Updates to the Bank of England’s approach to assessing resolvability

Published on 28 May 2021

Updates to the Bank of England’s approach to assessing resolvability - Policy Statement

In October 2020, the Bank of England (the Bank) and the Prudential Regulation Authority (PRA) consulted in parallel on a package of proposals relating to operational continuity in resolution (OCIR) policy and the resolution measures, announced in May 2020, to alleviate operational burdens on firms in response to Covid-19.

The Bank consultation proposed amendments to ‘Statement of Policy: The Bank of England’s Approach to Assessing Resolvability’ (‘RAF SoP’), published in 2019. The RAF SoP sets out how the Bank as resolution authority intends to assess individual firms’ resolvability, and the resolvability outcomes it deems necessary to support resolution. The proposals covered changes to:

• the OCIR section of the RAF SoP; and
• sections of the RAF SoP where firms’ submissions and disclosures under the Resolution Assessment Part of the PRA Rulebook in 2020/21 were mentioned.

Proposals relating to the review of OCIR policy 

The proposed changes in the Bank consultation were made in light of proposals in PRA Consultation Paper 20/20 ‘Operational continuity in resolution: Updates to the policy’ (‘PRA CP20/20’). Specifically, the Bank proposed to make the following amendments to the RAF SoP:

1. Amendments to the ‘Scope of operational continuity arrangements in the context of achieving the resolvability outcomes’ box in the OCIR section.
2. Updates to how the Bank would assess whether firms meet the OCIR objective in paragraph 5.9.
3. 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.

In addition, the Bank proposed consequential amendments to the following SoPs:

• The restructuring planning section of the Approach to Assessing Resolvability SoP.
• The Bank’s ‘Statement of Policy on Restructuring Planning’ (‘Restructuring Planning SoP’).
• The Bank’s ‘Statement of Policy on Management, Governance and Communication’ (‘Management, Governance and Communication SoP’).

Proposals in response to the Covid-19 outbreak

The Bank also proposed in its consultation to reflect the changes to the resolution measures, announced in May 2020, aimed at alleviating operational burdens on PRA-regulated firms in response to the Covid-19 outbreak. 

In line with the proposals in PRA Consultation Paper 19/20 ‘Resolution assessments: Amendments to reporting and disclosure dates’  (‘PRA CP19/20’), this included updating the RAF SoP to reflect the proposal to move back, by one year, the dates by which firms are required to submit a report of their assessment of their preparation for resolution, and to first publish a summary of that report. 

In addition, the Bank proposed to update ‘Statement of Policy on valuation capabilities to support resolvability’ to reflect the Bank’s decision to extend the deadline for compliance with the SoP to Thursday 1 April 2021.

Summary of responses and changes to draft policy

The Bank and PRA received nine responses relating to the Bank consultation, PRA CP19/20, and/or PRA CP20/20. 

While the responses did not comment specifically on the Bank’s proposals to update the RAF SoP, the Bank has worked with the PRA to update its policy in light of the feedback received on the PRA’s policy proposals and the PRA’s final policies. The Bank has therefore decided to go ahead with the changes described above.

Readers are encouraged to refer to the PRA’s summary of responses to PRA CP19/20 and PRA CP20/20 in PRA Policy Statement 9/21 ‘Operational continuity in resolution: Updates to the policy’ and PRA Policy Statement 10/21 ‘Resolution assessments: Amendments to reporting and disclosure dates’,  respectively.

In light of the PRA’s final OCIR policy the Bank has additionally made the following clarifications: 

• To remove references to the term ‘essential services’ from the Approach to Assessing Resolvability SoP and the Management, Governance and Communication SoP. This is to reflect the PRA’s decision in final policy not to introduce the term ‘essential services’, but instead to amend the definition of critical services in the Operational Continuity Part of the PRA Rulebook to refer to both critical functions and core business lines.
• To clarify in the RAF SoP the Bank’s approach to assessing OCIR in 2021 and 2022 in light of the effective date for the PRA’s revised OCIR policy. In particular, the Bank’s assessment of firms’ resolvability during 2021 and 2022 will focus on the PRA OCIR policy that came into force on Tuesday 1 January 2019, taking into account the Sunday 1 January 2023 effective date for the PRA’s revised OCIR policy. This will also be reflected in the Bank’s public statements regarding the resolvability of the major UK firms during this time.

Approach to OCIR during the first RAF reporting and disclosure cycle for major UK firms

The Bank recognises that firms will have had less time to implement changes to their resolvability capabilities and arrangements to comply with the PRA’s revised OCIR policy. This has a number of implications for the first RAF reporting and disclosure cycle for major UK firms.  

As noted above, the Bank’s assessment of firms’ resolvability during 2021 and 2022 will focus on the PRA OCIR policy that came into force on Tuesday 1 January 2019, taking into account the Thursday 1 January 2023 effective date for the PRA’s revised OCIR policy. This will also be reflected in the Bank’s public statements regarding the resolvability of the major UK firms during this time. Consistent with SS4/19 and PS10/21, this has the following implications for firms’ assessments and submission of reports during the first RAF cycle:

• Firms’ assessments of their preparations conducted prior to Saturday 1 January 2022 should focus on capabilities developed to comply with the PRA OCIR policy that came into force on Tuesday 1 January 2019; 
• The PRA anticipates that firms’ reports in October 2021 will therefore focus on the OCIR policy that came into force on Tuesday 1 January 2019; and
• Firms should submit to the PRA their plan for implementing the PRA’s revised OCIR policy by Friday 18 February 2022, and are encouraged to submit this plan alongside other updates they may have to their reports in light of the January 2022 compliance deadline for other outstanding resolvability policies.

Timeframe for compliance

The changes set out above are effective immediately.

The Bank SoPs are 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.

Appendices

• Statement of Policy: The Bank of England’s Approach to Assessing Resolvability (pdf)
• The Bank of England’s Statement of Policy on Restructuring Planning (pdf)
• The Bank of England’s Statement of Policy on Management, Governance and Communication (pdf)
• The Bank of England’s policy on valuation capabilities to support resolvability

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Published on 28 October 2020

Updates to the Bank of England’s approach to assessing resolvability - Consultation Paper

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:

1. 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.
2. 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.
3. 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.

Appendices

• Draft revisions to Bank Statements of Policy (pdf)
• Consultation privacy notice (pdf)

This webpage sets out the Bank’s consultation. You can use the ‘Convert this page to PDF’ button below to create a copy.