November 19, 2018

BoE published a letter providing information to support implementation of the BoE Statement of Policy on valuation capabilities to support resolvability. The letter is from Sasha Mills, who is the Executive Director of Resolution Directorate of BoE, to CFOs of relevant firms. The policy comes into effect on January 01, 2021. Annex 2 of the letter contains the BoE guidance to support the implementation of policy while Annex 1 contains a survey, the response to which is requested by February 28, 2019. The purpose of the survey is to understand how firms intend to implement the statement of policy. This will help support the engagement of the BoE with firms throughout implementation.

The broad purpose of these valuations is to inform the application of resolution tools and to ensure that the full extent of losses is appreciated on entry into resolution. Valuations will also be a key input into the Bank’s decisions around resolution more broadly. For instance, in a UK-led bail-in, valuations also inform the BoE decisions on a firm’s reorganization plan and the allocation of equity to bailed-in creditors. Furthermore, valuations help inform decisions about the recapitalization of subsidiaries, including through the write-down or conversion of intragroup claims held for purposes of meeting the internal minimum requirements for own funds and eligible liabilities (MREL).

In June 2018, BoE had published the statement of policy, following an industry consultation in 2017. Respondents to the consultation supported the adoption of a principles-based approach, given that it accounts for a firm’s different characteristics and would enable the existing capabilities to be leveraged. A number of respondents requested further clarification on what would be required. Taking the feedback into account, BoE chose for the policy to remain principles-based and for supporting guidance to be provided at a later stage. It should be noted that the guidance is purely illustrative. It does not set out any additional expectations beyond those set out in the statement of policy and the related legal requirements. The compliance of a firm will ultimately be assessed against the principles in the statement of policy. 

 

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Effective Date: January 01, 2021 (Statement of Policy)

Keywords: Europe, UK, Banking, Resolution Planning, Valuation Capabilities, Internal MREL, BoE

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