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PRA update – Resolvability Assessment Framework (RAF)

PRA update – Resolvability Assessment Framework (RAF)

Background

  • The Resolvability Assessment Framework (RAF) sets out how the Bank of England (‘the Bank’), as the UK’s resolution authority, assesses UK financial firms’ resolvability and introduces a public disclosure regime.
  • Using resolution to manage bank failure in an orderly way allows the Bank to maintain critical functions, protect public money and protect financial stability.
  • By holding firms accountable to regulators, the public and their investors, the RAF helps to ensure that firms would be able to fail in an orderly fashion without causing excessive disruption to the UK financial system.
  • All major UK banks need to meet the standards set to ensure resolution plans will be effective. The compliance deadline is January 2022.  The first report filings are required in October 2021.  The first public disclosures under the RAF are expected to be made in June 2022.

Impacts

The Bank and Prudential Regulation Authority (PRA) published this framework in July 2019, following a consultation.  It builds on the work since the financial crisis to create a resolution regime that ensures firms can fail in an orderly way.  The framework is designed to make resolution more transparent, better understood and more successful.

The RAF applies to UK firms notified by the Bank that their preferred resolution strategy is bail-in or partial-transfer and material subsidiaries of overseas-based firms operating in the UK.  It makes firms responsible to show how prepared they are for resolution with an orderly process and clear identification of risks to their successful resolution.

On 7 May 2020 the Bank, as Resolution Authority, and Prudential Regulation Authority (PRA) announced measures to alleviate operational burdens on firms in response to the Covid-19 outbreak.  Among these measures, the PRA offered firms, via a temporary modification by consent, a one year delay to the first reporting and disclosure dates.

These firms will now be required to first submit a report of their assessment of their preparations for resolution to the PRA by October 2021 and to publish a summary of this report by June 2022.  The Bank intends to make its first public statement on these firms’ resolvability by June 2022.

Timeline with relevant dates to be logged on regulatory calendar

  • 1 October 2021: The first reports will be submitted under the RAF
  • 1 January 2022: The deadline to meet resolution standards under the RAF
  • 1 June 2022: The first public disclosures will take place under the RAF

Next steps

All firms need to focus on delivery against these regulatory initiatives and must also note the revised implementation dates.

Detailed information is available on the FCA website for all these regulatory changes and initiatives.

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