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    PRA Finalizes Policy on Operational Resilience in Resolution Under CRR

    March 11, 2022

    The Prudential Regulation Authority (PRA) published the policy statement PS2/22 on operational resilience and operational continuity in resolution for the Capital Requirements Regulation (CRR) firms, Solvency II firms, and financial holding companies. Additionally, UK financial authorities published a joint statement that sets out guidance to stop the use of crypto-assets to circumvent economic sanctions on Russia, also urging firms to report any suspicious activities to the UK Financial Intelligence Unit.

    The PS2/22 from PRA contains final policy in the form of amendments to the Operational Resilience Part of the PRA Rulebook, the Insurance – Operational Resilience Part of the PRA Rulebook, and the Group Supervision Part of the PRA Rulebook (Appendix 1). It also sets out updated SS1/21 titled ""Operational resilience: Impact tolerances for important business services: (Appendix 2), amendments to the Operational Continuity Part of the PRA Rulebook (Appendix 3), and feedback to responses to the consultation paper CP21/21 on operational resilience and continuity in resolution. After considering the responses to CP21/21, PRA has amended the following aspects of the proposed policy:

    • A new rule has been introduced to Chapter 8 of the Operational Resilience Part requiring CRR consolidation entities to comply with the requirements in Chapter 8 within a reasonable time, and by no later than June 30, 2022.
    • New rules have been introduced to Chapter 8 of the Operational Resilience Part requiring CRR consolidation entities to assess the ability of group members to remain within impact tolerances for their important group business services, and to ensure the CRR consolidation entity’s board approves the CRR consolidation entity’s assessment.
    • Chapter 9 of SS1/21 has been amended to clarify where the policy applies to a CRR consolidation entity and where the policy applies to an insurer.
    • Paragraph 9.2 of SS1/21 has been amended to delete the reference to the definition of important group business services, provide examples of important group business services and to clarify the PRA’s expectations regarding how CRR consolidation entities and insurers should consider important group business services.
    • Paragraph 9.3 of SS1/21 has been amended to clarify that a threat to the viability of the group is one example of how risks could arise to UK financial stability or a firm’s safety and soundness in the context of important group business services, or in the case of PRA-regulated insurers, policyholder protection.
    • Paragraph 9.4 of SS1/21 has been amended to remove the reference to the requirement relating to strategies, processes, and systems and to add an expectation that CRR consolidation entities should have a regular dialogue with other members of its group regarding the assessment required under Rule 8.8 of the Operational Resilience Part applicable to CRR firms.
    • Paragraph 9.5 of SS1/21 has been amended to clarify that firms are expected to work with other members of their group to take action, should it be likely that a relevant important group business service could not be delivered within its impact tolerance.
    • A new bullet in paragraph 8.3 of SS1/21 has been inserted to clarify the PRA’s expectations regarding the contents of a CRR firm’s self-assessment as required under Rule 6.1 of the Operational Resilience Part applicable to CRR firms in respect of additional risks arising elsewhere in the group.
    • A number of minor amendments have been made to the Operational Resilience rules and SS1/21 to increase overall clarity. Paragraphs 1.2 and 1.5 of SS1/21 have been amended to include references to groups. A minor correction to Rules 7.1 and 7.2 of the Operational Resilience rules applicable to CRR firms and CRR consolidation entities has been made to remove a reference to "important group business services." References to Rules 8.1 and 8.2 have been deleted and a minor clarification has been made to 8.12 (1) and (2) to remove the words "by it."
    • The title of the Operational Resilience Part applicable to Solvency II firms has been amended to "Insurance – Operational Resilience." Throughout SS1/21, references to these rules have been updated with the new title. A consequential amendment has been made to Rule 1.2 of the Insurance – Operational Resilience Part.

    PRA considers that these changes will have a beneficial impact on firms in scope of the Operational Resilience Part relevant for CRR firms, particularly as they will allow more time to implement the governance procedures required under Rules 8.11 and 8.12. PRA has inserted a new rule into Chapter 8 of the Operational Resilience Part of the PRA Rulebook and extended the timeline to implement the requirements for CRR consolidation entities from March 31, 2022 to June 30, 2022. The new Rules 8.8 and 8.12(3) clarify that the CRR consolidation entity should assess whether each member of the consolidation group providing each important group business service could remain within the relevant impact tolerance, and should ensure that CRR consolidation entity’s management body approves that assessment. The implementation dates for the changes set out in PS2/22 are:

    • March 31, 2022, for the Operational Resilience Parts and the Group Supervision Part
    • January 01, 2023, for the Operational Continuity Part

     

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    Keywords: Europe, UK, Banking, CRR, Basel, Operational Resilience, Operational Continuity, PRA Rulebook, UKFIU, FCA, BoE, Resolution Framework, AML CFT, Cryptoassets, SS1 21, CP21 21, PS2 22, PRA, Subheadline

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