The Single Resolution Board (SRB) published on 23 October 2019 its 'Expectations for Banks' document (open for Public Consultation until 4 December 2019).
This document clarifies the SRB’s and banks‘ role relating to resolvability, outlining best practices on key aspects and detailing the next steps to ensure resolvability of banks. The expectations provide a much more detailed and granular guidance to banks than previously and define more clearly the required actions to be carried out. With this document, the SRB aims to establish a common approach and a level playing field within the Banking Union. This is expected to have important implications on the skills and resources that banks will dedicate to this topic in the future.
The final document is expected to be published early 2020. From the date of its publication, banks should apply the principles outlined. As specified in the SRB's work programme 2020 published on 28 October 2019, the ‘Expectations for Banks’ will be used by the SRB as a basis for the yearly resolvability assessment. It is expected that these principles will be followed by additional operational guidance and more interaction between the SRB (via its IRTs) and banks under its remit. Banks should anticipate an increase in their IRTs’ scrutiny.
The SRB’s expectations are expressed in 34 principles grouped into seven dimensions which represent the key topics of relevance for banks’ resolvability, as summarised in the table below.
Furthermore, the SRB describes resolution planning as an iterative process between the SRB and the banks in the following years with regular dialogues between each bank and its IRT. Banks are expected to demonstrate in the resolution planning phase that they are resolvable and prepared for crisis management, and, if they are not, to play an active role in the process of identifying and removing resolvability impediments in any of the seven resolvability dimensions.
Governance – The SRB aims for robust governance arrangements in banks that allow timely and accurate provision of information, an effective oversight and efficient decision making before and during resolution.
Loss absorption and recapitalisation – The SRB targets a sufficient level of available eligible instruments in banks for loss absorption and recapitalisation capacity (at group and subsidiary level). For resolution groups, banks should set up a credible and feasible internal loss transfer and recapitalisation mechanism.
Liquidity and funding in resolution – The SRB intends banks to be able to estimate the liquidity and funding needs, to measure and report the liquidity situation and to identify and mobilise available collateral.
Operational continuity and access to Financial Market Infrastructures – The SRB requires banks to ensure continued access to services, operational assets and staff to allow preserving critical functions and restructuring during and after resolution. This includes especially arrangements to maintain access to FMIs and to payment, clearing, settlement and custody services.
Information systems and data requirements – The SRB aims for the use of Management Information Systems (MIS) in banks that allow the provision of information for the development and maintenance of resolution plans, the execution of fair, prudent and realistic valuation and the effective application of resolution actions.
Communication – The SRB targets prepared communication plans in banks to ensure a timely, robust and consistent communication to stakeholders and an effective governance for the execution of the plan in crisis time.
Separability and restructuring – The SRB expects that banks’ structure, complexity and interdependencies allow the operational implementation of the resolution strategy.
The SRB is the resolution authority for (i) all entities and groups directly supervised by the European Central Bank and (ii) other cross-border groups. In addition, as observed in the past, the SRB sets the pace and is a baseline for National Regulatory Authorities (NRAs) to define their requirements also for Less Significant Institutions which do not fall under the remit of the SRB. As described in its work programme 2020, the SRB expects to assess over 2.000 LSI resolution plans received from NRAs. As a result, other banks not immediately subject to these requirements should also at least remain aware of these changes (where relevant) and their potential implications, for the eventuality that these may also become required for them in the future.
While many principles in this new publication are similar with the requirements and expectations of the resolution framework of the recent past, others feature significantly increased granularity and introduce additional actions compared to the current market practices. These requirements and course of action must be carefully evaluated and considered, to ensure banks to identify potential new compliance areas, impediments which may require resolving, and potential improvements to work already performed in recent years surrounding resolvability.
We identified the following topics that currently do not show a pronounced level of implementation in the market and can require significant effort from banks:
Another key topic for resolvability raised in the ‘Expectations for Banks’ is MREL, as the SRB considers MREL as a key tool to achieve resolvability. With CRR2 and BRRD2, the MREL regulation has been updated and the implementation is currently and will be over the coming years a considerable task for banks.
KPMG member firms offer a wide range of strategies, services and tools to support and advise banks on regulatory requirements relating to Resolution. Member firms leverage a network of multidisciplinary professionals stretching across Europe experienced in supporting clients to implement work programmes. KPMG can support you to: