Recovery and Resolution should be considered on a continuum, it is essential that both types of plan are effectively interlinked in order to maximise synergies and ensure a smooth transition from one phase to another. Ian Nelson and our Banking team discuss below.
The Bank Recovery and Resolution Directive (‘BRRD’), which was adapted in 2014, introduced two crisis preparation tools for the credit institutions and investment firms authorised in the European Union, namely recovery plans and resolution plans. Recovery plans should be developed with the intention to represent the framework and activities that credit institution and investment firms can take to recover from a situation where there is severe stress and continue as a going concern. Resolution plans seek to enunciate the resolution actions that the resolution authority (RA) may take where the institution meets the conditions for resolution.
The obvious difference in the nature of both approaches is that while Recovery Plans seek to outline the activities the institution must take to recover from a severe stress, Resolution plans evidence the internal supports in place to allow the Resolution Authority execute resolution actions.
Under the BRRD, Recovery Plans and Resolution plans are considered in isolation but this should not detract from the need from credit institutions and investment firms to discern situations in which recovery and resolution should be considered on a continuum, as it is essential that both types of plan are effectively interlinked in order to maximise synergies and ensure a smooth transition from one phase to another. Credit institutions need to start considering the intersectionality of their crisis management plans and ensuring that there is a consistency in their approach to recovery and resolution.
While Irish Credit Institutions and Investment Firms have been dealing with the regulatory requirements regarding Recovery Plans for some time now, the SRB’s increased activity around the creation of resolution plans is a relatively new area of consideration for many operators in the Irish Market. With the SRB ‘Expectations for Banks’, produced in 2020, credit institutions and investment firms will need to have a robust, well-rounded resolution plan in place by 2023.
In May 2020, the EBA produced its ‘Report on interlinkages between Recovery and Resolution Planning’, with the stated goal being “to contribute to and participate actively in the development and coordination of effective and consistent recovery and resolution plans”. The comparative analysis of recovery and resolution plans by the EBA indicates that further work is needed in this area to study the impact of resolution plans on recovery planning and develop further guidance on certain aspects of the interlinkage.
The report outlines the observations of EBA from its first comparative analysis of recovery and resolution plans and identifies best practices and areas where further improvement and/or clarifications are needed. In addition, on certain common elements between both types of plans, such as critical functions and access to central bank facilities, the report clarifies their specific purpose in each planning phase and the advantages or disadvantages of a potential convergence or harmonisation. Finally, the report analyses the potential impact of recovery options on the resolvability of an institution and introduces an assessment framework to support the assessment and consultation process between resolution and competent authorities. Annex 1 to the report includes a template used to perform comparative analysis of a sample of recovery and resolution plans while Annex 2 presents a practical tool to help resolution authorities in conducting the analyses of the potential impact of recovery options on the resolvability of an institution.
The assessment in this report is intended to enhance synergies between recovery and resolution planning phases and ensure consistency in their potential implementation. The findings of the comparative analysis of recovery and resolution plans reveal that further work is needed in this area. Therefore, EBA plans to perform further work on the impact of resolution plans—particularly the impact of measures to remove impediments to resolvability—on ongoing supervision and recovery planning. The guidance work on certain practical aspects of interlinkage, such as on the timelines of recovery and resolution planning cycles, will also be undertaken, as such work is deemed useful for enhancing interactions among competent authorities and the resolution authorities.
With regulatory expectations continuing to evolve, and crisis management being at the forefront of regulators minds, it is critical for firms to ensure appropriate leveraging of synergies and interlinkages between recovery and resolution planning in 2021.
KPMG’s experienced teams across member firms have a strong understanding of developing and implementing recovery plans by supporting a broad range of financial and non-financial institutions.
Our teams also have extensive experience in resolution planning support including the development of bail-in playbooks and data and reporting management.
KPMG’s Industry expertise and well-founded experience in recovery and resolution planning as well as building operational resilience enables the firm to work with clients to assist in times of stress.