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Climate-Related Financial Risk Letter from FSB Chair to G20

In anticipation of a July 9th meeting, a letter from Financial Stability Board (FSB) Chair, Randal K. Quarles to G20 Finance Ministers and Central Bank Governors, was published highlighting remaining risks to financial stability associated with non-bank financial intermediation and money market funds, climate change, and transition away from LIBOR as prominent issues. Notably, the FSB Chair underlined the need for coordinated efforts to address financial risks related to climate change and requested endorsement from the G20 of a roadmap tasked with undertaking climate-related financial risks. “The roadmap outlines the work underway and still to be done by standard-setting bodies and other international organizations over a multi-year period in four key policy areas: disclosures, data, vulnerabilities analysis, and regulatory and supervisory approaches.”

On July 7, 2021, the FSB published three climate-related reports:

More information is available on the FSB Chair’s letter to the G20 and Central Bank Governors here.

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Financial Stability Board

Financial Stability Board Emphasizes Urgency to Transition from LIBOR

Today the Financial Stability Board (FSB) published a progress report to the G20 on LIBOR transition and remaining issues, highlighting the FSB’s priority to transition away from LIBOR, and underscoring that a majority of LIBOR settings will cease in less than half a year. “The FSB encourages authorities to set globally consistent expectations and milestones that firms will rapidly cease the new use of LIBOR, regardless of where those trades are booked or in which currency they are denominated. Market participants are urged to cease new use of LIBOR in all currencies as soon as practicable, respecting national working group timelines and supervisory guidance where applicable, and in any case no later than the end of 2021.”

FSB further urged market participants to complete steps laid out in the Global Transition Roadmap, and for supervisory authorities to increase efforts to communicate the scope and urgency of LIBOR transitions to all clients. The FSB has committed themselves to helping with the transition of those emerging markets and developing economies that are lagging behind.

More information on the FSB’s report to the G20 and general efforts to transition away from LIBOR are available here.  

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Financial Stability Board

Financial Stability Board Requests Response to Public Consultation on Cross-Border Payments

On May 31, 2021, the Financial Stability Board (FSB) announced they were seeking response to their public consultation, Targets for Addressing the Four Challenges of Cross-Border Payments. The global targets proposed are intended to improve cost, speed, transparency and access to cross-border payments via the FSB’s Roadmap for Enhancing Cross-border Payments. “The quantitative targets proposed are a foundational step in the G20 Roadmap for Enhancing Cross-border Payments, which was endorsed by G20 Leaders in November 2020."

The FSB expects individual targets to be met by end of 2027, however, remittance cost targets are set for 2030 by the United Nations Sustainable Development Group Goal (UN SDG), which is endorsed by the G20.

The FSB anticipates that a final report consisting of final targets will be completed by October of this year. By this date the FSB states they will have developed an “implementation approach for monitoring the targets that will set out:

  1. how targets will be measured and data sources and data gaps to be filled;
  2. how progress towards meeting the targets will be monitored; and
  3. the frequency of data collection and publication.”

More information on the FSB public consultation on cross-border payments can be found here and here.

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Financial Stability Board

Financial Stability Board Supports End of LIBOR by End of 2021

LIBOR is coming to an end. While many USD settings will continue until the end of 2023, the majority of LIBOR panel of global banks will cease by the end of 2021. In March, the ICE Benchmark Administration (IBA) and the Financial Conduct Authority (FCA) made confirmation of the dates that all LIBOR settings will discontinue. In response, the Financial Stability Board (FSB) has published several reports and publications supporting a “smooth transition” away from LIBOR by the end of 2021.

The FSB made recommendations for financial, non-financial sector firms, and authorities to consider by publishing the following statements and reports:

  • “An updated global transition roadmap that, drawing on national working group recommendations, summarises the high-level steps firms will need to take now and over the course of 2021 to complete their transition.
  • A paper reviewing overnight risk-free rates and term rates, building on the concept that the tools necessary to complete the transition are currently available. The FSB cautions market participants against waiting for the development of additional tools, in particular forward-looking term risk-free rates.
  • A statement on the use of the ISDA spread adjustments in cash products, to support transition particularly in loan markets, which remains an area of concern with much new lending still linked to LIBOR.
  • statement encouraging authorities to set globally consistent expectations that regulated entities should cease the new use of LIBOR in line with the relevant timelines for that currency, regardless of where those trades are booked.”

