The Resolvability Assessment Framework (RAF) is the final major piece in the UK’s resolution regime for banks. The RAF places the responsibility on banks to demonstrate both to the Bank of England, and publicly, their preparedness for resolution, and that they have identified the risks to successful resolution. Banks would publish the key aspects of their assessment and the Bank of England would make a public statement on their resolvability.
It builds on the work since the financial crisis to create a resolution regime that ensures firms can fail in an orderly way. The framework is designed to make resolution more transparent, better understood, and more successful. We expect it to help market participants make more informed investment decisions.
To be considered resolvable, firms in scope of the RAF must, as a minimum, be able to achieve the three resolvability outcomes:
a) Have adequate financial resources in the context of resolution
b) Be able to continue to do business through resolution and restructuring
c) Be able to coordinate and communicate effectively within the firm and with the authorities and markets so that resolution and subsequent restructuring are orderly.
The Bank has identified generic impediments to resolvability. These were developed to be consistent with the barriers identified by the Financial Stability Board. On the basis of this work, the Bank of England and Prudential Regulation Authority (PRA) have developed the domestic policy it requires firms to meet for eight barriers to resolvability. To meet the three resolvability outcomes and be considered resolvable by the Bank of England, firms will need to (at a minimum) have capabilities, resources, and arrangements in place to meet these policies, as well as considering whether there are any additional barriers to satisfying the outcomes and how these barriers should be removed.