The Bank Recovery and Resolution (No. 2) Order 2014

CHAPTER 2 Assessment of group recovery plan where the PRA or FCA is the consolidating supervisor

Application and interpretation of Chapter 2

16.—(1) This Chapter applies where, in relation to a relevant group—

(a) the PRA or FCA is the consolidating supervisor; and

(b) a group entity submits a group recovery plan to the appropriate regulator for assessment in accordance with Article 8 of the recovery and resolution directive (assessment of group recovery plans).

(2) In this Chapter—

“business changes” means changes to the business of a group institution which would be made with the object of addressing an impediment;

“four month period” means four months beginning with the date on which the appropriate regulator transmits a copy of the group recovery plan under article 17;

“group institution” means—

(a)

the EEA parent undertaking, if it is an institution;

(b)

a group subsidiary which is an institution;

“impediment”, in relation to the group recovery plan, means any material deficiency or measure in the plan which would impede its implementation;

“relevant matters”, in relation to the assessment of the group recovery plan, means the following matters for decision—

(c)

whether the plan meets the criteria for assessment;

(d)

whether group institutions should be required to draw up and submit recovery plans on an individual basis;

(e)

whether the plan contains an impediment;

(f)

whether a group entity should be required to revise the plan;

(g)

whether an impediment has been adequately addressed in a revision of the plan;

(h)

where an impediment has not been adequately addressed in a revision of the plan, whether it can be adequately addressed by directing a group entity to make specific changes to the plan; and

(i)

where an impediment cannot be adequately addressed by specific changes to the plan or by business changes—

(i)

whether a group entity should be directed to take relevant measures; and

(ii)

the terms of any direction to take relevant measures;

“relevant measures” means measures to maintain or restore the viability and financial position of a group institution, including measures to—

(a)

reduce the institution’s risk profile, including its liquidity risk profile;

(b)

review its structure and strategy;

(c)

enable it to undertake timely recapitalisation;

(d)

change its funding strategy in order to improve the resilience of core business lines and critical functions; or

(e)

change its governance structure; and

“UK group entity”—

(a)

where the EEA parent undertaking is set up in the United Kingdom, means that undertaking;

(b)

where the EEA parent undertaking is set up in another EEA State, means a group subsidiary which is an institution authorised by the PRA or FCA.

Duty to transmit a copy of group recovery plan

17.—(1) The appropriate regulator must send a copy of the group recovery plan or, where paragraph (2) has effect in relation to any information, of the plan without that information, to—

(a) the Bank;

(b) EBA;

(c) the resolution authority for any group entity set up in another EEA State;

(d) each relevant competent authority; and

(e) the competent authority established in any EEA State in which a group institution has a significant branch.

(2) This article does not require any information contained in the group recovery plan to be disclosed if its disclosure would be contrary to section 348 of FSMA(1) (restrictions on disclosure of confidential information by FCA, PRA etc).

Assessment of group recovery plan

18.—(1) Where every group institution is a UK authorised person, the appropriate regulator must assess the group recovery plan, and is solely responsible for the assessment.

(2) Where any group institution is set up in another EEA State, the appropriate regulator must assess the group recovery plan jointly with the competent authority for that institution and in consultation with EBA.

(3) Where a group institution has a significant branch in another EEA State, the assessment must be made, so far as information contained in the plan is relevant to the branch, in consultation with the competent authority established in that State.

(4) The assessment must take account of—

(a) any recommendations made by the Bank or another resolution authority to address any course of action proposed in the plan which could have an adverse impact on the resolvability of a group institution; and

(b) the potential impact of the proposed recovery measures on the financial stability of any EEA State in which a group entity conducts business.

Purpose of assessment

19.—(1) The purpose of the assessment of the group recovery plan is to determine whether the plan meets the criteria for assessment and decide other relevant matters.

(2) The criteria for assessment are that the plan must satisfy the requirements of Articles 5 and 9 of the recovery and resolution directive (recovery plans and recovery plan indicators) and that the arrangements proposed in the plan—

(a) would, if implemented, be reasonably likely to maintain or restore the viability and financial position of group institutions; and

(b) would be reasonably likely to be implemented quickly and effectively in situations of financial stress and, as far as possible, without any material adverse impact on the financial system of any EEA State.

(3) The appropriate regulator must ensure that the group recovery plan is not assessed without consideration of—

(a) any preparatory measures taken or planned to be taken by any group entity;

(b) the possibility that the plan may have to be implemented at the same time as other group recovery plans and recovery plans drawn up by institutions; and

(c) whether the capital and funding structure of the group institutions is appropriate having regard to the level of complexity of their organisational structure and risk profile.

(4) This article has effect subject to the imposition of any simplified obligations (within the meaning given by article 9(3)(a)) with respect to the group recovery plan.

Assessment of plan where every group institution is a UK authorised person

20.  Where the appropriate regulator is solely responsible for assessing the group recovery plan, it must conclude the assessment within the four month period, and is for this purpose solely responsible for deciding relevant matters.

