The Bank Recovery and Resolution (No. 2) Order 2014

PART 4 Recovery plans

CHAPTER 1 Assessment of recovery plan drawn up by an institution

Application and interpretation of Chapter 1

11.—(1) This Chapter applies where an institution—

(a) is authorised by the PRA or FCA and is not part of a group subject to supervision on a consolidated basis in accordance with Article 111 of the capital requirements directive; and

(b) submits a recovery plan to the appropriate regulator for assessment in accordance with Article 6 of the recovery and resolution directive (assessment of recovery plans).

(2) In this Chapter “relevant measures” means measures to maintain or restore the viability and financial position of the institution, including measures to—

(a) reduce its risk profile, including its liquidity risk profile;

(b) review its structure and strategy;

(c) enable it to undertake timely recapitalisation;

(d) change its funding strategy in order to improve the resilience of core business lines and critical functions; and

(e) change its governance structure.

Assessment of plan

12.—(1) The appropriate regulator must assess the recovery plan within six months beginning with the date on which it receives the plan.

(2) Where the institution has a significant branch(1) in another EEA State, the appropriate regulator must assess the recovery plan, so far as it is relevant to the branch, in consultation with the competent authority established in that State.

(3) The appropriate regulator must—

(a) send a copy of the recovery plan to the Bank; and

(b) have regard to any recommendations made by the Bank to address any course of action proposed in the plan which could have an adverse impact on the resolvability of the institution.

Criteria for assessment

13.—(1) The appropriate regulator must assess whether the recovery plan meets the requirements of Articles 5 and 9 of the recovery and resolution directive (recovery plans and recovery plan indicators) and whether the arrangements proposed in the plan—

(a) would, if implemented, be reasonably likely to maintain or restore the viability and financial position of the institution; and

(b) would be reasonably likely to be implemented quickly and effectively in situations of financial stress and, as far as possible, without any material adverse impact on the financial system of the United Kingdom.

(2) In assessing the recovery plan against these criteria, the appropriate regulator must consider—

(a) any preparatory measures taken or planned to be taken by the institution;

(b) the possibility that the plan may have to be implemented at the same time as recovery plans drawn up by other institutions and group recovery plans; and

(c) whether the capital and funding structure of the institution is appropriate having regard to the level of complexity of its organisational structure and its risk profile.

(3) This article has effect subject to the imposition of any simplified obligations (within the meaning given by article 9(3)(a)) with respect to the recovery plan.

Revision of plan

14.—(1) The appropriate regulator—

(a) must notify the institution if, in its assessment, the recovery plan contains any material deficiency or measure which would impede its implementation; and

(b) may not require the institution to revise the recovery plan without giving it an opportunity to state its opinion on that requirement.

(2) If the appropriate regulator requires the institution to revise the recovery plan, it must allow the institution two months, which it may on application by the institution extend to three months, to prepare a plan which demonstrates that the deficiency or other impediment has been addressed.

Business changes and relevant measures

15.—(1) This article applies where—

(a) the institution fails to submit a revision of the recovery plan within the time allowed by the appropriate regulator; or

(b) the appropriate regulator considers that a matter notified under article 14(1) has not been adequately addressed in a revision of the plan and cannot be adequately addressed by directing the institution to make specific changes to the plan.

(2) The appropriate regulator must, in exercise of its powers under FSMA—

(a) direct the institution to propose changes to its business which would be made with the object of addressing a material deficiency or measure in the recovery plan which would impede its implementation; and

(b) if the institution fails to propose such changes to its business within the time allowed by the appropriate regulator or the appropriate regulator considers that any changes proposed would not adequately address the impediment, determine whether to direct the institution to take relevant measures.

CHAPTER 2 Assessment of group recovery plan where the PRA or FCA is the consolidating supervisor

Application and interpretation of Chapter 2

16.—(1) This Chapter applies where, in relation to a relevant group—

(a) the PRA or FCA is the consolidating supervisor; and

(b) a group entity submits a group recovery plan to the appropriate regulator for assessment in accordance with Article 8 of the recovery and resolution directive (assessment of group recovery plans).

