As previously reported on this blog, on 20 February 2013 the FSA published an update to its Recovery and Resolution Planning guidance. It was announced that, in the future, firms will not have to update their resolution information pack (RRP Modules 3-6) on an annual basis as a matter of process. Instead, they will only be required to respond to requests for resolution planning information from their supervisors.
It seems difficult to reconcile the FSA’s new position with other RRP guidance. The FSB’s “Key Attributes” document states clearly that “supervisory and resolution authorities should ensure that RRPs are updated…at least annually or when there are material changes to a firm’s business or structure”, a requirement which is echoed in the draft Recovery and Resolution Directive (RRD). More generally, given the enormous amount of data processing effort that goes into updating a resolution plan in practice, it is difficult to see how any firm which does not follow processes designed to facilitate the periodic updating of a resolution plan could ever be taken to be in compliance with the “Key Attributes” requirements that it must be able to demonstrate an ability to produce the essential information needed to implement a resolution plan within 24 hours or be capable of delivering sufficiently detailed, accurate and timely information to support an effective resolution.
Firms would also be forgiven for being confused as to how best to react to this guidance in light of other regulatory developments which offer incentives for those who are prepared to constantly seek to optimise their resolvability, including:
- the additional loss-absorbency requirements of Basel III for Global Systemically Important Banks;
- the Liikanen proposal that structural separation above and beyond that relating to ‘significant’ trading activities should be dependent on the robustness of RRPs; and
- the Vicker’s recommendation that an additional levy of up to 3% of equity capital be required of a UK banking group that is judged “insufficiently resolvable to remove all risk to the public finances”.
Enhancing resolvability demands a proactive, rather than a reactive, approach to RRP legislation. By its nature, the assimilation of resolution information is not a process that can be easily mothballed and simply dusted-down as and when required, particularly for firms operating in multiple jurisdictions. Rather, if it is to mean anything, optimising resolvability requires huge commitment and continued cooperation on the part of both firms and authorities. In light of the drafting of the “Key Attributes” document and particularly the RRD, it is at least questionable whether the new FSA guidance will survive the test of time. The message to firms must surely be to note the FSA’s new guidance with interest but to continue on a ‘business as normal’ footing with their RRP preparations.
 “Key Attributes”, paragraph 11.10
 Article 9(3)
 “Key Attributes”, paragraph 12.2(iii)
 “Key Attributes”, Annex II, paragraph 4.14