On 15 January 2021, the European Court of Auditors (ECA) published a special report on resolution planning in the Single Resolution Mechanism (SRM).
In 2017, the ECA conducted its first audit report assessing whether the Single Resolution Board (SRB) was equipped to carry out the resolution of significant banks effectively. To inform policymakers and stakeholders of the current state of preparedness of the SRM, the ECA carried out a second audit to address the SRB’s oversight of resolution plans for less significant banks and follow-up on the previous audit results. The ECA examined whether the policy framework and organisational set-up were appropriate, and progress had been made in terms of the quality and timing of the resolution plans adopted. The audit took place from April 2019 to January 2020 and the ECA looked at a sample of resolution plans adopted between 2019 and 2020. The special report now published considers the findings of the audit.
The ECA’s overall conclusion in the special report is that the SRM has made progress over the last years but there are some key elements missing and further steps are needed in resolution planning for banks. In particular, the ECA found that the policies did not yet address all relevant areas or revealed weaknesses. The policies (with some exceptions) were not addressed to the national resolution authorities (NRAs) for banks under their remit until August 2020, but they could serve as a point of reference. In August 2020, a first set of guidelines applicable to NRAs to banks under their remit was adopted.
In terms of specific impediments to resolvability, the special report notes that the SRB has not yet determined substantive impediments. The SRB has opted for a step-by-step approach, whereby it identifies potential impediments before determining substantive impediments. In so doing, banks have time to resolve pending issues. As a result, administrative procedure for ensuring the removal of substantive impediments that is provided for in the legal framework is not initiated. The ECA notes that as long as there is no conclusion as to the nature of impediments, there will be no conclusion as to a bank’s resolvability. The special report also notes that the ECA found that the quality of resolution plans had improved in that the percentage of Single Rulebook requirements that had been met had increased to 60% in the case of a sample of 2018 plans, in contrast with just 14 % in a sample of 2016 plans. Nevertheless, the SRB was late adopting the 2018 resolution plans and updated only a limited number of plans in 2019. The NRAs also made progress in adopting their resolution plans, but some did not meet their targets and/or postponed their plans for more complex banks.