Additional information on the FSBs recommendations for LIBOR transition is available here.

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Financial Stability Board

Financial Stability Board Addresses G20 Regarding Covid-19, Too-Big-To-Fail and Climate Change

In anticipation of the April 7th meeting with the G20, on April 6, 2021, the Financial Stability Board (FSB) published a letter from Chair, Randall K. Charles entitled, To G20 Finance Ministers and Central Bank Governors. The letter discusses Covid-19 support ramifications, FSB's support of the progress made on Too-Big-To-Fail (TBTF) reforms for banks, and emphasizes the importance of focusing on climate change issues as they relate to financial services.

The letter includes mention of the report the FSB and delivered to the G20 on April 6, entitled, COVID-19 support measures Extending, amending and ending. Notably, the report states that “withdrawal of support measures before the macroeconomic outlook has stabilised could be associated with significant immediate risks to financial stability.” The FSB, however, maintains that support measures could exist past the point of being helpful and that financial stability risks will start to grow; but admittedly, the FSB acknowledges that “most authorities currently believe that the costs of premature withdrawal of support could be more significant than maintaining support for too long”, and that flexibility and a “state-contingent approach” could minimize risks.

The letter goes on to endorse TBTF reforms but highlights vulnerabilities within non-bank financial intermediation or NBFI (insurance firms, venture capitalists, currency exchanges, some microloan organizations, and pawn shops); and lastly, discusses sustainable finance and climate change issues. FSB deliverables to the G20 (due in July) include two reports “on ways to promote consistent, high-quality climate disclosures in line with the recommendations of the Task Force for Climate-related Financial Disclosures; and on the data necessary for the assessment of financial stability risks and related data gaps.” The FSB will also present a roadmap to the G20 on climate-related financial risk, and coordinate with the G20 in developing their sustainable finance roadmap.

More information on the FSB’s letter, To G20 Finance Ministers and Central Bank Govenors; and report on COVID-19 Support Measures Extending, Amending an Ending, can be viewed here.

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Financial Stability Board

Financial Stability Board Publishes Evaluation of Too Big to Fail Reforms for Systemically Important Banks

On March 31, 2021, the Financial Stability Board (FSB) published its final report entitled, Evaluation of the Effects of Too-Big-To-Fail Reforms, focusing their attention mainly on systemically important banks (SIBs). The objective of the evaluation is to examine “the extent to which the reforms have reduced the systemic and moral hazard risks associated with SIBs, as well as their broader effects on the financial system.”

While the report included mention of non-bank institutions, it largely focused on SIB reforms and how non-bank institutions function in proximity to them, stating that: “As SIBs face more stringent requirements, other banks and non-bank financial institutions would pick up market share and improve profitability relative to SIBs.”

The report goes on to articulate that “other intermediaries” including both banks and non-banks have contributed more than global systemically important banks to growth in the ratio of credit to GDP and hypothesized that “additional impact of the TBTF reforms on G-SIBs could have left space for growth by other intermediaries”; and that non-bank financial intermediation (NBFI) has substantial growth in total assets after the TBTF reforms. However, credit unions typically remain stable during economic hardship with no bearing on whether SIBs perform satisfactorily. The report waivers on its opinion of non-bank institutions and hypothesizes that more diversity within the financial system could support financial stability, but then conjectures that “a shift of credit provision activities to non-bank financial intermediaries could raise financial stability concerns.” Ultimately, the FSB concedes that the implications of non-bank institutions have not been fully evaluated and that they will work to address financial stability risks. World Council agrees and urges the FSB to study the impact of the “Too-Big-To-Fail” reforms on smaller financial institutions.  

