On 30 July 2019, the Bank of England and the Prudential Regulation Authority (PRA) confirmed proposals for the final major piece of the UK’s resolution regime for banks. The Resolvability Assessment Framework (RAF) sets out a clear framework as to how the Bank of England will assess firms’ resolvability and how the PRA will require major UK firms to publicly disclose a summary of their own resolvability assessment. The framework is a key part of the Bank of England’s commitment to Parliament that major banks will be resolvable by 2022.
The framework is implemented by the Bank of England’s approach to assessing resolvability (as set out in its Policy Statement) and the PRA’s new requirements on firms (as set out in the new Resolution Assessment rules of the PRA Rulebook and the accompanying Supervisory Statement).
The Bank of England will assess firms’ resolvability against three outcomes. To be considered resolvable, a firm must, as a minimum:
- have adequate financial resources in the context of resolution;
- be able to continue to do business through resolution and restructuring; and
- be able to co-ordinate and communicate effectively within the firm and with authorities and markets so that resolution and restructuring are orderly.
This applies to all UK firms with a bail-in or partial-transfer resolution strategy, as well as material UK subsidiaries of overseas-based firms.
The PRA’s new rules require that major UK banks with GBP50 billion or more in retail deposits must take steps to assess their own preparations for resolution, submit reports of their assessment to the PRA and publicly disclose a summary of their report. Assessments and disclosure will work on a two-year cycle. Firms will submit their first reports to the PRA by October 2020 and publicly disclose their summaries by June 2021. The Bank of England will make a public statement concerning the resolvability of each firm assessed under the framework. The expectation is that this will take place at the same time that firms disclose their own assessments.
The first reports will set out each firm’s roadmap to being resolvable by 2022. The timing of the first RAF cycle is intended to allow the first reports to reflect any changes to firms’ structures that are required for EU withdrawal and ring-fencing.