The Prudential Regulation Authority's (PRAs) long-awaited final rules on recovery and resolution planning finally arrived yesterday among the flurry of pre-Christmas publications by regulators. 

Three documents were published: 

Although these are referred to as 'final' rules, the PRA is clear that there will be more to come from them on RRPs, with these documents intended to provide an update on "current expectations". Thinking has come a long way since the publication of FS 12/1 in May 2012 and CP 11/16 in August 2011 as experience of resolution planning has grown, with understanding refined and a greater focus on defining resolution strategies and the operationalisation of resolution. 

There has also been significant progress achieved on the EU's Recovery and Resolution Directive (RRD), on which a political agreement was reached last week.  As a consequence, the rules themselves are deliberately high level to allow them to be applied flexibly as the PRA's approach and the domestic and international context develops further.  The Supervisory Statements and the guidance they contain will continue to evolve as the regulators continue to work with firms in this area and additional Eurpean Banking Authority (EBA) guidance and technical standards are published once the RRD is finalised.

In terms of content, the PRA says that the recovery section "has not been amended significantly" since FS 12/1 was issued in May 2012.  However, there are more significant changes to the resolution planning aspects of the guidance, particularly in terms of the PRA's approach to the collection of resolution-related information. 

Rather than a one-size-fits-all mass data collection exercise, there will now be a two stage process for gathering resolution related information, more bespoke to individual institutions:

  • Phase one will see the PRA collecting 'basic' information on financial, legal and operational structures, as well as economic functions, and this information will be used as a basis for deciding preferred resolution strategies (Similar to Modules 3 and 4 in the earlier guidance but refined further). 
  • Phase two will see further detailed information gathered through requests tailored to each firm, depending on the resolution strategy expected to be pursued for each firm.  Notably, the PRA indicates that some firms may be required to prepare for more than one resolution strategy.  The indicative information requests by resolution strategy are quite specific and will require a reasonably large amount of data to be gathered and processes put in place to gather and manage information.

As well as the general information and the resolution strategy specific requests, the Supervisory Statement on resolution also contains several additional information requests in relation to business reorganisation plans, operational continuity, liquidity and valuation.  These were all areas where we had expected the PRA and Bank of England (BoE) would come out with additional comment based on what we and our clients have been seeing.  These are areas that are likely to develop significantly in the future and should be examined and thought about carefully as they contain some requirements which may pose challenges for firms in terms of the way data is produced and managed and the way in which the systems, processes and controls to comply with these requirements are explained and demonstrated in a resolution context. 

The rules come into force on 1 January 2014. The first submissions of Phase 1 information are due over the next 15 months, according to timelines to be specified for individual firms.

Although long-awaited, these final rules do little more than confirm the approach that we and our clients have seen the PRA and BoE take over recent months.  The rules also reinforce our view that, for the largest banking groups at least, the PRA and BoE are going to adopt a much more bespoke approach, tailored to the individual circumstances of the group and the preferred resolution strategy.  The UK RRP guidance and associated legal powers for resolution of financial institutions will obviously continue to evolve as the International and European frameworks develop further.  In particular, once the RRD is finalised, there will need to be amendments to transpose the Directive into national law and we will see guidance and a number of technical standards produced by the EBA.  

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