FSB voiced the need to improve the resiliency of NBFI, asserting that “the events of March 2020 suggested that some parts of the NBFI system acted as propagators rather than mitigants of the stress.”  What the FSB should consider is that smaller, not-for-profit cooperative institutions such as credit unions, are more stable during times of economic hardship.  This is due to their not-for-profit status and ability to provide necessary services to the underserved community typically forgotten or ignored by SIBs. Credit unions provide a direct benefit to the financial market and should be given some deference as to the needs of these institutions by providing proportional reforms so that they can continue to thrive and contribute to market buoyancy.

More information on the final report can be viewed here and here.

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Financial Stability Board

Financial Stability Board Publishes 2021 Key Priorities

In anticipation of the FSB’s virtual meeting with the G20 Finance Ministers and Central Bank Governors on February 25, 2021, Chair, Randall K. Quarles drafted a letter outlining the FSB’s key priorities for 2021, which “address vulnerabilities directly related to COVID-19 and to increase resilience of non-bank financial intermediation (NBFI). It also aims to support strong, sustainable, and balanced growth in a post-COVID world.”

The FSB’s key priorities include:

  • Addressing COVID-19 related vulnerabilities. Including: Assessment of initial lessons learned from the COVID Event for financial stability; an April report on factors needed for an orderly unwinding of support measures; and publishing the final version of its evaluation of too-big-to-fail reforms for banks in April.
  • Increasing the resilience of NBFI. Includes: Examining and addressing specific risk factors that contributed to amplification of the March 2020 market turmoil; enhancing understanding of systemic risks in NBFI; investigating policies to address these risks; and delivering policy proposals to enhance the resilience of money market funds in July for public consultation.
  • Improving efficiency and access in cross-border payments. Including: October progress report on the implementation of the FSB roadmap to enhance cross-border payments; and an update on regulatory and supervisory approaches to global ‘stablecoins’.
  • Bettering our understanding of climate-related risks. Including: Expansion on report on the financial stability implications of climate change; coordinating with other SSBs to promote globally comparable, high-quality, and auditable standards of disclosure; and review of regulatory and supervisory approaches to address climate-related risks at financial institutions.
  • Addressing other financial stability topics of ongoing importance. Includes: Enhancing central counterparty resilience, recovery, and resolvability; exploring areas to harmonize cyber incident reporting; and ensuring a smooth transition away from LIBOR by end-2021 to more robust benchmarks.

More information on the FSB’s 2021 work program and key priorities can be found here.

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Financial Stability Board

FSB Sets Out Progress on Interest Rate Benchmark Reform

The Financial Stability Board (FSB) published a progress report on implementation of reforms to major interest rate benchmarks.

The roadmap sets out a timetable of actions for financial and non-financial sector firms to take in order to ensure a smooth LIBOR transition by end-2021.

With only one year left, all market participants – both financial and non-financial firms across the globe – must now ensure they follow the necessary steps to avoid disruption to the performance of their contracts. For transition to occur on time, market participants will need to cease use of LIBOR as a benchmark in all new activity across global markets as soon as possible and this needs to be a key priority for the months ahead.

The report outlines various efforts on the transition.  The report can be viewed here.

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Financial Stability Board

FSB Examines Financial Stability Implications of Climate Change

The Financial Stability Board (FSB) published a report that examines the potential implications of climate change for financial stability. The report analyses how climate-related risks might be transmitted across, and might be amplified by, the financial system, including across borders. It also sets out next steps for the FSB’s work in this area.

The report discusses various risks and notes that financial institutions can take various actions – and are taking actions – to reduce or manage their exposure to climate-related risks. However, the efficacy of such actions taken by financial firms may be hampered by a lack of data with which to assess clients’ exposures to climate-related risks, or the magnitude of climate-related effects. Robust risk management might be supported by initiatives to enhance information with which to assess climate-related risk.

A copy of the report can be viewed here.

