In July 2019, the Bank of England (BoE) published its final Policy Statement on the Resolvability Assessment Framework (RAF).
Subsequent to that and in light of the COVID-19 developments, on 7 May 2020, the BoE and the Prudential Regulation Authority (PRA) issued a statement on Resolution Measures setting out a number of changes, aimed at alleviating the operational burden on firms following previous statements by the BoE and PRA in response to COVID-19.
The regulatory context
The BoE has committed to Parliament that major UK banks and building societies will be resolvable by 2022.
Under the RAF, firms that are in scope of the Resolution Assessment Part of the PRA Rulebook (in-scope firms) are to assess their own resolvability and publish a summary report on the progress made to achieving that goal which the BoE in turn would assess in a public disclosure. The RAF disclosures are intended to underline the responsibility of in-scope firms for being resolvable and to make this transparent.
As set out in the final Policy Statement, in-scope firms were expected to submit their first resolvability assessment report (RAF report) by October 2020 with a summary to be published in June 2021 alongside the BoE’s own public statement on the reports.
However, in their statement on Resolution Measures made on 7 May 2020, the BoE and PRA announced delays to several deadlines:
- Resolvability Assessment Framework (RAF): For the in-scope firms, the deadline for first RAF report submission to the BoE is postponed by a year to October 2021 with a similar delay in public disclosures to June 2022;
- Valuation in Resolution (ViR): The compliance deadline for ViR requirements is extended by three months to 1 April 2021 from 1 January 2021; and
- Resolution plan reporting: Firms will not have to submit certain information under PRA Supervisory Statement SS19/13 ‘Resolution Planning’ until the end of 2022, unless notified otherwise on an individual basis by the PRA.
However, there is no change in,
- Compliance dates for other barriers to resolvability – Funding in Resolution, Continuity of Access to Financial Market Infrastructure, Restructuring Planning and Management, Governance and Communication, which remain unchanged at 1 January 2022; and
- The BoE’s public commitment that major UK banks and building societies will be resolvable by 2022 and by extension the overall RAF compliance deadline of 1 January 2022.
What does this mean for you as a firm?
Whilst the postponement gives in-scope firms an additional 12 months for the RAF report submission and the public disclosure, it does come with implications.
For all firms,
- The deadline of 1 January 2022, for overall RAF compliance has not changed, so timelines in firms for building capabilities should not change either. Firms should continue to move ahead this year with the enhancements in capabilities needed to address other barriers to resolvability, as alluded to above; and
- Firms should start to focus on Master Resolution Playbooks to articulate how resolvability will be delivered practically across barriers, through the timeline of the resolution (the function of Master Resolution Playbooks is discussed in our blog here).
Additionally, for in-scope firms,
- Given the proximity of the date for the first RAF report submission to the BoE (in October 2021) to the date for overall RAF compliance (of 1 January 2022), firms will be expected to have capabilities largely in place across all the barriers to resolvability and ensure this is fully documented and evidenced in the first RAF reports;
- In light of the new April 2021 deadline for ViR, testing of capabilities should be complete by the time of the first RAF report. However, for the other barriers to resolvability, we would expect more focus on design effectiveness and the plans for testing and assurance, with substantive testing taking place in Q2-Q3 2021 to support the first disclosure;
- The delay in the interim RAF timelines recognises the current pressures on firms’ due to COVID-19 (in particular finance teams, IFRS9 teams and Boards). However, given there is no change in the overall RAF Compliance deadline of 1 January 2022, firms should use this interim RAF delay to work more effectively and maintain focus to ensure they get the right outcome – that of being able to demonstrate to the BoE and themselves that they will be practically resolvable by 1 January 2022;
- The removal of an interim checkpoint with the BoE increases the emphasis on firms achieving the right result through their own design, implementation, and governance and testing. The testing and assurance approach should therefore be comprehensive and end-to-end, including scenario and walkthrough testing. This should involve the three lines of defence, and potentially independent third party; and
- We recommend focusing on developing and testing Master Resolution Playbooks, which will be of benefit in ensuring a proportionate and realistic approach. They will play a very important role in articulating how resolvability would work in practice and ensuring all work undertaken is clearly driven off a consistent approach enabling clear prioritisation and focus to achieve a clear outcome. Master playbooks also serve to evidence how work undertaken to remediate barriers has been delivered (the function of Master Resolution Playbooks is discussed in our blog here).
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