FSA published its delayed feedback to its autumn 2011 consultation on Recovery and Resolution Plans (RRPs) in May 2012. The main message was “watch this space” as FSA has decided to delay its final rules yet further. But it has published some significant changes to its proposals. We have prepared a series of frequently asked questions and answers in response to the feedback.
Why has FSA only published draft rules?
There are now many significant developments that are relevant to RRPs. FSA has decided to delay publication of its final rules to make the rules in the UK consistent, as far as is possible, with:
- the proposed European Recovery and Resolution Directive; and
- the Financial Stability Board’s Key Attributes of Effective Resolution Regimes.
FSA is now looking to publish the final rules in autumn 2012.
Who do the draft rules apply to?
The draft rules apply to:
- all UK domestic firms that have a Part IV permission to carry on deposit-taking activities, other than credit unions and insurers; and
- BIPRU 730k firms that had gross assets exceeding £15 billion on their last accounting reference date.
FSA’s proposed scope is much broader than that proposed by the US regulators. In the US, the requirement to prepare living wills will apply only to US SIFIs (as defined in §165(a) of the Dodd- Frank Wall Street Reform and Consumer Protection Act).
When do firms need to submit their RRPs by?
The 30 June deadline for all firms no longer applies. Supervisors will tell individual firms the submission date for their RRP. Broadly, the dates for submission will be as follows:
- For UK headquartered global systemically important financial institutions (G-SIFIs) that have been part of the pilot exercise for the last two years, the submission date for modules 1 to 6 of the RRP will be 30 June 2012.
- For non-UK headquartered G-SIFIs, the submission date for modules 1 to 4 of the RRP will be 30 June 2012. This will allow time for discussions with FSA and various iterations of modules 5 and 6 to be prepared before December 2012. By so doing, FSA will be able to meet the FSB’s December 2012 deadline for resolution plans for G-SIFIs.
- Other firms will be informed of their submission deadline individually during discussions with their FSA supervisor. While some firms may have already been contacted by their supervisor, the rest can expect to be contacted during the second half of 2012. There is no formal notice period but FSA will try to give three months’ notice of the need to provide the RRP.
When should a firm start work on preparing its RRP?
Firms should start work on preparing their RRPs as soon as possible if they have not done so already. While firms could receive three months’ notice of the submission date, there is no duty on FSA to give this notice. All firms should start work now to ensure that they are ready to discuss their RRP when contacted by FSA.
FSA has provided a revised information pack. Firms should use this as the basis to prepare modules 1 to 4 before their supervisor contacts them.
What is covered by each module in the RRP information pack for firms?
Please click here to view table.
How has the information pack changed since August 2011?
FSA has made several changes to the information pack since August 2011, most notably:
- Much more information on the detail FSA would expect to see included in responses to module 2 setting out the requirements for firm recovery plans.
- Clarification in module 3 regarding the content of firms’ submissions. FSA is not looking for firms to produce a plan on how the Special Resolution Regime (under the Banking Act 2009) tools could be applied to each entity. This work will be undertaken by FSA following submission of the RRP.
- Information on modules 3.6 (Interbank Exposures) and 3.7 (Derivatives/securities financing) has been moved to separate pages on the FSA website, probably because these modules will not apply to all firms.
- The table on economic functions has been moved from module 3 to module 4.
- The tables in support of module 5 have been extensively amended. A new section 5.3.10 detailing operational funding costs is now included. Sections 5.4 and 5.5 have been revised and a new section 5.6 for “Cash services” has been created.
- A new module 5a detailing debt and equity in issue information has now been included in the pack.
How will FSA deal with RRPs for non-UK headquartered groups?
If an international group is seeking to rely on a group recovery plan, FSA will expect that plan to adequately assess and address the UK operations. FSA will expect the plan to highlight where further information and/or planning is required for the UK operations.
FSA will make information requests to individual non-UK headquartered firms following these high-level principles:
- UK subsidiaries will need to provide a UK recovery plan. This plan can either be incorporated into the group recovery plan or, if there is insufficient detail in the group plan, build on that plan to cover UK-specific issues.
- A UK branch will need to provide a copy of the group recovery plan if it believes that the group plan partly or fully covers the issues. FSA would expect the group recovery plan to be submitted to it as soon as it is required to be submitted to the relevant firm’s home or other regulatory authorities. FSA plans to consult on whether it will ask UK branches of third country banks for further information. We expect it will not be able to make such a request from UK branches of EEA banks.
Does module 3.6 (Interbank Exposures) need to be prepared for every firm?
No. If a firm has to complete this module its supervisor will tell it to do so. The appropriate template for this can be found here:
The templates will be updated in May 2012. This update will precede firms being contacted by their supervisors in early June 2012. If a firm is contacted it will need to capture exposures at 30 June 2012 and provide this to FSA by the end of July.
Does module 3.7 (Derivatives/securities financing) need to be prepared for every firm?
No. Supervisors will tell firms when they need to complete this module. If a firm does not have derivatives and/or securities financing, those parts of the module 3.7 submission will not apply. The general expectation will be for firms to prepare this module at the same time as they are preparing modules 1 to 4 of the RRP. Firms that have to submit modules 1 to 4 during 2012 have until 30 November 2012 to prepare their submission for module 3.7. This revised timing reflects FSA’s understanding that not all firms will have existing systems in place that can capture all of the required information.
How much information needs to be included in module 4? The module requires firms to set out details of the economic functions that they perform and provide high-level metrics for each of those functions. It is not intended to be a thorough and detailed analysis of each of the businesses that the firm has identified as being an economic function. The table on page 24 of the RRP information pack provides an indication of the kinds of metrics and level of detail that firms will be expected to provide. FSA thinks module 4 should not require significant work by firms and so must be completed by all.