewithdrawal,appointmentofadministrator,orcourtpetitionforwindingup),althoughmostjurisdictionsrequirethecourts to appointanadministratororliquidatortocarryouttheresolution. In manyFSBjurisdictions,thereisnoadministrativeauthorityresponsibleforrestructuringandwindingupsecuritiesor investmentfirmsandFMIs. Thisreflectsthelimitedscopeandpowersforresolvingsystemicallyimportantnon-bankSIFIs undertheexistingregimes(seethediscussioninKAs1and3). Theinvolvementofpublicadministrativebodiesinthosesectorsrelatestotheirroleasmarketconductoroversightauthorities,withmeasurestoaddressormanagefailing institutionstypicallylimited to standardinsolvencyprocedures. Indeed, inmanycaseswherejurisdictionsreporttheexistenceofaresolutionauthorityforsecuritiesor investmentfirmsandFMIs,thatauthorityis actuallyasupervisorthatisonlyabletoexercisecertain powersunderasector-specificregimeforrestructuringorwindingup,butdoesnothavetheadministrativeresolutionpowersspecifiedinKA3. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

  45. P age |45 Aspreviouslynoted,thereareafewexceptionswheretheresponsibleauthorityhaspowersin relationtocertaincategoriesofFMIthataresimilartothoseforothertypesofFI. TheKAsrecognisethatnotallattributesandresolutionpowersarerelevantforallfinancialsectors;howeverthedesignationofanadministrativeauthorityorauthoritieswiththeresponsibility,powersandmeans to resolvesystemicallyimportantfirmsisanessentialelementofaneffectiveregimeacross allsectors. Whileresolutionmeasuresmaybeimplementedbyanadministratorthatisappointedandsupervisedbyacourt(asisthe caseinseveralFSBjurisdictions),theobjectivesofthatadministratorshouldbealignedwithKA2.3. In thosejurisdictionswithmultipleresolutionauthorities,nearlyall reporthavingsomeformofcoordinationarrangementsinplacebetweentheauthorities,althoughtheadequacyofthosearrangementshas notbeenanalysedinthepeerreview. However,severaljurisdictionsdonotappointa‘leadauthority’tocoordinatetheresolutionofdomesticentitiesofthesamegroup. Theresponsesofsomejurisdictionsindicatethattheboundariesbetweentherespectiverolesandresponsibilitiesofthoseauthoritieswithresolutionfunctionsarenotalwaysclear,whichmayhampereffectiveresolution. VeryfewjurisdictionshavestatutoryobjectivesinplacefortheirresolutionauthoritiesthatarefullyalignedwiththeKAs. However,manysuchauthorities(includingprudentialsupervisors,marketconductauthorities,centralbanks,financeministries,depositinsuranceandotherprotectionschemes)mayhavebroaderresponsibilitiesrelatedto financialstability,andtheobjectivesrelatingtotheirrolein resolutionmaynotnecessarilybereflectedinaseparatestatuteorotherpublicpolicydocument. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

  46. P age |46 Althoughnearlyallauthoritieshaveformalobjectives(oftennotrelatedspecifically totheirresolutionfunctions)tomaintainfinancialstabilityandprotectdepositorsor policyholders,mostdonothavemandates toavoiddestructionofvalue(beyondmaximisingrecoveriesinliquidation)ortoconsidertheimpactofresolution actionsonotherjurisdictions. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