(2) In this Chapter—

“business changes” means changes to the business of a group institution which would be made with the object of addressing an impediment;

“four month period” means four months beginning with the date on which the appropriate regulator transmits a copy of the group recovery plan under article 17;

“group institution” means—

(a)

the EEA parent undertaking, if it is an institution;

(b)

a group subsidiary which is an institution;

“impediment”, in relation to the group recovery plan, means any material deficiency or measure in the plan which would impede its implementation;

“relevant matters”, in relation to the assessment of the group recovery plan, means the following matters for decision—

(c)

whether the plan meets the criteria for assessment;

(d)

whether group institutions should be required to draw up and submit recovery plans on an individual basis;

(e)

whether the plan contains an impediment;

(f)

whether a group entity should be required to revise the plan;

(g)

whether an impediment has been adequately addressed in a revision of the plan;

(h)

where an impediment has not been adequately addressed in a revision of the plan, whether it can be adequately addressed by directing a group entity to make specific changes to the plan; and

(i)

where an impediment cannot be adequately addressed by specific changes to the plan or by business changes—

(i)

whether a group entity should be directed to take relevant measures; and

(ii)

the terms of any direction to take relevant measures;

“relevant measures” means measures to maintain or restore the viability and financial position of a group institution, including measures to—

(a)

reduce the institution’s risk profile, including its liquidity risk profile;

(b)

review its structure and strategy;

(c)

enable it to undertake timely recapitalisation;

(d)

change its funding strategy in order to improve the resilience of core business lines and critical functions; or

(e)

change its governance structure; and

“UK group entity”—

(a)

where the EEA parent undertaking is set up in the United Kingdom, means that undertaking;

(b)

where the EEA parent undertaking is set up in another EEA State, means a group subsidiary which is an institution authorised by the PRA or FCA.

Duty to transmit a copy of group recovery plan

17.—(1) The appropriate regulator must send a copy of the group recovery plan or, where paragraph (2) has effect in relation to any information, of the plan without that information, to—

(a) the Bank;

(b) EBA;

(c) the resolution authority for any group entity set up in another EEA State;

(d) each relevant competent authority; and

(e) the competent authority established in any EEA State in which a group institution has a significant branch.

(2) This article does not require any information contained in the group recovery plan to be disclosed if its disclosure would be contrary to section 348 of FSMA(2) (restrictions on disclosure of confidential information by FCA, PRA etc).

Assessment of group recovery plan

18.—(1) Where every group institution is a UK authorised person, the appropriate regulator must assess the group recovery plan, and is solely responsible for the assessment.

(2) Where any group institution is set up in another EEA State, the appropriate regulator must assess the group recovery plan jointly with the competent authority for that institution and in consultation with EBA.

(3) Where a group institution has a significant branch in another EEA State, the assessment must be made, so far as information contained in the plan is relevant to the branch, in consultation with the competent authority established in that State.

(4) The assessment must take account of—

(a) any recommendations made by the Bank or another resolution authority to address any course of action proposed in the plan which could have an adverse impact on the resolvability of a group institution; and

(b) the potential impact of the proposed recovery measures on the financial stability of any EEA State in which a group entity conducts business.

Purpose of assessment

19.—(1) The purpose of the assessment of the group recovery plan is to determine whether the plan meets the criteria for assessment and decide other relevant matters.

(2) The criteria for assessment are that the plan must satisfy the requirements of Articles 5 and 9 of the recovery and resolution directive (recovery plans and recovery plan indicators) and that the arrangements proposed in the plan—

(a) would, if implemented, be reasonably likely to maintain or restore the viability and financial position of group institutions; and

(b) would be reasonably likely to be implemented quickly and effectively in situations of financial stress and, as far as possible, without any material adverse impact on the financial system of any EEA State.

(3) The appropriate regulator must ensure that the group recovery plan is not assessed without consideration of—

(a) any preparatory measures taken or planned to be taken by any group entity;

(b) the possibility that the plan may have to be implemented at the same time as other group recovery plans and recovery plans drawn up by institutions; and

(c) whether the capital and funding structure of the group institutions is appropriate having regard to the level of complexity of their organisational structure and risk profile.

