On 30 July 2019, the Bank of England (BoE) and the PRA published the Resolvability Assessment Framework (RAF).The RAF builds on the work done since the financial crisis and sets out the next step in implementing the resolution regime: ensuring that firms are, and are able to demonstrate that they are, resolvable. This will require firms to have the capabilities necessary to support their resolution. To this end, it clarifies firms’ responsibilities concerning resolution and sets out how the BoE and PRA will increase transparency and accountability.
The RAF has three main components:
- how the BoE, as resolution authority, will assess resolvability, building on work that both firms and the BoE have already done. The BoE’s Statement of Policy, The Bank of England’s Approach to Assessing Resolvability (the Resolvability SoP), outlines the outcomes it considers necessary to support resolution. These outcomes are supported by existing policies as well as new statements of policy that set out the objectives and principles that firms should meet in order to avoid a determination that they have insufficient capabilities and arrangements to remove identified barriers to resolvability;
- a new Resolution Assessment Part of the PRA Rulebook which requires the major UK firms to perform an assessment of their preparations for resolution, which requires relevant firms to identify any risks to successful resolution and the plans in place to address them, submit a report of that assessment, and publish a summary of their most recent report (public disclosure). PRA Supervisory Statement SS14/19, Resolution assessment and public disclosure by firms sets out the PRA’s expectations on how firms should comply with the new Part of the PRA Rulebook and sets out the PRA’s expectations regarding the importance of senior management accountability within firms; and
- the BoE’s intention to make a public statement concerning the resolvability of each of the major UK firms. In so doing, the BoE would identify any shortcomings where it believes there is more work to do.
The Resolution Assessment Part of the PRA Rulebook applies to UK banks and building societies with retail deposits equal to or greater than £50 billion on an individual or consolidated basis, as at the date of their most recent annual accounts.
In addition to publishing the Resolvability SoP the PRA has also published:
- The BoE’s Statement of Policy on Funding in Resolution;
- The BoE’s Statement of Policy on Continuity of Access to Financial Market Infrastructure;
- The BoE’s Statement of Policy on Restructuring Planning; and
- The BoE’s Statement of Policy on Management, Governance and Communication.
In terms of the timeframe for compliance:
- firms should be compliant by 1 January 2022;
- the BoE may on a firm-specific basis set an earlier compliance date, for example, where it has concerns about the resolvability of a firm; and
- the BoE may also set a firm-specific compliance date where a firm that was not previously within scope becomes within scope. This might occur if the preferred resolution strategy applicable to the firm changes, or if the firm becomes ‘material’ for the purposes of setting the internal minimum requirement for own funds and eligible liabilities. In these cases, the BoE will determine the appropriate compliance date on a firm-specific basis, and expects to allow firms at least 18 months for compliance.