Note: Readers are encouraged to refer first to the joint Bank of England (Bank) and Prudential Regulation Authority (PRA) ‘Introduction to the Resolvability Assessment Framework’ for an overview of the Resolvability Assessment Framework (RAF), and a foreword from Jon Cunliffe, Deputy Governor for Financial Stability, and Sam Woods, Deputy Governor for Prudential Regulation, and CEO of the Prudential Regulation Authority (PRA).
The Bank is responsible for taking action to manage the failure of financial firms in the UK – a process known as ‘resolution’. In ‘The Bank of England’s approach to resolution’ (the Purple Book), the Bank set out its general approach to resolution and how it discharges its statutory responsibilities as the UK Resolution Authority, including how it sets resolution strategies for particular firms.
The Bank is responsible for resolving firms and firms need to be able to carry out their responsibilities to make this happen. In order for the authorities to be able to take charge, recapitalise and restructure a bank, regardless of the cause of failure, firms need to have adequate financial resources that can be used in resolution, and the ability to continue functioning operationally when the authorities take control. This includes the ability to maintain trading and operational relationships so that any restructuring can be achieved.
The Bank believes that further transparency around the resolution regime, how it would operate a bail-in resolution strategy, and the progress made by individual firms towards being considered resolvable will foster greater and more widespread understanding of the resolution regime. It should also incentivise firms to take steps to embed changes to enhance their resolvability. The Bank is therefore proposing to introduce a new Resolvability Assessment Framework.
This consultation paper (CP) sets out:
- how the Bank proposes to assess resolvability as part of the RAF, consistent with its statutory obligation to conduct an assessment of resolvability for UK firms and groups;
- how the Bank proposes to increase transparency over the resolvability of individual firms by making a public statement on resolvability. This is consistent with the Bank’s commitment to Parliament in April 2017 that major UK firms will be resolvable by 2022;
- a draft Statement of Policy (SoP) setting out policy where the Bank is consulting on new requirements for firms; and
- a glossary of resolution terms used in this CP.
This consultation is relevant to firms where: (i) the Bank, as Resolution Authority, has notified them that their preferred resolution strategy is bail-in or partial-transfer, ie that the Bank would expect the strategy to involve the use of its stabilisation powers; or (ii) in its capacity as host Resolution Authority, the Bank has notified them that they are a ‘material subsidiary’ of an overseas-based banking group for the purposes of setting internal MREL in the UK.
Readers are encouraged to refer to the PRA CP31/18 ‘Resolution assessment and public disclosure by firms’ (the PRA CP), published alongside this document.
Responses and next steps
We welcome responses to the questions asked throughout the two CPs, and the approach as a whole. Feedback is welcomed from all parts of the financial sector, as well as from consumers, market participants and other stakeholders, including other regulatory organisations. Comments may be included in a single response. All responses should be emailed to RAF_consultation_2018@bankofengland.co.uk by Friday 5 April 2019.