FSA is consulting on the need for certain financial services firms to prepare and maintain Recovery and Resolution Plans (RRPs) and in addition for some of these firms, and others, to make further preparations for their investment client money and custody assets (CMA) holdings.

Why now?

The financial crisis showed how severe liquidity stress could lead to the insolvency of a financial institution in an alarmingly short time. The Banking Act 2009 created a Special Resolution Regime (SRR), giving FSA, the Bank of England and the Treasury various tools for resolving failed deposit-taking financial institutions. However, the UK authorities require detailed knowledge and understanding of a financial institution’s business to exercise the SRR tools and enable the orderly resolution of a failed financial institution without relying on taxpayer support.


The RRP requirements will apply to the following:

  • All FSA-authorized banks and building societies regardless of size, including UK-incorporated subsidiaries of overseas banks.
  • Significant investment firms, in particular full scope BIPRU 730k investment firms with assets exceeding £15 billion.
  • All firms subject to FSA’s client asset custody rules (CASS 6) and investment business client money rules (CASS 7) .

FSA is not calling for RRPs from UK branches of overseas entities, partly because the SRR tools are unavailable to resolve those branches.

Recovery Plans

The purpose of a Recovery Plan is to enable firms to plan how they would try to recover from severely adverse conditions that could cause their failure. Firms are responsible for preparing their Recovery Plans, which are subject to FSA review and require updating yearly. Ways of rebuilding financial strength include:

  • Disposals of businesses or entities.
  • Raising equity capital when this is not part of the firm’s business plan.
  • Complete elimination of dividends and variable remuneration.
  • Debt exchanges and other liability management actions.
  • Sale of the whole firm to a third party.

A key aspect is deciding when the firm will carry out its Recovery Plan. Firms will be required to develop their own unambiguous triggers, which may include:

  • Invocation of the firm’s contingency funding plan.
  • Negative market sentiment or opinion towards the firm, possibly measured by liquid market-based indicators (e.g. widening of a firm’s CDS spread relative to peers, unexpected fall in share price relative to peers etc).
  • An expectation of a drop in a firm’s credit rating.
  • Use of a firm’s capital planning buffers (CPB).

Resolution Planning

The purpose of Resolution Planning is to provide a strategy to resolve a failed firm or group in a manner that minimizes the impact on financial stability without needing to resort to taxpayer support. The UK authorities are responsible for preparing a Resolution Plan, which must allow decisions and actions to be taken and performed in a short space of time (for example, over a "resolution weekend"). However, firms must provide a Resolution Pack to FSA, which is regularly updated to reflect any material developments in a firm’s business. The Resolution Pack must include :

  • Details of significant entities in the group and the key structural and operational issues relevant to separating significant legal entities. This will include details of a firm's 20 largest interbank exposures, details of the size of the derivatives and securities financing books and booking and settlement systems, and other economic roles.
  • Critical Function Contingency Analysis (CFCA) covering separation and / or "controlled wind-down" for each critical role of the firm. FSA will require an uninterrupted stream of service provision for critical roles such as deposit-taking, the payment services offered by providing current accounts or the making of markets critical for the UK financial system to work.
  • Plans to overcome any barriers to resolution which the UK authorities consider unacceptable. Resolution may be more difficult depending on where critical roles are within the group, whether the group uses a branch or subsidiary structure, and whether there is commingling of economic roles in a single legal entity or if an economic role spans multiple legal entities. Preparative actions might include actions to reduce the riskiness of the firm, such as simplification of intra-group relationships, changes in contractual arrangements, increased stand-alone capacity, changes in corporate structures and operational set-ups to ease separation of certain roles.

CASS Resolution Pack

This aims to reduce the wider economic cost of an in-scope firm failure. It ensures that information and records that would help an insolvency practitioner or resolution authority return client money and custody assets to clients more quickly will be accessible to the insolvency practitioner after the firm’s failure.


FSA will publish final rules in the first quarter of 2012. Certain rules will come into effect during the first quarter of 2012 but FSA will also provide transitional rules so firms will have until June 2012 to prepare their first RRPs.