Commission Delegated Regulation (EU) 2016/1075Show full title

CHAPTER II U.K. RESOLUTION PLANS

SECTION I U.K. Content of resolution plans

Article 22 U.K. Categories of information to be included in resolution plans

A resolution plan shall contain at least the elements laid down in points (1) to (8) of this Article, including all information required under Articles 10 and 12 of Directive 2014/59/EU and any additional information necessary to enable the delivery of the resolution strategy:

(1)

a summary of the plan, including a description of the institution or group and a summary of items referred to in points (2) to (8);

(2)

a description of the resolution strategy considered in the plan, including:

(a)

identification of the different resolution actions foreseen under the plan;

(b)

identification of the legal entity or entities to which resolution actions would be applied;

(c)

identification of any critical functions or core business lines which will be maintained and any which are expected to be separated from other functions;

(d)

an estimation of the time frame for executing each material aspect of the plan, as required pursuant to point (d) of Article 10(7) of Directive 2014/59/EU;

(e)

a detailed description of any variants of the preferred resolution strategy considered to address circumstances in which the preferred strategy cannot be implemented;

(f)

a description of the decision-making process for implementing the resolution strategy, including the time frame required for decisions;

(g)

for group resolution plans, arrangements for cooperation and coordination between resolution and other relevant authorities of Member States in which group entities are located or have significant branches and relevant authorities of third countries in which group entities are located, in lines with the written arrangements and procedure as set out in Chapter VI, Section I;

(3)

a description of the information, and the arrangements for the provision of this information, necessary in order to effectively implement the resolution strategy, including at least:

(a)

a description of the information, and processes for ensuring availability in an appropriate timescale of that information required for the purposes of valuation, in particular pursuant to Articles 36 and 49 of Directive 2014/59/EU, and market ability, in particular pursuant to the marketing requirements for the sale of business and bridge bank tools;

(b)

a mapping of critical functions and core business lines to legal entities which identifies in particular the critical functions and core business lines carried out by entities subject to resolution actions and the critical functions or core business lines spread across legal entities which would be separated by implementation of the resolution strategy;

(c)

a description of the arrangements for the sharing of information between resolution authorities and other relevant authorities, including where relevant authorities in other Member States or in third countries, in accordance with Article 90 of Directive 2014/59/EU;

(d)

a detailed description of arrangements for ensuring that information pursuant to Article 11 of Directive 2014/59/EU is up to date and available to resolution authorities when required;

(4)

a description of arrangements to ensure operational continuity of access to critical functions during resolution, including at least the description of:

(a)

critical shared systems and operations which need to be continued to maintain continuity of critical functions and arrangements for ensuring the contractual and operational robustness of their provision in resolution;

(b)

internal and external interdependencies which are critical to the maintenance of operational continuity;

(c)

arrangements for ensuring any access to payment systems or other financial infrastructures necessary to maintain critical functions, including an assessment of the portability of client positions;

(5)

a description of the financing requirements and financing sources necessary for the implementation of the resolution strategy foreseen in the plan, including at least:

(a)

the description of financing, funding and liquidity requirements implied by the resolution strategy;

(b)

the description of potential sources of resolution funding, including the terms of financing, preconditions for their use, the timing of their availability, the entities to which they may provide financing, and any collateral requirements;

(c)

where relevant, a description and analysis of how and when an institution or group may apply, in the conditions addressed by the resolution plan, for the use of central bank facilities (other than emergency liquidity assistance or other assistance on non-standard terms) in resolution, including identification of available collateral;

(d)

for groups, the description of any principles agreed for sharing responsibility for financing between sources of funding in different jurisdictions, including between sources of funding in different Member States pursuant to point (f) of Article 12(3) of Directive 2014/59/EU;

(6)

plans for communication with critical stakeholder groups, including at least:

(a)

the management, owners, and staff of the institution or group including procedures for consultation with staff and, where applicable, dialogue with social partners in the resolution process, and an assessment of the impact of the plan on employees;

(b)

customers, media and the general public;

(c)

depositors, shareholders, bondholders, counterparties, financial market infrastructures, and other affected market participants;

(d)

any administrative or judicial bodies from whom approval or authorisation critical to implementing the resolution strategy is required;

(e)

any advisors required to implement the resolution strategy;

(7)

the conclusions of the assessment of resolvability, including at least:

(a)

whether or not the institution or group is currently resolvable;

(b)

a summary of the conclusions of the liquidation assessment required in point (a) of Article 23(1);

(c)

a detailed description of any impediments to resolvability identified, and of any measures proposed by the institution or group or required by the resolution authority to address or remove those impediments;

(d)

a quantified assessment of any change to minimum requirements for eligible liabilities, or the appropriate location of eligible liabilities, that is required to remove or address impediments to resolvability, taking into account the criteria specified in Article 45(6) of Directive 2014/59/EU and further specified in the delegated acts adopted pursuant to Article 45(2) of Directive 2014/59/EU;

(8)

any opinion expressed by the institution or group in relation to the resolution plan.

