Compliance News - 12 August 2011
CC:ME WEEK ENDED 12 AUGUST 2011
The Financial Services Authority has published a Consultation Paper and Discussion Paper on its proposals for Recovery and Resolution Plans (RRP), required of financial institutions. The publication also covers policy proposals aimed at reducing the impact of firms' failure in relation to their investment business client money and custody assets holdings. The CP covers the requirement for banks and large investment firms in the UK to prepare and maintain Recovery and Resolution Plans and the DP explores matters relevant to the resolution of financial services firms.
The 2008 banking crisis highlighted that firms failed to have effective recovery plans in place. Had firms had such plans in place prior to the advent of the crisis, they might well have been able to cope better with the stresses that developed and failures might have been avoided. Since the crisis the G20 has called for the rapid development of internationally consistent, firm-specific recovery and resolution plans and tools by the end of 2010 and the Financial Stability Board (FSB) has set out a timetable for RRPs of systemically important firms to be completed by the end of 2012. Under the Financial Services Act 2010 all UK deposit-takers are required to have RRPs in place. The FSA documents put in place the process for implementing that requirement.
The aim of the document is to set out the FSA's proposals on what is expected of firms with regards to planning for a stressed situation, which will require a firm to take action to recover or, if necessary, wind-down in an orderly manner without putting taxpayers at risk of loss. The paper builds on the recent work published by the FSB and the Special Resolution Regime (SRR) put in place under the Banking Act 2009.
The documents set out the following proposals for consultation:
Recovery Plans
Recovery Plans will seek to reduce the likelihood of failure by requiring firms to identify options in order to achieve recovery, to be implemented when a crisis occurs.
Resolution Plans
These plans will show how the firm will wind-down if it fails for whatever reason. This enables an assessment of the potential effect on financial stability to be made and then an assessment of whether this is acceptable. The resolution data and analysis to be provided by firms is intended to identify significant barriers to resolution, to facilitate the effective use of the powers under the SRR and so reduce the risk that taxpayers' funds will be required to support the firm.
Client Money and Assets
The CP also sets out proposed requirements relating to investment business client money and custody assets (CMA), known as the CASS Resolution Pack (CASS RP). The CASS RP aims to promote the speedier return of CMA to clients, once a firm has failed, by ensuring that vital CMA information would be readily accessible to the Insolvency Practitioner appointed to that failed firm. The CASS RP proposals apply to all firms subject to CASS 6 or 7 due to their holding of (investment business only) CMA.
The Discussion Paper explores different approaches to removing barriers to resolution and enhancing resolvability including the resolution of trading books, enhancing the resolution toolkit and bail-ins.
Source: Financial Services Authority
