GFMA has commented on the recent Financial Stability Board (FSB) consultative document “Recovery and Resolution Planning: Making the Key Attributes Requirements Operational”. It makes proposals on, amongst others, the following themes of the consultation:

  • Strengthening cross-border cooperation: GFMA stresses the importance of firm-specific cooperation agreements and of discussing the resolution strategy with host country authorities at the firm’s crisis management group. This will encourage host countries to cooperate in the event of the firm’s failure and not to impose subsidiarisation. GFMA also says FSB should recommend that local adoption of the UN Model Law on Cross-Border Insolvency be amended to apply to cross-border recognition of orderly resolution proceedings.
  • Sources of resolution funding: liquidity support during resolution should be industry-backed. A public guarantee may be offered, but any losses should be recoverable from the firm or, after the event, from the financial industry.
  • Preferred resolution strategy: home country regulators should formulate a “presumptive path” of how to resolve firms. It would also offer reassurance over the authorities’ commitment to maximising value of the firm and their respect for the principle that no claimant will be worse off than in a liquidation.
  • Relative priority of claims: triggering resolution before a firm is balance-sheet insolvent could expose the authorities to human rights claims. GFMA calls for the use of a relative priority rule to the effect that junior claimants would receive a warrant or other junior security that allowed them to participate in the upside of the assets being distributed if their value turned out to be higher than expected.
  • Due process: GFMA agrees with giving authorities swift and discretionary resolution powers, but this must be counterbalanced with ex-post judicial remedies.

(Source: GFMA Comments on RRP Consultation)