On 7 March 2023, the Bank of England (BoE) published a letter from Mel Beaman to CFOs of the major UK banks, on firms’ preparations for the second Resolvability Assessment Framework (RAF) assessment.
The letter provides information, ahead of the second RAF assessment, to support firms with their planning and ongoing work to maintain and enhance their resolvability.
The BoE is repeating its resolvability assessment of the major UK firms in 2023-24, to assess the progress firms have made in addressing issues identified as part of the first assessment and to monitor progress in maintaining and enhancing their ability to achieve the following three resolvability outcomes:
- Having adequate financial resources in the context of resolution;
- Being able to continue to do business through resolution and restructuring; and
- Co-ordinating and communicating effectively internally and with the authorities and markets so that resolution and subsequent restructuring are orderly.
The letter notes that firms’ Boards and senior management are responsible for ensuring they can achieve the three resolvability outcomes on an ongoing basis. As part of this, firms are expected to address previously identified issues, including shortcomings and areas for further enhancement, as a priority ahead of the second RAF assessment, and to maintain, test, and improve capabilities so that they are fit and ready to use if required.
In this context, the BoE anticipates that the second RAF assessment will:
- Assess firms’ overall ability to achieve the three resolvability outcomes – The BoE expects firms to be able to demonstrate how they continue to achieve the three resolvability outcomes and how they have assured themselves that their resolvability capabilities are embedded and maintained so that they meet the resolvability outcomes on an ongoing basis and are ‘execution ready’.
- Assess the progress that firms have made in assessing the issues identified in the first assessment – As a priority, the BoE expects firms to remediate outstanding issues from the first assessment, in line with the remediation plans shared with the BoE, and to address any new issues identified since.
- Assess firms’ preparations in more detail – As stated in the BoE’s June 2022 public statement, future assessments are likely to include more detailed assessments of firms’ preparations for resolution. The more detailed assessments will be in addition to engagement with firms on their overall ability to achieve the three resolvability outcomes and assessment of progress to address previously identified issues.
The letter concludes by highlighting that the BoE and Prudential Regulation Authority will continue to engage with firms ahead of the start of the second assessment, including engagement on issues identified as part of the first assessment and the BoE’s Unencumbered Collateral pilot exercise.