UK FSA Sets out Resolution Proposals

UK banks and investment firms will have to prepare and manage recovery and resolution plans under new proposals published by the Financial Services Authority.

In two papers published on Tuesday, the FSA sets out its proposals aiming to reduce the impact of a firm's failure on the market.

A consultation paper looks at the preparation and maintenance of recovery and resolution plans for all UK deposit-takers, subsidiaries and significant investment firms with assets above £15bn (€17bn/$24.4bn), while the discussion paper looks at the resolution of financial institutions.

The proposals are in response to the G20 agreements which called for internationally consistent RRPs to be developed by the end of 2010. The Financial Stability Board has set out a timetable for systemically important firms to complete this by the end of 2012.

Recovery plans will require firms to set out the options for how they would achieve recovery when a crisis occurs. The plans will have to be developed and maintained by the firm, in coordination with the FSA.

They must have a sufficient number of credible options to cope with a range of scenarios and address capital shortfalls, liquidity pressures and profitability issues. The recovery plans should be reviewed at least once a year and approved by the board.

Resolution plans will set out how a firm will wind-down if it fails, which will enable regulators to assess the potential impact on financial stability and whether this is acceptable.

Firms will have to provide resolution data and analysis which will help to identify "significant barriers" to resolution and the effective use of the Special Resolution Regime put in place under the Banking Act 2009. This aims to reduce the likelihood of taxpayers having to bailout financial institutions.

The resolution plans will also increase cooperation and crisis management planning for global systemically important financial institutions with international regulators. These will also have to be reviewed at least annually and updated to reflect any material developments in a firm's business.

The FSA says it expects some firms to have RRPs in place by 30 June 2012.

A separate discussion paper explores different approaches to removing barriers to resolution and enhancing resolvability including the resolution of trading books, improving the resolution toolkit and bail-ins.

The regulator says that responses to the DP will assist the FSA in its policymaking and international discussions. The consultation period for both papers closes on 9 November 2011.

FSA executive committee member Thomas Huertas...