Separate strategy for non-bank financial institutions

October 17, 2013

Scris de Mircea Halaciuga

Publicat în English content

Money1The Economic and Monetary Affairs Committee adopted an own-initiative Report on the recovery and resolution of non-bank financial institutions. The Report emphasizes the need for contingency plans for adverse market circumstances for central counterparts and central securities depositaries. The Report also addresses asset managers, payment settlement systems and insurers.

"We already have so-called 'good times' legislation in place, which deals with regulating these non-bank financial institutions under normal operating conditions. What we are missing are plans for dealing with crisis scenarios and potential failures. The Report adopted today aims to fill this gap", said Danuta Hübner MEP, EPP Group Shadow Rapporteur, who considers it essential to further strengthen financial market infrastructure. As recovery and resolution plans for non-banks are in their early days, the idea is to priorities for now strategies for central counterparts and central securities depositories. This is due to the fact that the two actors are particularly significant for a sound functioning of financial markets.

"Any recovery and resolution strategy must keep in mind the different specifics of these financial institutions. A one-size-fits-all approach will not do", Danuta Hübner continued. Focusing on central counterparts, the main objective is to ensure a maximum protection of client money in crisis scenarios. Central counterparts do not have a direct relationship with their end clients (the clients of the clearing members which use the central counterpart). Guidelines which rule out the use of client money during recovery and allow its use only as a very last resort during resolution are helpful in this sense. They ensure that client money is not used as a line of defense for the clearing member of the central counterpart. In the case of central securities depositories, it is crucial that recovery plans allow for the operational continuity of the entity in crisis scenarios. This implies that the primary settlement function is safeguarded.

"Continuity of service is pivotal for central securities depositories, but also for central counterparts", Danuta Hübner argued. "This is due to Hubnerthe fact that there are some pieces of financial market infrastructures for which there are no alternative providers, and so their failure and closure would have a severe effect."

Also important to bear in mind is the need to have good cooperation between different entities and their corresponding resolution authorities, if an institution has entities in different jurisdictions. Looking beyond central counterparts and central securities depositaries, insurance undertakings, asset managers and payment systems will also need guidelines for dealing with crisis scenarios in the future. Criteria for assessing whether an asset manager is systemically important will be key in this regard, as will be the identification of weaknesses in globally-systemically important payment systems. The Report will now go to the November plenary. Parliament hopes that the Commission will internalize its guidelines before legislation on the recovery and resolution of non-bank financial institutions is proposed over the coming months.