The FSB’s resolution standards for FMIs (called financial-market utilities or FMUs in the U.S.) are finalized in an annex to its overall standards setting the “key attributes” for orderly resolution of systemic financial institutions.In concert with new recovery standards from the Committee on Payment and Market Infrastructure and the International Organization of Securities Commissions, these resolution protocols are designed to prevent systemic risk from concentrating in entities that are critical to domestic and cross-border payments, settlement, and clearing. The FSB’s requirements both for FMUs and their regulators follow those for other systemic institutions in mandating resolution planning based on enhanced solvency and liquidity resilience at FMUs and members, cross-border cooperation before and after any problems, and an array of actions regulators would take in a crisis to prevent FMI instability from turning into contagion risk with dangerous systemic consequences. Similar to recent discussions related to large-bank resolution, the FSB protocol depends in part on legal authority to mandate automatic stays, impose loss-absorption requirements, and ensure orderly, non-discriminatory claims settlement – authority that may well require both statutory and regulatory action in key regimes before FMI resilience is assured.
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