SECTION II U.K. Assessment of resolvability

Article 23 U.K. Stages of assessment

1. Resolution authorities shall assess resolvability based on the following consecutive stages:

(a) assessment of the feasibility and credibility of the liquidation of the institution or group under normal insolvency proceedings in accordance with Article 24;

(b) selection of a preferred resolution strategy for assessment in accordance with Article 25;

(c) assessment of the feasibility of the selected resolution strategy in accordance with Articles 26 to 31;

(d) assessment of the credibility of the selected resolution strategy in accordance with Article 32.

2. Where the resolution authority considers that it is clear that institutions or groups pose similar risks to the financial system or that the circumstances in which their liquidation is unlikely to be feasible are similar, that resolution authority may conduct the assessment of the feasibility and credibility of the liquidation of those institutions or groups in a similar or identical manner.

The types of institutions referred to in the first subparagraph may in particular be determined in accordance with the criteria referred to in Article 98(1)(j) of Directive 2013/36/EU.

3. Where a resolution authority concludes that it may not be feasible or credible to wind up the institution or group entities under normal insolvency proceedings, or that resolution action may otherwise be necessary in the public interest because winding up under normal insolvency proceedings would not meet the resolution objectives to the same extent, it shall identify a preferred resolution strategy which is appropriate for the institution or group on the basis of information provided by the institution or group pursuant to Article 11 of Directive 2014/59/EU and the criteria set out in this Regulation. To the extent necessary, it shall also identify variant strategies to address circumstances in which the strategy would not be feasible or credible.

4. The assessments of the feasibility and credibility of the preferred resolution strategy shall include assessment of any variant strategies proposed as part of that strategy.

5. Resolution authorities shall request from the institution or group in accordance with Article 11 of Directive 2014/59/EU such additional information as is necessary to carry out the assessments of the preferred and variant strategies.

6. Where appropriate, a resolution authority shall revise the preferred resolution strategy or consider alternative strategies on the basis of a completed assessment of feasibility and of the credibility of a preferred resolution strategy referred to in paragraph 4.

7. Where a resolution authority revises the preferred resolution strategy it shall assess the feasibility and the credibility of that revised preferred resolution strategy in accordance with Articles 26 and 27 respectively.

Article 24 U.K. Feasibility and credibility of liquidation under normal insolvency proceedings

1. Resolution authorities shall assess the feasibility and credibility of liquidation of the institution or group under normal insolvency proceedings, as well as the impact that liquidation would have in the reliance on extraordinary public financial support as compared to resolution.

2. When assessing the credibility of liquidation, resolution authorities shall consider the likely impact of the liquidation of the institution or group on the financial systems of any Member State or of the Union to ensure the continuity of access to critical functions carried out by the institution or group and achieving the resolution objectives of Article 31 of Directive 2014/59/EU. For this purpose, resolution authorities shall take into account the functions performed by the institution or group and assess whether liquidation would be likely to have a material adverse impact on any of the following:

(a) financial market functioning and market confidence;

(b) financial market infrastructures, in particular:

(i)

whether the sudden cessation of activities would constrain the normal functioning of financial market infrastructures in a manner which negatively impacts the financial system as a whole;

(ii)

whether and to what extent financial market infrastructures could serve as contagion channels in the liquidation process;

(c) other financial institutions, in particular:

(i)

whether liquidation would raise the funding costs of or reduce the availability of funding to other financial institutions in a manner which presents a risk to financial stability;

(ii)

the risk of direct and indirect contagion and macroeconomic feedback effects;

(d) the real economy and in particular the availability of critical financial services.

3. If the resolution authority concludes that liquidation is credible, it shall assess the feasibility of liquidation.

4. For this purpose resolution authorities shall consider whether the institution's or group's systems are able to provide the information required by the relevant deposit guarantee schemes for the purposes of providing payment to covered deposits in the amounts and time frames specified in Directive 2014/49/EU of the European Parliament and of the Council(1), or where relevant in accordance with equivalent third country deposit guarantee schemes, including on covered deposit balances.

