The FCA has published a note setting out its initial observations following its recent assessment of the compliance of firms’ recovery plans under the Recovery and Resolution Directive (RRD)

The note is aimed at all FCA solo-regulated firms that meet the definition in the FCA’s Handbook of an IFPRU 730k firm (where IFPRU refers to the Prudential sourcebook for Investment Firms). Such firms are subject to IFPRU 11 and are required to submit recovery plans to the FCA on a regular basis. The FCA provides feedback on some observations and early themes emerging from its recent assessment of recovery plan submissions, which are made in accordance with the legislation and rules already in place.

In general, the FCA found most recovery plan submissions were timely and reasonably structured. However, it has identified areas for improvement across almost all recovery plan elements. Some of the most common issues include the following:

  • internal and external interconnectedness. The FCA found that identification and analysis of internal and external interconnectedness was insufficient. Recovery plans often failed to identify firm’s material intra-group or external stakeholders, and assess the potential impact of failure on these connected parties;
  • indicators. A large number of firms struggled with the identification and calibration of recovery plan indicators. This included a lack of consideration of all relevant indicator categories, limited risk coverage within indicator categories;
  • recovery options. Whilst the majority of recovery plans identified a set of potential recovery options, many did not demonstrate that a firm’s recovery options were comprehensive and credible;
  • scenarios. Recovery plans did not always capture the minimum expected range of scenarios, or fully explain why certain scenarios might not be applicable;
  • core business lines and critical functions. A number of recovery plans incorporated an incorrect definition of core business lines and critical functions in their recovery plans; and
  • crisis management and communication arrangements. For a number of firms these summaries did not appear to be supported by or aligned with an appropriate communication strategy for crisis management.

Given the various concerns identified during the FCA’s review, and in support of the overall objectives of the RRD, the FCA would also encourage firms to review and ensure the effectiveness of their underlying governance and risk management arrangements.

View FCA initial observations on IFPRU 730k firms’ recovery plans, 19 May 2016