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Financial Stability Board

FSB Letter to G20 Notes Continued Financial Uncertainty

A letter from the Financial Stability Board (FSB) Chair, Randal K. Quarles, to G20 Leaders ahead of their November Summit, notes that while financial conditions have continued to ease the global economic outlook remains uncertain and financial stability risks elevated.  In his letter, the FSB outlines three responses to financial stability vulnerabilities resulting from COVID-19 as follows:  

  • Coming to a shared diagnosis – the letter notes that the market turmoil in March manifested itself differently in countries around the world. Emerging market economies experienced severe strains in offshore US dollar funding markets; whereas some advanced economies experienced significant outflows from certain types of investments. The FSB’s holistic review assesses the initial stages of the COVID-19 Event as having exposed a number of common strengths and vulnerabilities across the global financial system.
  • The need for continued vigilance and policy support – the challenges posed by the COVID Event have by no means dissipated yet. Persistent economic uncertainty and still elevated financial stability risks call for continued vigilance. The FSB continues to carefully monitor for signs of emerging vulnerabilities. The protracted nature of the COVID Event requires continued efforts to support financial resilience and ensure a sustained flow of financing to the real economy.
  • Enhancing financial sector resilience going forward – the COVID-19 Event has provided an opportunity to further assess financial stability risks and to refine measures put in place after the 2008 global financial crisis, where appropriate. These lessons can help strengthen financial sector resilience to better prepare for future shocks.

A copy of the letter and other responses to the COVID-19 crisis can be viewed here.

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Financial Stability Board

FSB Delivers Roadmap on Cross-Border Payments

The Financial Stability Board (FSB) published a roadmap to enhance cross-border payments. The roadmap has been delivered to G20 Finance Ministers and Central Bank Governors for their consideration. .

The G20 has made enhancing cross-border payments a priority during the Saudi Arabian Presidency. Faster, cheaper, more transparent and more inclusive cross-border payment services, including remittances, while maintaining their safety and security, would have widespread benefits for citizens and economies worldwide, supporting economic growth, international trade, global development and financial inclusion.

Te report sets out actions and timelines in the following five focus areas:

  • Committing to a joint public and private sector vision to enhance cross-border payments
  • Coordinating on regulatory, supervisory and oversight frameworks
  • Improving existing payment infrastructures and arrangements to support the requirements of the cross-border payments market
  • Increasing data quality and straight-through processing by enhancing data and market practices
  • Exploring the potential role of new payment infrastructures and arrangements.
A copy of the roadmap can be viewed here.
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Financial Stability Board

FSB Publishes LIBOR Global Transition Roadmap

The Financial Stability Board (FSB) today published a global transition roadmap for LIBOR. The roadmap sets out a timetable of actions for financial and non-financial sector firms to take in order to ensure a smooth LIBOR transition by end-2021.

In July the FSB reaffirmed that financial and non-financial sector firms across all jurisdictions should continue their efforts to make wider use of risk-free rates in order to reduce reliance on IBORs where appropriate and in particular to remove remaining dependencies on LIBOR by the end of 2021.

Among the steps in the Roadmap:

  • Firms should have already, identified and assessed all existing LIBOR exposures and agreed on a project plan to transition in advance of end-2021.
  • By the end of 2020, firms should be in a position to offer non-LIBOR linked loans to their customers.
  • By mid-2021, firms should have established formalised plans to amend legacy contracts where this can be done and have implemented the necessary system and process changes to enable transition to robust alternative rates.
  • By end-2021, firms should be prepared for LIBOR to cease
A copy of the press release can be viewed here.
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Financial Stability Board

FSB Publishes Report on the Rise of RegTech and SupTech

The Financial Stability Board (FSB) released a report entitled, The Use of Supervisory and Regulatory Technology by Authorities and Regulated Institutions: Market developments and financial stability implications. Within the report are 28 case studies that outline the use of SupTech and RegTech tools, and notes “that technology and innovation are transforming the global financial landscape, presenting opportunities, risks and challenges for regulated institutions and authorities alike.” The report will be provided to the G20 Finance Ministers and Central Bank Governors at their virtual meeting on October 14, 2020.

The report also highlights the possibility to improve financial stability through supervisory and regulatory technology: “For authorities, the use of SupTech could improve oversight, surveillance and analytical capabilities, and generate real time indicators of risk to support forward looking, judgement based, supervision and policymaking. For regulated institutions, the use of RegTech could improve compliance outcomes, enhance risk management capabilities and generate new insights into the business for improved decision-making.”

