The PRA has published Consultation Paper 9/17: Recovery planning (CP9/17).
The proposals in CP9/17 are relevant to UK banks, building societies, PRA-designated investment firms and qualifying parent undertakings (collectively firms) to which the Recovery Planning Part of the PRA Rulebook applies.
In CP9/17 the PRA proposes a new Supervisory Statement on recovery planning that would supersede Supervisory Statement 18/13: Recovery Planning (SS18/13) and sets out additional expectations of firms. The PRA also sets out in CP9/17 a proposal to clarify the PRA’s expectations on the approach to recovery planning for groups containing a ring-fenced body (RFB), by updating Supervisory Statement 8/16: Ring-fenced Bodies (SS8/16)
The structure of CP9/17 is as follows:
- chapter 2 sets out proposals relating to key recovery plan components and considerations;
- chapter 3 sets out proposals relating to recovery planning for UK subsidiaries of non-EU banks;
- chapter 4 sets out a proposed amendment to SS8/16 to clarify the PRA’s expectations with regard to recovery planning for groups containing an RFB;
- appendix 1 contains the draft Supervisory Statement for recovery planning; and
- appendix 2 sets out the proposed amendments to SS8/16.
Among other things, the PRA notes in CP9/17 that SS18/13 currently states that recovery plans should outline credible recovery actions to implement in the event of a severe stress. The updated Supervisory Statement would create an expectation on firms to provide sufficient analysis in their recovery plans to justify the choice, impact, timelines and dependencies of recovery options. The PRA feels that currently many firms consider recovery options in isolation, ignoring dependencies that may make an option not credible.
The updated Supervisory Statement also:
- includes a section on recovery capacity to align with the Commission Delegated Regulation (EU) 2016/1075, which includes a requirement for firms to consider their recovery capacity;
- sets out the PRA’s expectations on how firms should design scenarios and use those scenarios for testing their plans. The results of scenario testing should indicate to what extent a recovery option might restore a firm’s financial position;
- proposes that firms with complex and lengthy recovery plans submit the data in a consistent format (i.e. an Excel template) and ensure this core set of information is included with the appropriate analysis in their recovery plans;
- sets out the PRA’s expectation that firms should perform a fire drill exercise to test parts of their recovery plan; and
- sets out the PRA’s expectation that firms should produce a concise implementation guide that could be quickly digested and implemented in a stress.
The deadline for comments on CP9/17 is 21 September 2017.
The PRA intends to publish a final Policy Statement in H2 2017.
View Recovery planning – CP9/17, 21 June 2017