PRA Finalizes Policy on Simplified Obligations for Recovery Planning
PRA published the policy statement PS25/20 on simplified obligations for recovery planning, in the form of the updated supervisory statement SS9/17 on recovery planning (Appendix 1). PS25/20 also provides feedback to responses to the consultation paper CP10/20, which proposed to allow certain firms to benefit from simplified obligations for recovery planning. After considering responses to the consultation, PRA has made additional changes to the draft amendments to SS9/17. The final policy will take effect immediately.
Under Article 4 of the Bank Recovery and Resolution Directive (BRRD), PRA has discretion to apply simplified obligations for recovery planning for firms, where their failure is not expected to have a significant negative effect on financial markets, on other institutions, on funding conditions, or on the wider economy, taking account of the other criteria set out in Article 4(1). Simplified obligations enable PRA and BoE, to decide on the level of detail required in recovery and resolution planning of firms. The proposals in CP10/20 related to how PRA would perform the eligibility assessment process to determine which firms are eligible for simplified obligations in respect of recovery planning. PRA received two responses to CP10/20. The responses were supportive of the proposal to introduce simplified obligations.
PRA has considered the responses and has made additional changes to SS9/17. The additional changes include addition of details to explain how the recovery planning expectations of PRA vary according to the size of firms as well as to explain that eligible firms are permitted to include a minimum of only two scenarios in their recovery plans. PRA expects firms to include a combined capital and liquidity stress, as these scenarios are the most challenging. PRA considers that the changes to the SS9/17 are not significant and will not materially alter the cost-benefit analysis presented in CP10/20.
PS25/20 is relevant to authorized UK banks, building societies, designated UK investment firms, and their qualifying parent undertakings, to which the Recovery Plans Part of the PRA Rulebook applies. The policy is likely to be of interest to smaller and non-systemic firms that do not perform critical functions. The policy set out in PS25/20 has been designed in the context of the withdrawal of UK from EU and entry into the transition period, during which time UK remains subject to European law. PRA will keep the policy under review to assess whether any changes would be required due to changes in the UK regulatory framework at the end of the transition period, including those arising once any new arrangements with the European Union take effect. PRA has assessed that the policy would not need to be amended under the EU (Withdrawal) Act 2018.
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Effective Date: December 07, 2020
Keywords: Europe, UK, Banking, Recovery Planning, Basel, BRRD, CP 10/20, PS25/20, SS9/17, Resolution Framework, PRA
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