More information on the FSB report regarding SubTech and RegTech can be found here.

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Financial Stability Board

WOCCU Urges Proportionality for FSB’s Evaluation of Too-Big-to-Fail Reforms

The Financial Stability Board (FSB), requested comment on their Consultation Report on the Evaluation of the effects of too-big-to-fail (TBTF) reforms for systemically important banks. The reforms under evaluation included, “ (i) standards for additional loss absorbency through capital surcharges and total loss-absorbing capacity requirements; (ii) recommendations for enhanced supervision and heightened supervisory expectations; and (iii) policies to put in place effective resolution regimes and resolution planning to improve the resolvability of banks.” Although TBTF reforms were constructed for systemically important banks, WOCCU emphasized that these reforms have indirectly affected credit unions due over regulation by national level regulators that uses TBTF reforms as a standard across all financial institutions regardless of the size, risk, and complexity of the institution. WOCCU’s response to the FSB’s Consultation Report can be found here.

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Comment Letter, Financial Stability Board

FSB Extends Implementation Timelines for Securities Financing Transactions

The Financial Stability Board (FSB) announced extensions to the implementation timelines for minimum haircut standards for non-centrally cleared securities financing transactions (SFTs), to ease operational burdens on market participants and authorities, and thereby assist them in focusing on priorities from the impact of COVID-19.

SFTs such as securities lending and repurchase agreements (repos) play a crucial role in supporting price discovery and secondary market liquidity for a wide variety of securities. However, such transactions can also be used to take on leverage as well as maturity and liquidity mismatched exposures, and therefore can pose risks to financial stability.

As a result of this action the implementation timelines for the FSB’s November 2015 recommendations on haircuts for non-centrally cleared SFTs will now be extended (Recommendations 14-18: see also updated Annexes 1, 3 and 4 of the November 2015 report for details). The implementation of Recommendation 16 will be extended until January 2022 (instead of January 2021), recommendations 14 and 18 will be extended until January 2023 (instead of January 2022), recommendation 17 will be extended until January 2024 (instead of January 2023) and recommendation 15 will be extended until January 2025 (instead of January 2024).

A copy of the press release can be viewed here.

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Financial Stability Board

WOCCU Present at FSB Workshop on Too-Big-To-Fail Reforms

The World Council of Credit Unions was present at a workshop held by the Financial Stability Board (FSB) which discussed the effects of the post-crisis financial reforms and an evaluation of the "too-big-to-fail" (TBTF) reforms for banks.  The FSB is in the process of finalizing the results of its evaluation and is allowing input from stakeholders as part of the process.    

In particular the workshop focused on the market perceptions of the credibility of the TBTF reforms, banks' responses to those reforms, and the broader effects of the reforms.  Although these reforms focus on issues affecting Global Systemically Important Banks (GSIBs) and Domestic Systemically Important Banks (DSIBs),

WOCCU continues to be concerned that regulatory proposals adopted for these entities often are applied to smaller financial institutions such as credit unions without proper proportional tailoring (i.e. "goldplating").  Further the reforms sometimes have the effect of displacing credit unions in the market and make access to capital markets, bank services, correspondent banks more difficult, in part due to the complexity of the TBTF reforms.

Comments are due to the FSB by September 30 and the consultation may be viewed here.

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Financial Stability Board

FSB Writes G20 On Cross-Border Payments Reform

The Financial Stability Board (FSB)  published a letter to the G20 from the FSB Chair, Randal K. Quarles, welcoming the report published by the Committee on Payments and Market Infrastructures (CPMI), which sets out building blocks for a roadmap to enhance cross-border payments.

The publication of the CPMI report marks the second of a three-stage process to develop a roadmap to enhance cross-border payments. It sets out the necessary elements to address the challenges of high costs, low speed, limited access and insufficient transparency of cross-border payments, highlighted by the first-stage FSB report published in April.  We anticipate the FSB to publish a roadmap as a third and final stage. .

A copy of the report can be viewed here.

