|
Recovery and Resolution Planning
A number of international initiatives have recently been developed, aimed at
avoiding a recurrence of the recent financial crisis and its brutal impact on
real economies. Through international cooperation and the coordination of
macroprudential regulation regimes, there is an attempt for the first time to:
- Accurately measure interconnectedness (and the potential for contagion
and domino effects) within and between financial systems
- Harmonise regulatory initiatives aimed at more rigorous stress-testing and
recovery planning by firms, so as to remain going concerns under extreme stress and
- Improve the ability of regulators to ‘resolve’ (close or dispose of) firms which
are ‘gone concerns’ quickly, without recourse to taxpayer support and without disruption
to critical economic functions such as payment systems.
UK RRP Regulatory Initiative
To support these objectives, the proposed UK Recovery and Resolution Plans (‘RRP’) regulatory
requirements will come into effect during the first quarter of 2012 and will apply to all UK incorporated
deposit-takers. Firms will be required to prepare and submit their RRPs to the FSA by June 30th 2012.
The RRP regulatory initiative requires firms to develop a Recovery Plan which is:
- readily implementable
- subject to oversight and approval by the Board or Senior Management Committee
- integrated into the firm’s existing governance framework and processes and
- regularly reviewed and updated.
In addition processes need to be in place for regular monitoring of early warning signals and
triggers that prompt implementation of the recovery plan.
Note that actions identified as part of a firm’s Contingency Funding Plan (CFP) or Capital
Restoration Plan (CRP) may also be amongst the options included in the firm’s Recovery Plan.
However Recovery Plan actions will be relevant both to milder stresses and much more severe stresses.
Reproduction of the CRP and CFP therefore will not constitute an adequate Recovery Plan.
RRP Development — A Manageable Approach
KnowCo can support clients in preparing their RRPs. We take into consideration the nature and size
of the organisation and develop proportionate yet rigourous plans and policies. Our extensive experience
in capital and liquidity risk management, together with our risk management application set, put us in a
unique position to support our clients in this area. In particular:
- Our stress testing tool (KST) is deployed to develop harmonised liquidity and credit risk capital stress
test scenarios and optimise capital and liquidity buffers
- Our risk reporting tool (KRS) is used to provide early warning signals of key risk tolerance metrics
- Our experience in developing capital and liquidity risk management infrastructures: policies, processes and assurance systems.
|