The Institute of International Finance (IIF), together with the Global Financial Markets Association (GFMA), and the International Swaps and Derivatives Association (ISDA), today submitted a joint response to the Financial Stability Board’s (FSB) discussion paper on the topic of Solvent Wind-down (SWD) of derivatives and trading portfolios.
The discussion paper provides a good overview of many aspects of SWD planning and the capabilities that underpin a SWD and reflects on the lessons learned from the SWD requirements put in place in a number of jurisdictions over the past several years. However, as these exercises have been conducted on a standalone basis by regulators there is less knowledge on how SWD would work across jurisdictions. Reflecting on these at the FSB is a worthwhile activity that the Associations encourage, to enhance the understanding of the capabilities and approaches firms and regulators will need to coordinate and manage a cross border SWD. Discussions on these aspects should be held at the global level to enhance the understanding of the different approaches being taken, with a view to seeing greater consistency and cooperation between home and host authorities, ideally delivered through agreed guidance at the FSB level.
It is important in taking forward such guidance to acknowledge that SWD planning is not appropriate for all banks, nor in all scenarios, and that any SWD requirements – were they to be put in place – should be principles based, capabilities focussed, and fully align with firms’ preferred resolution strategies. The differences between existing SWD requirements extend to the objectives of a SWD, its focus, and how analysis is undertaken and assessed. Global alignment of SWD requirements in line with the single group resolution strategy is key to supporting any home-authority-led resolution, and we strongly encourage the FSB to place this at the centre of any future guidance, alongside the need for appropriate home-host consultation.