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Financial Stability Board

FSB and Basel Committee Move to Transition Away from LIBOR by End of 2021

The Financial Stability Board (FSB) and Basel Committee on Banking Supervision (BCBS) published a report entitled, Supervisory issues associated with benchmark transition: Report to G20, which outlines supervisory recommendations LIBOR transition. The report concludes that, “Continued reliance of global financial markets on LIBOR poses clear risks to global financial stability. Transition away from LIBOR by end-2021 requires significant commitment and sustained effort from both financial and non-financial institutions (FIs and non-FIs) across many jurisdictions.” The report also includes surveys initiated by the FSB, the BCBS and the International Association of Insurance Supervisors (IAIS), developed to address remaining challenges to the benchmark transition.

The report outlined three recommendations that support LIBOR transition in jurisdictions with LIBOR exposures:

  • Identification of transition risks and challenges – authorities and standard-setting bodies to issue public statements to promote awareness and engage with trade associations, and authorities to undertake regular surveys of LIBOR exposure and to request updates from financial institutions.
  • Facilitation of LIBOR transition – authorities to establish a formal transition strategy supported by adequate resources and industry dialogue. Supervisory authorities should consider increasing the intensity of supervisory actions when the preparatory work of individual banks is unsatisfactory.
  • Coordination – authorities to promote industry-wide coordination, maintain dialogue on the adoption of fallback language, consider identifying legislative solutions, where necessary, and exchange information on best practices and challenges. The FSB and the standard-setting bodies will coordinate at the international level to identify key common metrics for monitoring transition progress.”

More information on the BSB and BCBS’ LIBOR transition report can be found here and here.

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Basel, Financial Stability Board

FSB Consults on Too-Big-To-Fail Refomrs

The Financial Stability Board issues a consultation on the evaluation of the effects of too-big-to-fail (TBTF) reforms fro systemically important banks.  The evaluation's main findings are as follows:

  • TBTF reforms have made banks more resilient and resolvable;
  • The benefits of the reforms significantly outweigh the costs; and
  • There are still gaps that need to be addressed.

The reforms being evaluated include: (i) standards for additional loss absorbency through capital surcharges and total loss-absorbing capacity requirements; (ii) recommendations for enhanced supervision and heightened supervisory expectations; and (iii) policies to put in place effective resolution regimes and resolution planning to improve the resolvability of banks.

A copy of the consultation can be viewed here.

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Financial Stability Board

FSB Publishes Consultation Report on Cyber Incident Response and Recovery

The Financial Stability Board (FSB) provided their consultation report,  Effective Practices for Cyber Incident Response and Recovery, to the G20 Finance Ministers and Central Bank Governors for their April 15th virtual meeting. The report is a toolkit of 46 effective practices to address “cyber incident response and recovery activities”.

According to the FSB report, the effective practices consist of seven of the following components:

  1. Governance - frames how cyber incident and recovery is organised and managed.
  2. Preparation – to establish and maintain capabilities to respond to cyber incidents, and to restore critical functions, processes, activities, systems and data affected by cyber incidents to normal operations.
  3. Analysis – to ensure effective response and recovery activities, including forensic analysis, and to determine the severity, impact and root cause of the cyber incident to drive appropriate response and recovery activities.
  4. Mitigation – to prevent the aggravation of the situation and eradicates cyber threats in a timely manner to alleviate their impact on business operations and services.
  5. Restoration – to repair and restore systems or assets affected by a cyber incident to safely resume business-as-usual delivery of impacted services.
  6. Improvement – to establish processes to improve response and recovery capabilities through lessons learnt from past cyber incidents and from proactive tools, such as tabletop exercises, tests and drills.
  7. Coordination and communication – to coordinate with stakeholders to maintain good cyber situational awareness and enhances the cyber resilience of the ecosystem.

For more information on the FSB press release, visit their website here.

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Financial Stability Board

FSB Delivers Covid-19 Regulatory Principles to G20


The Financial Stability Board delivered a report setting out the financial stability implications of COVID-19 and policy measures taken to address them to the G20 Finance Ministeres and Central Bank Governors. 

