Adopted and published on the Official Journal
The European Banking Authority (EBA) published today two final draft Regulatory Technical Standards (RTS) specifying (i) the information to be included in a recovery plan, and (ii) the criteria which competent authorities should apply when assessing the recovery plan of an institution or a group. The final draft RTS are complemented by Guidelines providing the range of scenarios to be used when testing recovery plans. These standards and Guidelines aim to facilitate bank recovery on a cross-border basis and enhance financial stability by ensuring consistent high regulatory standards in this area and a level playing field across the EU. They will provide the common framework and language which are indispensable for effective joint assessment of recovery plans for cross-border groups and will form part of the European Single Rulebook in banking.
The BRRD requires banks to draw up recovery plans which set out measures they would adopt to restore long-term financial viability in case of severe distress. Competent authorities are required to assess these recovery plans, and to agree on joint decisions for the recovery plans of cross-border groups.
The first set of regulatory technical standards (RTS) specifies the information which institutions should include in their recovery plans, which is broken down into different sections: (i) the summary of the recovery plan; (ii) information on governance; (ii) a strategic analysis; (iv) a communication plan; and (v) a description of preparatory measures. The second set of RTS identifies the principles and criteria which supervisory authorities shall follow when assessing i) the completeness, ii) the quality and iii) the credibility of recovery plans.
The RTS are complemented by a set of Guidelines specifying the range of scenarios which institutions should consider to test the effectiveness and adequacy of the recovery options and indicators. The objective of recovery plans is not to forecast the factors that could prompt a crisis, but rather to assess institutions' resilience and their ability to react to a wide range of shocks. Therefore, scenarios of macroeconomic and financial distress need to be designed taking into account the specific characteristics of the bank involved, including its size and interconnectedness. These scenarios should include situations where the bank would be at risk of failing if recovery measures were not implemented in a timely manner.
The RTS and Guidelines recognise the need for proportionality, which is addressed through the possibility for less complex institutions to design less complex recovery plans and the possibility for Member States to apply simplified obligations to certain institutions. Forthcoming EBA Guidelines will expand on the criteria laid down in the BRRD for applying simplified obligations.
These Final draft RTS and Guidelines have been developed according to Articles 6(8) and 5(7) of Directive 2014/59/EU (BRRD), which mandates the EBA to provide a consistent framework for assessing and designing institutions' recovery plans.
The RTS and the GL have been drafted taking into account the experience collected on the basis of the recommendation which the EBA issued in 2013 to spur the development of recovery plans for cross-border groups.
The European Banking Authority (EBA) launches today a consultation on Draft Regulatory Technical Standard (RTS) on the content of recovery plans. In doing so the EBA starts the preparatory work for the implementation of the Recovery and Resolution Directive (RRD) currently discussed by the EU legislators. The consultation runs until 11 June 2013.
These RTS will contribute to the European Single Rulebook in banking and aim at enhancing financial stability and minimising the probability of banks’ failure.
Recovery plans shall set out the arrangements and measures a bank would adopt to restore long-term financial viability in case of severe distress. According to the proposed draft RTS, recovery plans developed at group and individual level will need to include at least the following 5 key parts:
(i) summary of the recovery plan;
(ii) governance, including the conditions and procedures necessary to ensure a timely implementation of the recovery options;
(iii) strategic analysis, including a description of the institution’s core business lines and critical functions together with the different recovery options designed to respond to financial stress scenarios ;
(iv) communication plan, including external and internal communication arrangements;
(v) and preparatory measures taken or to be taken to improve the implementation and effectiveness of the plan.
The content proposed in these RTS builds on the EBA Recommendation issued in January 2013 to foster the development of group recovery plans and their discussion within colleges of supervisors.
The proposed consultation paper is based on the draft Directive establishing a framework for the recovery and resolution of credit institutions and investment firms (the so-called Recovery and Resolution Directive - RRD) as proposed by the European Commission on 6 June 2012. As the text is still being discussed by the EU legislators (European Parliament and Council), the draft RTS might be amended after the consultation to take into account inter alia possible changes in the final RRD.
The EBA will submit the final draft RTS on recovery plans within 12 months from the date of entry into force of the RRD.
This discussion paper presents some preliminary ideas on what the key elements of a recovery plan should be. To this end, it proposes a possible “template for recovery plan” which aims at covering the essential issues that should be addressed in a recovery plan.
The inputs from the discussion process will assist the EBA in the performance of its role according to Article 25 of the EBA Regulation.
Background
Article 25 of the EBA founding Regulation (Regulation (EU) 1093/2010) assigns the Authority the task of contributing to and actively participating in the development and coordination of effective and consistent Recovery and Resolution Plans (RRPs).
In particular, the EBA may identify best practices, and draft regulatory and implementing technical standards, with regard to the development of RRPs. The exact role and responsibility of the EBA are to be specified in an EU legislative act. In this regard, the forthcoming European Commission proposal for EU legislation establishing a framework for the recovery and resolution of credit institutions is expected to detail the nature and content of RRPs, as well as to clarify the scope of their application, and to further define the role and powers of the EBA and national competent authorities (NCAs).
Consultation process
The EBA invites comments on the issues raised in this discussion paper (DP).
Please send your comments to the EBA by e-mail to DP-2012-02@eba.europa.eu by 15 June 2012, including the reference to “EBA/DP/2012/2” in the subject field. Answers should be sent preferably both in PDF and Word formats.
Please note that comments submitted after the deadline, or sent to another e-mail address, will not be processed.
All contributions received will be published on the EBA’s website following the close of the consultation, unless you request otherwise.