Resolution authorities shall also assess whether the institution or the group has the capability required to support the deposit guarantee schemes' operations, in particular by distinguishing between covered and non-covered balances on deposit accounts.

Article 25 U.K. Identification of a resolution strategy

1. Resolution authorities shall assess whether a candidate resolution strategy is appropriate to achieve the resolution objectives given the structure and business model of the institution or group, and the resolution regimes applicable to legal entities in a group. A resolution action may be taken in the public interest if it is necessary for the achievement of and is proportionate to one or more of the resolution objectives and winding up of the institution under normal insolvency proceedings would not meet those resolution objectives to the same extent.

2. In particular for groups, resolution authorities shall assess whether it would be more appropriate to apply a single point of entry or a multiple point of entry strategy.

3. For these purposes resolution authorities shall consider at least the following matters:

(a) what resolution tools would be used under the preferred resolution strategy and whether those resolution tools are available for legal entities to which the resolution strategy proposes to apply them;

(b) the amount of qualifying eligible liabilities under the proposed resolution strategy, the risk of not contributing to loss absorption or recapitalisation, and the legal entities issuing those qualifying eligible liabilities, taking into account that:

(i)

single point of entry is more likely to be appropriate if sufficient externally issued eligible liabilities, or liabilities expected to contribute to loss absorption and recapitalisation under the proposed resolution strategy are issued by the top parent or group holding company;

(ii)

multiple point of entry is more likely to be appropriate if the group's eligible liabilities or liabilities expected to contribute to loss absorption and recapitalisation under the proposed resolution strategy are issued by more than one entity or regional or functional subgroup in the group which would be resolved;

(c) the contractual or other arrangements in place for losses to be transferred between legal entities in a group;

(d) the operational structure and business model of the institution or group, and in particular whether it is highly integrated or has a decentralised structure with a high degree of separation between different parts of the institution or group, taking into account that:

(i)

single point of entry is more likely to be appropriate if a group operates in a highly integrated manner, including by having centralised liquidity management, risk management, treasury functions, or IT and other critical shared services;

(ii)

multiple point of entry is more likely to be appropriate if a group's operations are divided into two or more clearly identifiable subgroups, each of which is financially, legally or operationally independent from other parts of the group, and any critical operational dependencies on other parts of the group are based on robust arrangements that ensure their continued operation in the event of resolution;

(e) the enforceability of resolution tools which would be applied, in particular in third countries;

(f) whether the resolution strategy requires supporting action by other authorities, in particular in third countries, or requires such authorities to refrain from independent resolution actions; and whether any such actions are feasible and credible for those authorities.

4. Resolution authorities shall assess whether variants of the resolution strategy are necessary to address scenarios or circumstances where the resolution strategy cannot be feasibly and credibly implemented.

5. Resolution authorities shall consider the extent to which any variant strategy is likely to achieve the resolution objectives and in particular ensure the continuity of critical functions.

Measures to remove impediments to variants of the resolution strategy shall only be implemented if they do not impair the feasible and credible implementation of the preferred resolution strategy.

Article 26 U.K. Assessment of feasibility of a resolution strategy

1. Resolution authorities shall assess whether it is feasible to apply the selected resolution strategy effectively in an appropriate time frame and shall identify potential impediments to the implementation of the selected resolution strategy.

2. Resolution authorities shall consider impediments to the short-term stabilisation of the institution or group. Resolution authorities shall also consider any foreseeable impediments to a business reorganisation which is required pursuant to Article 52 of Directive 2014/59/EU or otherwise likely to be required if the resolution strategy envisages all or part of the institution or group being restored to long-term viability.

3. Impediments shall be classified in at least the following categories:

(a) structure and operations;

(b) financial resources;

(c) information;

(d) cross-border issues;

(e) legal issues.

Article 27 U.K. Assessment of feasibility: structure and operations

Resolution authorities shall consider at least the following issues in assessing whether there are potential impediments to resolution related to the structure and operations of the institution or group:

(1)

matters addressed in points 1 to 7, 16, 18 and 19 of Section C of the Annex to Directive 2014/59/EU;

(2)

dependencies of material entities and core business lines on infrastructure, information technology, treasury or finance functions, employees or other critical shared services;

(3)

whether governance, control, and risk management arrangements are consistent with any planned changes to the structure of the institution or group;

(4)

whether the legal and franchise structure of the institution or group is consistent with any planned changes to the business structure of the institution or group;

(5)

whether appropriate resolution tools are available with respect to each legal entity as required to deliver the resolution strategy.

