On 8 March 2013, the EU Commission published a summary of the responses (67 in total) it received to its October 2012 consultation on a possible recovery and resolution framework for financial institutions other than banks. There is also a set of links to individual responses.
The summary addresses views expressed on the three categories of financial Institutions considered in the consultation, being:
- financial market infrastructures (“FMI”) i.e. central counterparties (“CCP”) and central securities depositories (“CSD”);
- insurance companies; and
- other non-bank entities and institutions e.g. payment systems.
Financial Market Infrastructures
There was general agreement on the need for recovery and resolution plans (“RRP”) for FMIs, due to their systemic importance. Although resolution measures for all FMIs should focus on ensuring the continuity of essential services, the RRP regimes for CCPs and CSDs should be tailored, reflecting the general view that CCPs are more systemically important than CSDs. Both the RRP regimes for CCPs and CSDs should be different from the current proposals regarding RRP for banks, although powers to transfer operations of a failing FMI to a purchaser or bridge entity would still be required. There was little common ground on the application of loss allocation to FMI beyond the need for predictability, clarity, preciseness, transparency and parity.
Insurance and Reinsurance Firms
There was a wide-spread recognition that insurance companies are less systemically important that banks and that Solvency II will enhance supervisors’ powers of intervention. Nonetheless, except amongst insurers, there was general support for further investigation into the scope for resolution tools which could protect policyholders as well as financial stability in the event of an insurer’s failure. However, even outside of the insurance industry, there was no conclusive support as to the need for a detailed RRP framework. The insurance industry objected to insurance-specific RRP proposals, arguing at a high-level that there is no evidence that RRP is needed and specifically that:
- as yet, no sources of systemic risk in insurance have been identified;
- consistency with international developments must be ensured before the EU legislates;
- the current framework is sufficient, particularly in light of Solvency II; and
- bank RRP is not suited to the insurance industry.
Other non-bank financial institutions
The majority of respondents expressed the view that payment systems currently do not require further consideration from an RRP perspective due to the fact that they are subject to central bank oversight.