FSA is consulting on its rules for recovery and resolution plans (RRPs), also known as “living wills”. The Financial Services Act 2010 requires FSA to make rules for UK incorporated deposit-takers. RRPs aim to ensure that certain firms are able to:

  • assess and document recovery options they could use in a range of severe stress situations;
  • enable any appropriate option quickly and effectively; and
  • provide regulators with information and help to enable an orderly resolution of business where necessary, in the form of a Resolution Pack.

Although FSA is required only to apply the rules to UK-incorporated deposit takers, it believes investment firms that could present significant risks to the stability of the financial system or to one or more entities within their group that are regulated by the Prudential Regulation Authority (PRA) should also comply with the rules. It expects “significant investment firms” to include at least full scope BIPRU 730k firms with assets of at least £15 billion, but this may change once the precise scope of PRA regulation of investment firms is finalised. FSA’s plans involve separate requirements in respect of firms that hold client money and assets (CMA) and these requirements will apply to all firms subject to Chapter 6 or 7 of the Client Assets Sourcebook (CASS) and so may catch firms that do not have otherwise to produce RRPs.

The paper looks at:

  • how the requirements will link into existing policy and embed into the supervision process;
  • what the governance framework for Recovery Plans should be, key options and how to assess them and intervention conditions;
  • how regulators will prepare Resolution Plans, based on the Resolution Pack provided by firms, and what firms must do to provide the information required, consider specific elements of a wind-down and barriers to resolution, and requirements on review and update of the Resolution Pack;
  • firms’ internal processes and general policy on RRPs, their submission to FSA and how global financial institutions should approach preparing RRPs;
  • proposals for a separate CASS Resolution Pack;
  • different approaches to removing barriers to resolution. FSA discusses possible regulatory approaches to enhancing resolvability and generic obstacles to resolution it has already identified. This part of the paper also looks at risks arising from firms with large trading books and how bail-in tools might work.

The paper attaches a guidance pack and draft handbook text amending mainly the Financial Stability and Market Confidence Sourcebook (FINMAR), Supervision Manual (SUP) and CASS. FSA asks for comments by 9 November. FSA plans to make final rules in early 2012, but to allow firms a transitional period in respect of some of them, so they will have until June 2012 to prepare their initial RRPs. (Source: Press Release on living wills Papers and Consultation and Discussion Paper on Recovery and Resolution Plans)