Joint assessment of plan

21.—(1) This article applies where the appropriate regulator assesses the group recovery plan jointly with one or more relevant competent authorities.

(2) The appropriate regulator must endeavour to conclude the assessment within the four month period, and must for this purpose endeavour to reach a joint decision on relevant matters.

(3) Where the appropriate regulator and a relevant competent authority (“authority A”) are unable to reach a joint decision on a relevant matter, the appropriate regulator—

(a) where the matter concerned is whether to require group institutions to draw up and submit recovery plans on an individual basis, must decide that matter for the group institutions for which it is the competent authority;

(b) must decide any other matter, which it may do either alone or jointly with any relevant competent authority with which it is able to reach a joint decision;

(c) must ensure that a decision under this paragraph takes account of the views and reservations of authority A; and

(d) may not direct a UK group entity to propose business changes or take relevant measures in relation to a group institution for which authority A is the competent authority.

(4) When the appropriate regulator concludes the assessment of the group recovery plan, whether alone or jointly with a relevant competent authority, it must exercise its powers under FSMA, so far as necessary, for the purpose of implementing each decision on relevant matters, including a decision to direct a UK group entity to—

(a) submit a revision of the plan;

(b) propose business changes; or

(c) take relevant measures.

(5) The appropriate regulator must give written notice of each decision under this article to the group entity which submitted the group recovery plan for assessment and each relevant competent authority.

Revision of plan

22.  The appropriate regulator—

(a) must notify a UK group entity if the group recovery plan is found on assessment to contain an impediment; and

(b) may not require a UK group entity to revise the plan without giving it an opportunity to state its opinion on that requirement.

(2) If the appropriate regulator requires a UK group entity to revise the plan, it must allow the entity two months, which it may on application by the entity extend to three months, to prepare a plan which demonstrates that the impediment has been addressed.

Business changes and relevant measures

23.—(1) This article applies where—

(a) a UK group entity fails to submit a revision of the group recovery plan within the time allowed by the appropriate regulator; or

(b) the appropriate regulator considers that an impediment has not been adequately addressed in a revision of the plan and cannot be adequately addressed by directing the entity to make specific changes to the plan.

(2) Subject to articles 21(3)(d) and 25(1) and (2) and the appropriate regulator’s duty to endeavour to reach a joint decision on relevant matters, the appropriate regulator must, in exercise of its powers under FSMA—

(a) direct the UK group entity to propose business changes; and

(b) if the entity fails to propose business changes within the time allowed by the appropriate regulator or the appropriate regulator considers that any business changes proposed by the entity would not adequately address the impediment, determine whether to direct the entity to take relevant measures.

Recovery plan for group institution

24.  Where the appropriate regulator requires a group institution to draw up and submit a recovery plan on an individual basis, Chapter 1 applies for the purpose of the assessment of the plan, but has effect for that purpose as if each reference to an institution were a reference to the group institution.

References to EBA

25.—(1) Paragraph (2) applies where, before the end of the four month period, a relevant competent authority has referred to EBA in accordance with Article 19 of the EBA Regulation (settlement of disagreements between competent authorities in cross-border situations) any matter relating to—

(a) the assessment of the group recovery plan; or

(b) a proposal by the appropriate regulator to direct relevant measures to be taken with the object of—

(i) reducing a group institution’s risk profile, including its liquidity risk profile;

(ii) enabling a group institution to undertake timely recapitalisation; or

(iii) changing a group institution’s funding strategy in order to improve the resilience of core business lines and critical functions.

(2) The appropriate regulator must—

(a) defer a decision on the matter referred for one month beginning with the date on which the four month period ends; and

(b) ensure that the decision conforms with any decision taken by EBA before the end of that month under Article 19.3 of the EBA Regulation.

(3) The appropriate regulator may, within the four month period, refer to EBA in accordance with Article 19 of the EBA Regulation any matter relating to a proposal by a relevant competent authority to direct a group institution to take relevant measures with the object of—

(a) reducing the institution’s risk profile, including its liquidity risk profile;

(b) enabling it to undertake timely recapitalisation; or

(c) changing its funding strategy in order to improve the resilience of core business lines and critical functions.

(4) For the purposes of a reference to EBA of a matter to which this article refers the four month period is deemed to be the conciliation phase referred to in Article 19.2 of the EBA Regulation.

Requesting the assistance of EBA

26.  The appropriate regulator may ask EBA to assist the competent authorities in accordance with Article 31(c) of the EBA Regulation (non-binding mediation) to reach a joint decision on—

(a) the assessment of the group recovery plan;

(b) whether to require group institutions to draw up and submit recovery plans on an individual basis; or

(c) whether to direct a UK group entity to submit a revision of the group recovery plan, make specific changes to the plan, propose business changes or take relevant measures.

(1)

Section 348 was amended by the Financial Services Act 2010 (c. 28), section 24(1) and (2) and Schedule 2, paragraphs 1 and 26; by the Financial Services Act 2012, section 41 and Schedule 12, paragraph 18, and by the Financial Services (Banking Reform) Act 2013, section 129 and Schedule 8, paragraph 5.