Resolvability Assessment Framework: The Public Disclosure and Beyond
By June 2022, large banks and building societies[1] regulated by the Prudential Regulation Authority (PRA) will, for the first time, make public disclosures on their preparations for resolvability. A resolution of a firm requires it to fail in an orderly way that minimises disruption to its key services and avoids relying on the taxpayer to do so.
The disclosure will summarise the steps to be followed by a firm to facilitate its resolution and crucially, describe the work required to close out remaining gaps in capabilities. Experienced in delivering against the Resolvability Assessment Framework (RAF), BCS can help firms strengthen their resolution capabilities following the disclosures.
The RAF Public Disclosure
Firms have been required to comply with the RAF since 1st January 2022, and the disclosure forms the third and final component of the regulation. The first component focuses on how the BoE would assess resolvability, and second on how firms would assess their own preparations for resolution. The disclosure aims to illustrate the progress made towards satisfying the following outcomes set out in its Policy Statement[2] (PS): i) to have adequate financial resources to enable a resolution ii) to maintain continuity of its business through resolution and restructuring and iii) to coordinate and communicate effectively both within the firm and to authorities and markets. For mid-tier banks, the deadline to achieve these outcomes has been extended to 1st January 2023.
In essence, a bank’s disclosure will capture the culmination of effort made to strengthen their resolvability capabilities over the past decade.
What’s next for firms?
The disclosure will provide the public and investors an insight to its resolution strategy and draw attention to the work firms will inevitably have left to do.
Remaining work for firms could include the following areas:
- Firms may have found themselves spending much of their time building capabilities prior to 1st January 2022, leaving little time to test and enhance capabilities with rigour. Enhancements to ensure capabilities work harmoniously across the barriers of resolution will be vital in achieving the spirit of the RAF
- Firms who have gained comfort in their resolution capabilities will be better placed by integrating them seamlessly across the stress continuum, and a spectrum of scenarios
- Firms will be receiving feedback from the regulator on their preparation which could provide an indication of the regulator’s priorities on capabilities to further enhance. Additionally, similar to the updates made on the OCIR[3] and MREL[4] sections within the PS – there could be further adaptations of the regulation firms will need to be prepared to address
It is the remaining work and the ongoing enhancements of capabilities that banks will need to deliver, where BCS can help.
Where BCS can help
Experts at hand
BCS has a wealth of experience in helping banks to develop their resolution capabilities with experts across finance, technology, and risk. Partnering with banks, we have been able to deliver many capabilities successfully across the three outcomes ensuring all aspects on the PS are being considered. Our approach ensures regulatory requirements are addressed in a way that fully leverages existing capabilities. In addition, we have helped build bespoke capabilities ranging from database solutions, to communications and governance arrangements for banks’ most senior management.
Delivering with excellence
BCS are experienced in programme management with an ability establish, embed and govern resolution capabilities across international firms. We can support in managing a smooth delivery by demonstrating strong governance discipline. Whether the capabilities are new or mature, our delivery experts can support in navigating the finite time and resource available to ensure enhancements are delivered and embedded effectively and efficiently. This would further instil confidence in the bank’s readiness for resolution in the eyes of the regulator.
Setting you up for success
Post June 2022, there are clear expectations for banks to continue testing, assessing, and disclosing their preparations for resolution. This will require firms to continually review and improve their capabilities in parallel with competing regulatory demands. We can use our experience to bring together the back, middle and front offices across a bank to effectively summarise their position on resolution. Building an effective set-up in ‘business as usual’ would leave banks confident in their ability to successfully deliver regular resolvability assessments and disclosures – strengthening trust between the bank, customer and taxpayer.
[1] The Policy Statement is applicable to banks and building societies with £50 billion in retail deposits
[2] Policy Statement: The Bank of England’s Approach to Assessing Resolvability
[3] Operational Continuity in Resolution
[4] Minimum Required Eligible Liabilities