Article 28 U.K. Assessment of feasibility: financial resources

Resolution authorities shall consider at least the following issues in assessing whether there are potential impediments to resolution related to financial resources:

(1)

matters addressed in points 13, 14, 15 and 17 of Section C of the Annex to Directive 2014/59/EU;

(2)

the need to identify and quantify the amount of any liabilities which are likely under the preferred resolution strategy not to contributing to loss absorption or recapitalisation, considering at a minimum the following factors:

(i)

maturity;

(ii)

subordination ranking;

(iii)

the types of holders of the instrument, or the instrument's transferability;

(iv)

legal impediments to loss absorbency such as lack of recognition of resolution tools under foreign law or existence of set-off rights;

(v)

other factors creating risk that the liabilities would be exempted from absorbing losses in resolution;

(vi)

the amount and issuing legal entities of qualifying eligible liabilities or other liabilities which would absorb losses;

(3)

the size of funding needs in the run-up to and during resolution, the availability of sources of funding, and impediments to the transfer of funds as required within the institution or group;

(4)

whether appropriate arrangements are specified for losses to be transferred to legal entities to which resolution tools would be applied from other group companies, including where relevant an assessment of the amount and loss-absorbency of intragroup funding.

Article 29 U.K. Assessment of feasibility: information

Resolution authorities shall consider at least the following issues in assessing whether there are potential impediments to resolution related to information:

(1)

matters addressed in points 8 to 12 of Section C of the Annex to Directive 2014/59/EU;

(2)

the capability of the institution or group to provide information on the amount, and location within the group, of assets which would be expected to qualify as collateral for central bank facilities;

(3)

the capability of the institution or group to provide information to carry out a valuation to determine the amount of write-down or recapitalisation required.

Article 30 U.K. Assessment of feasibility: cross-border issues

Resolution authorities shall consider at least the following issues in assessing whether there are potential impediments to resolution related to cross-border issues:

(1)

matters addressed in point 20 of Section C of the Annex to Directive 2014/59/EU;

(2)

existence of adequate processes for coordination and communication and assurances on actions to be taken between home and host authorities, including in third countries, to enable delivery of the resolution strategy;

(3)

whether law in relevant home and host jurisdictions overrides contractual termination rights in financial contracts that are triggered solely by the failure and resolution of an affiliated company.

Article 31 U.K. Assessment of feasibility: other potential impediments

The following legal issues shall be considered in assessing potential impediments to resolution:

(1)

whether requirements for regulatory approvals or authorisations necessary to deliver the resolution strategy can be met in a timely manner;

(2)

whether significant contractual documentation permits termination of contracts on entry into resolution;

(3)

whether contractual obligations which cannot be disapplied by the resolution authority prohibit any transfer of assets and/or liabilities envisaged in the resolution strategy.

Article 32 U.K. Assessment of credibility of a resolution strategy

1. After assessing the feasibility of the selected resolution strategy, resolution authorities shall assess its credibility, taking into consideration the likely impact of resolution on the financial systems and real economies of any Member State or of the Union, with a view to ensuring the continuity of critical functions carried out by the institution or group. The assessment shall include evaluation of matters addressed in points 21 to 28 of Section C of the Annex to Directive 2014/59/EU.

2. In conducting this assessment, resolution authorities shall consider the likely impact of the implementation of the resolution strategy on the financial systems of any Member State or of the Union. For this purpose, resolution authorities shall take into account the functions performed by the institution or group and assess whether implementation of the resolution strategy would be likely to have a material adverse impact on any of the following:

(a) financial market functioning, and in particular market confidence;

(b) financial market infrastructures, and in particular:

(i)

whether the sudden cessation of activities would constrain the normal functioning of financial market infrastructures in a manner which negatively impacts the financial system as a whole;

(ii)

whether and to what extent financial market infrastructures could serve as contagion channels in the liquidation process;

(c) other financial institutions, and in particular:

(i)

whether liquidation would raise the funding costs of or reduce the availability of funding to other financial institutions in a manner which presents a risk to financial stability;

(ii)

the risk of direct and indirect contagion and macroeconomic feedback effects;

(d) the real economy and in particular on the availability of financial services.

(1)

Directive 2014/49/EU of the European Parliament and of the Council of 16 April 2014 on deposit guarantee schemes (OJ L 173, 12.6.2014, p. 149).