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January 17, 2019

While speaking at the BPFI Conference in Dublin, the SRB Chair Elke König discussed the role of SRB, which is primarily to end the concept of "too-big to fail." She described where SRB fits into the overall regulatory structure in EU, before elaborating on the policy areas for the coming year.

According to Dr. König, one of the fundamentals in making banks resolvable is the building up of loss-absorption capacity. Recently, SRB published a new policy document on MREL. In 2018, SRB split the cycle for resolution planning into two waves. This has followed a transitional two-step approach to the MREL-setting process. This recent policy applies to the second wave of resolution plans, which are those of the most complex groups. The first part of this two-wave process was published in November 2018. The first part covered banks that did not have binding targets—those without presence outside the Banking Union. SRB will, therefore, review its policy for MREL-setting for further updates in 2019 on the basis of the publication of the Banking Package in the Official Journal of the European Union, with the aim of charting a consistent path and preparing banks to transition to the new regime as well as to reflect any change necessary due to those requirements potentially coming into force in 2019.

While the 2018 SRB policy follows a number of the elements defined in the 2017 policy, some new elements are added into the 2018 policy. There are three elements of note—namely, location of eligible resources, subordination, and setting of MREL at the individual level. The resolution plans are now in place for all of institutions and the work of SRB has begun to focus on fine-tuning each plan to ensure that it is truly ready to be sprung into action at short notice. "Banks need to build up the required MREL but they also need to develop the playbook on how to operationalize a write-down or bail-in." In this context operational continuity has been considered one of the priorities of 2018 resolution planning cycle. With specific regard to the Irish context, it is worthwhile to mention that there are some domestic banks that have UK subsidiaries, for which the PRA requirements on operational continuity apply since January 01, 2019. However, the banks have taken an overarching group-wide approach to also meet the SRB expectations on operational continuity. She highlighted that the same approach is followed by UK banks with subsidiaries in Ireland, where SRB is the host authority, to ensure that operational continuity in resolution will be achieved on a group-wide basis and not just for group entities in the UK.

She added that part of the SRB resolution planning involves making sure that in times of crisis, operations can continue normally. Irrespective of the service delivery model adopted, banking groups are expected to structure their operational arrangements to facilitate the continuity of critical services in resolution. This particularly requires the following:

  • Undertake a comprehensive identification and mapping of critical services to critical functions and core business lines and an adequate documenting of contractual arrangements and service-level agreements
  • Maintaining access to key operational assets (such as IT infrastructure) and mitigating key staff departing
  • Achieving resolution-resilient contractual service provisions
  • Ensuring financial resilience of service provision
  • Ensuring appropriate governance arrangements

 

Related Link: Speech

Keywords: Europe, EU, Ireland, Banking, Loss Absorbing Capacity, MREL, Operational Continuity, Resolution Planning, SRB

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