The three Rs: Resources, Recovery & Resolution

By: Eva Hüpkes, Acting Head of Regulatory and Supervisory Policies, Financial Stability Board Secretariat Apr 2019

Ten years ago the G20 Leaders made central clearing for certain standardised ‘over the counter’ (OTC) derivatives an essential component of post-crisis reforms. This had two important consequences. First, it radically simplified the complex and opaque network of counterparty credit exposures among financial intermediaries through multilateral netting. Second, it made CCP functions too important to fail.

A recent evaluation by the Financial Stability Board (FSB) of the effects of G20 financial regulatory reforms on incentives to centrally clear OTC derivatives showed that the reforms are achieving their goals of promoting central clearing, especially for the most systemic market participants. [1] Today, a far larger proportion of derivative contracts are cleared through CCPs than ever before. However, another study undertaken by the FSB and standard setting bodies on central clearing interdependencies also found high levels of concentration in the largest CCPs and their members with the largest ten CCPs worldwide accounting for nearly 90 per cent of total financial resources provided to all CCPs. [2] 

Banks became ‘too big to fail’ in the run up to the 2007/08 crisis as result of absence of official sector action. By contrast, CCPs became 'too important to fail' as a result of deliberate official sector action.  If the new policy of central clearing for OTC derivatives is to achieve its objectives of promoting financial stability and strengthening the resilience of markets by making derivatives markets safer, it must be underpinned by regulation to help ensure that CCPs are resilient. In addition the authorities need to have the powers and tools to address financial distress and, if necessary, resolve a CCP in an orderly manner in the event of failure.  

The resilience, recoverability and resolvability of CCPs have been a key focus of the G20, the FSB, and standard-setting bodies. In 2012 CPMI IOSCO adopted the Principles for Financial Market Infrastructures which set out requirements for resilience and recovery. [3]

One year earlier the FSB had endorsed the Key Attributes of Effective Resolution Regimes for Financial Institutions (‘Key Attributes’) which stipulated that financial market infrastructures (“FMIs”) should be subject to resolution regimes given their critical role in financial markets. [4] 

Under a joint work plan on resilience, recovery and resolvability [5] CPMI IOSCO adopted further guidance on stress testing and recovery, and the FSB adopted guidance on CCP resolution and resolution planning.

In 2017 the FSB published for the first time a list of CCPs that were deemed to be systemically important in more than one jurisdiction. [6] For each of these CCPs, authorities are expected to set up Crisis Management Groups (CMGs) that bring together the authorities from all relevant home and host jurisdictions that have a role in the resolution of the specific CCP. [7] CMGs are expected to coordinate resolution planning. CMGs have been or will be established for all of those 13 CCPs that have been identified as systemically important in more than one jurisdiction.

Despite the creation of CMGs, tailored resolution regimes for CCPs are still not in place in many jurisdictions. This makes resolution planning more difficult for authorities and firms. Further work is needed to address the questions that go to the essence of resolution: ‘who pays?’, ‘who bears the losses?’ and ‘are available resources and tools sufficient to carry out an orderly resolution?’

The FSB’s discussion paper of November 2018 seeks to explore those questions by setting out a five-step-process that is intended to assist authorities in evaluating what resources and tools they would have available to achieve an orderly resolution and whether the tools and resources could be used quickly and effectively without threatening financial stability. Based on the experience with the application of this five-step evaluation process by authorities, the FSB will elaborate further guidance in 2020.

The resilience of a CCP rests on the resilience of its major clearing members. Much has been done to make global systemically important banks (G-SIBs) resolvable. Significant progress in the implementation of the Total-Loss-Absorbing Capacity standard [8] means that the largest banks (which are also the largest clearing members) have adequate resources to support the continuity of their critical functions. G-SIBs are expected, as part of resolution planning, to take adequate steps to maintain continued access to critical FMI services in resolution, including by ensuring that obligations to FMI service providers can be met throughout the resolution process.[9] 

To date, there has been little focus on how financial losses arising from events other than default by clearing members (“non default losses”) will be allocated in a resolution. This is therefore an area of priority focus in the work ahead on financial resources to support a CCP resolution.

CCPs are an integral part of an interconnected global financial system. As the clearing landscape continues to evolve and to become more and more interconnected, so does the need for international cooperation continue to become more important as authorities and firms work towards the effective and timely implementation of international standards and guidance on CCP resilience, recovery and resolution.

As the largest CCPs are becoming increasingly systemic and interconnected across borders, authorities are responding to the need for effective crisis management and resolution arrangements for CCPs. Effective resolution and resolution planning arrangement underpinned by adequate resources should help strengthen the incentives both to manage a CCP prudently, and for clearing members to contribute to a CCP’s recovery in times of stress.


* Acting Head of Regulatory and Supervisory Policies, Financial Stability Board Secretariat. The views are those of the author and do not necessarily reflect the views of the Financial Stability Board or any of its members.

[1] Financial Stability Board, Incentives to centrally clear over-the-counter (OTC) derivatives: a post implementation evaluation of the effects of the G20 financial regulatory reforms, 19 November 2018 available at:

[2] Basel Committee on Banking Supervision, Committee on Payment and Market Infrastructures, Financial Stability Board, International Organization of Securities Commissions, Analysis of Central Clearing Interdependencies, 9 August 2018 available at:

[3] CPMI IOSCO, Principles for Financial Market Infrastructures, April 2012, available at:

[4] Financial Stability Board, Key Attributes of Effective Resolution Regimes for Financial Institutions, October 2011, available at:  An Annex adopted in October 2014 provides sector-specific guidance on the resolution of FMIs.

[5] See Chairs’ Report on the Implementation of the Joint Workplan for Strengthening the Resilience, Recovery and Resolvability of Central Counterparties, 5 July 2017, available at:

[6] See the latest list in the FSB 2018 Resolution Report, available at:

[7] In 2018 the following 13 CCPs were reported to be systemically important in more than one jurisdictions: BME Clearing (Spain); Cassa di Compensazione e Garanzia (CC&G) (Italy); CME Inc. (US); Eurex Clearing (Germany); EuroCCP (Netherlands); HKFE Clearing Corporation (Hong Kong SAR); ICE Clear Credit (US); ICE Clear Europe (UK); LCH.Clearnet SA (France); LCH Ltd (UK); Nasdaq Clearing AB (Sweden); OMIClear (Portugal); and SIX x-clear (Switzerland). The next review will be undertaken in 2020. 

[8] Financial Stability Board, Total Loss-Absorbing Capacity (TLAC) Principles and Term Sheet, 9 November 2015 available at:

[9] See Financial Stability Board, Guidance on Continuity of Access to Financial Market Infrastructures (FMIs) for a Firm in Resolution, 6 July 2017, available at: