The Bank of England (the Bank) and the Prudential Regulation Authority (PRA) are consulting in parallel on a package of proposals relating to operational continuity in resolution (OCIR) policy. The Bank consultation proposes amendments to ‘Statement of Policy: The Bank of England’s Approach to Assessing Resolvability’ (Approach to Assessing Resolvability SoP), published in 2019. The Approach to Assessing Resolvability SoP, as a component of the Resolvability Assessment Framework (RAF), sets out how the Bank, as resolution authority, intends to assess individual firms’ resolvability, and the resolvability outcomes the Bank deems necessary to support resolution. The proposals in this consultation include:
- changes to the OCIR section of the Approach to Assessing Resolvability SoP; and
- changes to resolution measures, first announced in May 2020, aimed at alleviating operational burdens on PRA-regulated firms in response to the Covid-19 outbreak.
This consultation is published at the same time as PRA Consultation Paper 20/20 ‘Operational continuity in resolution: Updates to the policy’ (PRA CP). The proposals in the PRA CP are not final policy and are subject to further revision in response to consultation feedback. The proposals in this consultation may change as a result of responses to this consultation and the outcome of the PRA consultation.
Proposals following the review of PRA OCIR policy
‘The Bank of England’s Approach to Assessing Resolvability: A Consultation Paper’ was published in December 2018. It outlined the Bank’s thinking on the scope of operational continuity arrangements in the context of achieving the continuity outcome for resolvability. The Bank considers that the surest way to deliver continuity in resolution is for most or all functions to continue through the ‘resolution weekend’ and bail-in period of resolution, and for there to be continuity to allow post-resolution restructuring. The Bank also observed that in addition to critical functions, other business lines may need to continue to support the franchise and future viability.
At that time, the PRA committed to reviewing its existing OCIR policy in light of the Bank’s thinking and firms’ experiences of implementation. In the PRA CP, the PRA sets out proposals resulting from its review of existing OCIR policy.
The Bank consultation proposes the following amendments to the Approach to Assessing Resolvability SoP:
- Amendments to the ‘Scope of operational continuity arrangements in the context of achieving the resolvability outcomes’ box in the OCIR section. The proposed amendments are aligned with the PRA’s proposal to update its OCIR policy so that the OCIR expectations that apply to firms’ critical functions, and the critical services that support them, would also apply to those services (referred to in the PRA CP as ‘essential services’) that are necessary to ensure the continuity of core business lines during resolution.
- Updates to how the Bank would assess whether firms meet the OCIR objective in paragraph 5.9. This includes how the Bank would consider firms’ implementation of PRA OCIR policy, if updated as proposed, in assessing how their operational continuity arrangements support their resolvability.
- Clarification of the Bank’s approach (consistent with paragraphs 2.5–2.6) to assessing whether hosted material subsidiaries meet the OCIR objective in the RAF.
The Bank is also proposing smaller amendments to the following SoPs in light of the proposals in the PRA CP:
- The restructuring planning section of the Approach to Assessing Resolvability SoP (see Appendix 1).
- The Bank’s ‘Statement of Policy on Restructuring Planning’ (see Appendix 2).
- The Bank’s ‘Statement of Policy on Management, Governance and Communication’ (see Appendix 3).
Changes in response to the Covid-19 outbreak
In this consultation, the Bank is also proposing to reflect the changes to resolution measures, announced in May 2020, aimed at alleviating operational burdens on PRA-regulated firms in response to the Covid-19 outbreak. To reflect the proposals in CP19/20 ‘Resolution assessments: Amendments to reporting and disclosure dates’, the Bank proposes to update the following:
- The Approach to Assessing Resolvability SoP to reflect the proposal to extend the deadline for major UK banks and building societies to submit their first reports to the PRA on preparations for resolution to October 2021, and to extend the date for these firms to make public disclosures on their reports to June 2022 (see Appendix 1).
- ‘Statement of Policy on valuation capabilities to support resolvability’ to reflect the proposal to extend the deadline for compliance with the SoP to 1 April 2021 (see Appendix 4).
Responses and next steps
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 minimum requirement for own funds and eligible liabilities (MREL) in the UK.
Readers are encouraged to refer to the PRA CP19/20 and CP20/20, published at the same time as this Bank consultation.
This consultation and the PRA consultations close on Sunday 31 January 2021. The Bank invites feedback on the proposals set out in this consultation. Comments on this consultation, PRA CP19/20 and CP20/20 may be included in a single response addressed to RAF_OCIR_consultations_2020@bankofengland.co.uk.
This webpage sets out the Bank’s consultation. You can use the ‘Convert this page to PDF’ button below to create a copy.