The report sets out five principles that underpin the official community’s rapid and coordinated response to support the real economy, maintain financial stability and minimize the risk of market fragmentation. Using these principles, authorities will:

  • Monitor and share information on a timely basis to assess and address financial stability risks from COVID-19;
  • Recognize and use the flexibility built into existing financial standards to support our response; seek opportunities to temporarily reduce operational burdens on firms and authorities;
  • Act consistently with international standards, and not roll back reforms or compromise the underlying objectives of existing international standards; and
  • Coordinate on the future timely unwinding of the temporary measures taken.
A copy of the report can be viewed here
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Financial Stability Board

FSB Encouraging Flexibility in COVID-19 Response

The Financial Stablity Board (FSB) is encouraging authorities and financial institutions to make use of the flexibility within existing international standards to provide continued access to funding for market participants and for businesses and households facing temporary difficulties from COVID-19, and to ensure that capital and liquidity resources in the financial system are available where they are needed.

The FSB notes that many authorities have already taken action to release available capital and liquidity buffers, in addition to actions to support market functioning and accommodate business continuity plans.

WOCCU continues to urge flexibility by regulators to keep credit union operations functioning and able to finance the needs of their members.

A copy of the FSB release can be viewed here, and WOCCU's recommendations for purdential regulators can be viewed here

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Financial Stability Board

FCA Responds to ISDA with Letter on Non-Representative LIBOR

In December 2019, the International Swaps and Derivatives Association (ISDA) responded to a November 2019 letter from the Financial Stability Board’s (FSB) Official Sector Steering Group (OSSG) asking the ISDA to add a pre-cessation trigger in company with the cessation trigger as standard language in the definitions for new derivatives. The OSSG believes “[t]his would help to reduce systemic risk and market fragmentation by ensuring that as much of the swaps market as possible falls back to alternative rates in a coordinated fashion.” The ISDA requested a statement from the Financial Conduct Authority (FCA), and the ICE Benchmark Administration stating “ that the “reasonable period” during which a “non-representative” LIBOR would be published would be minimal (i.e., a number of months not years) after the FCA announces that LIBOR is no longer representative.”

The letter from FCA responding to ISDA’s request included reference to relevant laws and how FCA “intends to apply them”. The FCA’s letter also clarified that its, “preference is for an orderly cessation of LIBOR in which its discontinuation is pre-announced, market participants have prepared for this, and publication of a non-representative LIBOR is avoided.” The FCA’s response to the ISDA can be found here. More information regarding the chronicle of events surrounding group responses regarding the pre-cessation trigger can be found here.

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Financial Stability Board

WOCCU Urges Further Proportionality to FSB in Too Big to Fail Evaluation

WOCCU urged the Financial Stability Board (FSB) to consider issuing clearer guidance on factors that should be considered by national level regulators when developing proportionate approaches to the numerous standards adopted since the financial crisis, many of which are targeted to the "Too-Big-To-Fail" institutions.  

WOCCU noted that the complexity, usefulness, and corresponding regulatory burden and costs for smaller non-systemically important credit unions often becomes questionable, particularly those that are only involved in deposit taking and simple retail consumer lending.  While many of the Too Big to Fail Reforms were necessary, the application to credit unions and other mutuals needs to be appropriately and proportionately tailored.

The comments came as part of the FSB's Evaluation of the Too-Big-To-Fail Reforms.

A copy of the letter can be viewed here.
 

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Comment Letter, Financial Stability Board

FSB Issues Reports on Correspondent Banking

The Financial Stability Board (FSB), published two reports outlining its progress on its plan to assess and address the decline in correspondent banking relationships and or remittances service providers' access to banking service.  Notably the report notes that the decline in the number of correspondent banking relationships remains a source of concern for the international community, as the number of active correspondent banks declined by 3.4% in 2018, bringing the cumulative decline since 2011 to 19.3%. Concentration increased, as fewer correspondent banks are handling payments.

Access to correspondent banking relationships remains a critical issue in some regions and jurisdictions. WOCCU has consistently urged the continuation of efforts to reduce "de-risking" in the financial system which often creates obstacles for low risk credit unions trying to establish correspondent bank accounts or clear checks.

The FSB reports can be viewed here.

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Financial Stability Board