  47. P age |47 3.Resolutionpowers(KA3) KA3setsouttherangeofresolutionpowersthatshouldbeavailableinresolutionregimes. Theseincludepowers totransferassets,rightsandliabilitiesof,orsharesin,failinginstitutions to apurchaser,bridgeinstitutionorassetmanagementcompany(AMC);towritedownandconvertdebtofthefirminresolution(bail-in);toappointanadministrator;andtooperatethefirminresolutionandtakeactionsnecessarytorestructureorwinddownitsoperations. Authoritiesresponsibleforresolving insurersshouldalsohavepowerstotransferportfoliosand“run-off”theinsurancebusinessofafirminresolution. Allpowersshouldbeexercisablewithoutanyrequirementforcreditorconsentorshareholderapproval. Regimesshouldprovideforresolutiontobetriggeredwhenafirmis,orislikelytobe,nolongerviable,andbeforeitisbalance-sheetinsolventandtheequityhasbeenfullywipedout. MostFSBjurisdictionsreportthattheyareabletoprovidefortimelyentryintoresolutionortheexerciseofresolutionpowersator beforethepointofnon-viability,andbeforethefirmisbalance-sheetinsolvent.In mostcases,thereportednon-viabilitytriggersforinsurers,securitiesorinvestmentfirmsandFMIsapplylaterthanforbanks,whichmaybeduetothefactthattheyreflecttriggersavailableundercorporateinsolvencyregimes. Jurisdictionsreportthatresolutionpowersareconsiderablymoredevelopedforbanks(seeTable2)thanfor insuranceand,especially,forsecuritiesor investmentfirmsandFMIs. WhilesomeoftheresolutionpowersspecifiedintheKAsmaynotbenecessarytoresolvecertaintypesofnon-bankFIs,nospecial powers InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

  48. P age |48 (outsideordinaryinsolvency)areavailableforsecuritiesor investmentfirmsandFMIsinmostjurisdictions. In allFSBjurisdictions,asupervisoryorresolutionauthorityhas thepowertoappointanadministratorortoapplytothecourtforsuchan appointment(seeTable2inAnnexD). InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

  49. P age |49 Thepowersofthatadministratorvary,butmostjurisdictionsreportthat theadministratorhasawiderangeofpowers,includingto operatethefirmand to manageordisposeofitsassets. In somecases,thepowersoftheadministratorarerestrictedtothepowersofthefirm’smanagement,whichsuggeststhattheadministratorcannotoverrideshareholders’rightsforactionsthatrequireshareholderapprovalundertheconstitutionoftheFIorapplicablecorporatelaw. In othercases,theadministratorhasthesamepowersastheappointingauthority,ortheauthorityisable to confersuchpowersontheadministrator. Mostjurisdictionsalsoprovideforpowerstotransferassetsandliabilitiesfromafailedbank. However,in manycasesthosepowersareexercisedbytheappointedadministratoranditisnotclearwhethertheadministratorcanbemandatedto achievetheobjectiveslaidoutintheKAs. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

  50. P age |50 Itisalsonotclearinallcaseswhethertransferpowerscanbeexercised(ifnotsanctionedbythecourt)withouttheneedforshareholderapprovalorcreditorconsent. Transferpowersaregenerallylesswell-establishedinthecaseofinsurers,andevenlesssointhecaseofsecuritiesor investmentfirmsandFMIs. In amajorityofjurisdictions,authoritieshave thepower toestablishandoperateabridgeinstitution,althoughthatpowerisnotalwaysbasedonexpressstatutoryauthority. In mostcaseswheretheuseofabridgeinstitutionisavailable,itisusedonlyforbanks;relativelyfewjurisdictionsreporthavingbridgepowersforinsurers,securitiesor investmentfirmsorFMIs. Similarly,inamajorityofjurisdictions,authoritieshavethepower toestablishanassetmanagementcompany,andtotransferassetsofafailingentityintoitalthough,aswithbridgeinstitutions,thispowerislargelyconfinedtothebankingsector. Bail-inwithinresolution,ascontemplatedbytheKAs,requirespowersthat enableauthoritiesto: writedownequityin andunsecuredcreditorclaimsagainstafirminresolutiontotheextentnecessary to absorbthelossesofthefirm;and convertallorpartsofunsecuredcreditorclaimsintoequityofthefirminresolution,itsparentcompanyoranysuccessorinresolution(suchasabridgeinstitution). Onlytwojurisdictionsreportthatbothpowersareconferredbystatuteontheirresolutionauthority,whileanotherjurisdictionreportsthatitisabletobothwritedownandconvertliabilitieswithinresolutionusingotherpowers. Severalotherjurisdictionsreportthatthey can achieve,atleasttosomedegree,theeconomiceffectofbail-inthroughexistingpowers,suchastransferandbridgebankpowers,althoughthosepowersalonearenot InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

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