The PRA has published Policy Statement 1/15: Implementing the Bank Recovery and Resolution Directive – response to CP13/14 (PS1/15).
In PS1/15 the PRA summarises the feedback it received on its July 2014 consultation paper, and sets the final rules and a supervisory statement to implement the Bank Recovery and Resolution Directive (BRRD).
PS1/15 is relevant to holding companies, mixed financial holding companies, mixed activity financial holding companies, banks, building societies and PRA-designated investment firms.
The PRA makes a number of points in PS1/15 including:
- the PRA has updated its Supervisory Statement on Recovery Planning (SS18/13) to set out its expectation that designated global systemically important institutions (G-SIIs) and other systemically important institutions (O-SIIs) should include four scenarios in their recovery plans and all other firms should include three;
- the PRA will not require third-country branches to provide individual recovery plans. However, where the PRA is concerned that the whole group plan is not able to deliver against the PRA’s objectives, the PRA may, in the course of its host state prudential supervision of the branch, request a UK branch recovery plan;
- SS18/13 has been amended to provide further clarification on certain technical questions that were posed by respondents including those related to exiting a linked position;
- the PRA has made certain amendments to its proposed rules in the Recovery and Resolution part of its Rulebook so that they are better aligned with the BRRD’s requirements. In particular, rule 5.3(1) has been updated to require a BRRD undertaking to submit the group recovery plan to the EEA consolidating supervisor where applicable and rule 6.5 has been updated to add the requirement for a firm to notify the PRA if it decides to take action, or refrain from taking action, under its group recovery plan;
- Resolution Pack 2.1 of the PRA Rulebook has been amended to state that, where a firm is part of a group which has submitted a group level resolution pack to the PRA meeting the requirements under the rules, that individual firm does not also need to submit a firm level resolution pack to the PRA;
- the PRA has made certain amendments to better align the Intragroup Financial Support Part of its Rulebook with the requirements of the BRRD. In particular, rule 3.2 has been amended to require firms and holding companies to seek approval when they enter into new intragroup financial support (IGFS) agreements and also when they propose to amend existing IGFS agreements previously authorised by the consolidating supervisor and rule 4.1(7) has been amended to require firms to also comply with the Capital Requirements Directive IV requirements in relation to capital and liquidity and not just requirements under the Capital Requirements Regulation;
- the PRA has amended its final rules on contractual recognition of the bail-in tool and will phase in the requirement. The requirement is that firms and holding companies include a contractual clause in relevant liabilities governed by the law of a third country by which the creditor recognises that the liability may be subject to the exercise of the bail-in tool by the Bank of England. The amended PRA rules will require such terms to be included in unsecured debt instruments from 2015, except in the case of mixed activity holding companies. These rules relating to debt instruments will commence on 19 February 2015. All other relevant liabilities must include such a term from 1 January 2016. The rules will apply to mixed activity holding companies from 1 January 2016. The final rules also clarify that any debt or liabilities, including future or contingent liabilities which do not arise in business as usual, but will crystallise at the point of insolvency or resolution following netting, are in scope of the rules.
The final rules will come into force on 19 January 2015, except for the rule to require contractual clauses in eligible debt instruments, which will come into force on 19 February 2015.