The criteria surrounding regulatory assessments for firms that are to be considered systemically important financial institutions (SIFIs) have proved controversial over recent months, but the most recent industry furore seems to be about what happens to the data about these firms once it has been collected. This week, six industry associations wrote a letter to the Fed and the Federal Deposit Insurance Corporation (FDIC) on the subject, highlighting their concerns about what constitutes a “credible” plan for unwinding as defined in Dodd Frank and the data collection and storage aspects of the new regime.
The letter, which was sent by Sifma, the Association for Financial Markets in Europe (AFME), the American Bankers Association (ABA), the Clearing House (THC), the Financial Services Roundtable (FSR) and the Institute of International Bankers (IIB), is in response to the proposed implementation of the resolution plan and credit exposure report requirements of Section 165(d) of the Dodd Frank Act. The group is keen to buy more time to provide feedback on the proposals as they stand and has accordingly asked the board of the Fed and the FDIC for “sufficient time” to review and revise the plans.
The US reforms will require firms deemed systemically important to file their “living wills” or resolution and unwinding plans with the Fed and the FDIC. The latter has been granted the powers of a resolution authority to act on the data that it has been provided with by the SIFIs (however many there are of them), but first it must determine whether these plans are “credible”, and this is where the associations are calling for more clarity.
The letter also highlights the concerns the group has regarding the confidentiality of the living wills and entity related data. “We realise that the Freedom of Information Act or FOIA will apply to data submitted in resolution plans and credit exposure reports, making it critical that the information submitted be treated as an integral part of the examination process and subject to similar protections. Resolution plans and credit exposure reports should therefore be made subject to the strongest FOIA protection available,” states the group.
The group is keen for the reforms to begin with an initial pilot programme limited to the largest and most complex US-headquartered bank holding companies, which it says would foster early learning and development of best practices. “A pilot would also reduce the risk that supervisory time and resources will be misspent reviewing, as necessitated by the current proposed rule, a significant number of plans developed simultaneously, independently and with limited common understanding of supervisory expectations regarding the form and content of the resolution plans,” says the letter. To this end, it points to a similar pilot model that has been used for recovery and resolution planning in the UK.
In terms of implementation, the group is keen for a high degree of flexibility at the start regarding the timing of initial submissions and the staggering of regular submissions. More time and discussion would therefore: “Foster the evolution of resolution planning’s scope, quality and information granularity, which will necessarily result from the development and clarification of supervisory expectations and best practices over the next several years. The required content and scope of the first generation plans will be different from later generations; the standards for review of those plans must likewise be different. Allowing for this evolution ensures an iterative process that properly accounts for the cost, systems changes, necessary transition period and timing for creating meaningful and practical resolution plans,” it states.
It also asks for a number of factors to be addressed including: time for appropriate board reviews; an examination of the Bankruptcy Code and living wills reforms’ impact on that; the resolution arrangements under the Federal Deposit Insurance Act; to take into account non-bank challenges; and to treat foreign and regional banks in an appropriate manner.
The baseline, however, is that the group is keen for a delay of the rules until January next year at the earliest. “In the interim, supervisors and firms could work together to create certainty around the requirements and expectations for resolution planning,” it concludes.
Sifma and a number of these other associations have also recently been engaged in providing feedback to the Office of Financial Research (OFR) on the subject of legal entity identification standards. The 13 strong group has detailed its 14 key prerequisites for the solution providers that will be tasked with bringing the new identification system to fruition and shortlisted parties must be interviewed by 17 June. The group is then due to provide the final recommendations on the suitable provider to the OFR by 8 July.