Response to consultation on Recommendations on the coverage of entities in a group recovery plan

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Question 1: Do respondents agree with the level and width of coverage for entities identified as group relevant?

In view of the above, if an entity is group-relevant and contributing to a group recovery plan to a degree where also its management has to be involved in the elaboration and approval of the EU parent group recovery plan, this is a clear indication that for this entity an ‘individual’ (in most cases this means local sub-group level) recovery plan might be appropriate - provided that the banking group has mechanisms in place to ensure their consistency.

On the other hand, the stabilisation of the EU group level in case of financial distress might require measures subsequently executed by the parent using its rights as an owner. Local management might be involved only in execution, but decision-making would reside at group level.

The overall the inclusion of guidance on material branches is appreciated. However, branch-specific regulatory requirements might be limited, and consequently requirements of a recovery plan apply very differently to a branch than to a subsidiary with standalone management and under local supervision. As a consequence, the term ‘any branch-specific information necessary as per Section 6’ might be read as covering all elements of Section 6 and should be qualified for example by adding where ‘they differ from the legal entity to which they belong to’.

Entity-specific recovery indicators in the group plan should be positively excluded when an individual recovery plan is drawn up.

Furthermore, where appropriate escalation procedures need to be considered at entity-specific level (as implied in paragraph 27), coupled with a greatly increased amount of indicators, the efficiency of the recovery warning system could be reduced. The risk is that by having all information in the recovery indicator system of a group plan, sight of the relevant information is lost. For entities that support (or even perform) core business lines and critical functions, and for which specific indicators, escalation procedures and possibly event options can and should be defined, the discussion should be if an individual recovery plan owned and understood by the entity’s management is perhaps more appropriate. We agree with the recommendation that a group recovery plan should provide a sufficient amount of credible options that could restore the entity and/or group to viability, including the orderly divestment of an entity with a focus on how any critical functions provided by that entity will be preserved. However, we do not agree with the proposal that a group recovery plan should include an estimate of the possible impact that the implementation of each recovery option is expected to have, neither on the entity where the option is exercised, nor on all possibly affected group-relevant entities with a particular focus on the continuity of critical functions and other group interdependencies.

We regard the focus on how any critical functions provided by an entity which is orderly divested as sufficient since this particular recovery option has the strongest impact on potential critical functions provided by the respective entity.

Question 2: Do respondents agree with the level and width of coverage for entities identified as locally relevant?

In ESBG’s view, the inclusion of the locally relevant entities in the group plan is needed only to the extent that it supports the understanding and assessment of the group plan, e.g. by making the impact on critical functions in the local economy visible. This doesn’t require detailed inclusion of the entity as such.

The criteria stated for the assessment of whether an entity is relevant for the (local) economy might be used as well for determining if an individual recovery plan is appropriate.

Concerning the entity level, recovery triggers and indicators, please see our remarks in question 1.

Question 3: Do respondents agree with the level and width of coverage for entities identified as not relevant for the group and not relevant for the local economy/local financial system?

We do not see a reason why entities, neither relevant for the group nor for the economy of any Member State, should be mentioned in the EU parent group level plan, unless such an entity is related to, for example, a specific recovery option or a critical shared service. Neither should financial stress of such a non-relevant entity have a notable impact on the EU parent group. The number of such legal entities for an EU parent institution in the SSM might reach a thousand or more.

Question 4: Do respondents agree with the monitoring process envisaged in section 7 and with the transitional phase envisaged in paragraph 11?

ESBG agrees with the monitoring principles. However, as noted before, the guiding principle regarding the appropriateness of ‘coverage’ of individual entities in an EU parent group recovery plan should be the relevance of entity specifics for the effectiveness of that group recovery plan.

Considering our general comments, we propose deleting paragraph 50 and instead include a transparent and consistent set of criteria to determine whether individual recovery plans are appropriate.

Consequently, paragraph 11 should also be deleted, since there can be instances where an individual recovery plan is the most appropriate way to ensure entity-specific governance, indicators and options, which would be brought together in one document, owned and understood by the management of an entity identified as being relevant in the context of recovery planning.

Name of organisation

European Savings and Retail Banking Group (ESBG)