(4) This article has effect subject to the imposition of any simplified obligations (within the meaning given by article 9(3)(a)) with respect to the group recovery plan.

Assessment of plan where every group institution is a UK authorised person

20.  Where the appropriate regulator is solely responsible for assessing the group recovery plan, it must conclude the assessment within the four month period, and is for this purpose solely responsible for deciding relevant matters.

Joint assessment of plan

21.—(1) This article applies where the appropriate regulator assesses the group recovery plan jointly with one or more relevant competent authorities.

(2) The appropriate regulator must endeavour to conclude the assessment within the four month period, and must for this purpose endeavour to reach a joint decision on relevant matters.

(3) Where the appropriate regulator and a relevant competent authority (“authority A”) are unable to reach a joint decision on a relevant matter, the appropriate regulator—

(a) where the matter concerned is whether to require group institutions to draw up and submit recovery plans on an individual basis, must decide that matter for the group institutions for which it is the competent authority;

(b) must decide any other matter, which it may do either alone or jointly with any relevant competent authority with which it is able to reach a joint decision;

(c) must ensure that a decision under this paragraph takes account of the views and reservations of authority A; and

(d) may not direct a UK group entity to propose business changes or take relevant measures in relation to a group institution for which authority A is the competent authority.

(4) When the appropriate regulator concludes the assessment of the group recovery plan, whether alone or jointly with a relevant competent authority, it must exercise its powers under FSMA, so far as necessary, for the purpose of implementing each decision on relevant matters, including a decision to direct a UK group entity to—

(a) submit a revision of the plan;

(b) propose business changes; or

(c) take relevant measures.

(5) The appropriate regulator must give written notice of each decision under this article to the group entity which submitted the group recovery plan for assessment and each relevant competent authority.

Revision of plan

22.  The appropriate regulator—

(a) must notify a UK group entity if the group recovery plan is found on assessment to contain an impediment; and

(b) may not require a UK group entity to revise the plan without giving it an opportunity to state its opinion on that requirement.

(2) If the appropriate regulator requires a UK group entity to revise the plan, it must allow the entity two months, which it may on application by the entity extend to three months, to prepare a plan which demonstrates that the impediment has been addressed.

Business changes and relevant measures

23.—(1) This article applies where—

(a) a UK group entity fails to submit a revision of the group recovery plan within the time allowed by the appropriate regulator; or

(b) the appropriate regulator considers that an impediment has not been adequately addressed in a revision of the plan and cannot be adequately addressed by directing the entity to make specific changes to the plan.

(2) Subject to articles 21(3)(d) and 25(1) and (2) and the appropriate regulator’s duty to endeavour to reach a joint decision on relevant matters, the appropriate regulator must, in exercise of its powers under FSMA—

(a) direct the UK group entity to propose business changes; and

(b) if the entity fails to propose business changes within the time allowed by the appropriate regulator or the appropriate regulator considers that any business changes proposed by the entity would not adequately address the impediment, determine whether to direct the entity to take relevant measures.

Recovery plan for group institution

24.  Where the appropriate regulator requires a group institution to draw up and submit a recovery plan on an individual basis, Chapter 1 applies for the purpose of the assessment of the plan, but has effect for that purpose as if each reference to an institution were a reference to the group institution.

References to EBA

25.—(1) Paragraph (2) applies where, before the end of the four month period, a relevant competent authority has referred to EBA in accordance with Article 19 of the EBA Regulation (settlement of disagreements between competent authorities in cross-border situations) any matter relating to—

(a) the assessment of the group recovery plan; or

(b) a proposal by the appropriate regulator to direct relevant measures to be taken with the object of—

(i) reducing a group institution’s risk profile, including its liquidity risk profile;

(ii) enabling a group institution to undertake timely recapitalisation; or

(iii) changing a group institution’s funding strategy in order to improve the resilience of core business lines and critical functions.

(2) The appropriate regulator must—

(a) defer a decision on the matter referred for one month beginning with the date on which the four month period ends; and

(b) ensure that the decision conforms with any decision taken by EBA before the end of that month under Article 19.3 of the EBA Regulation.

(3) The appropriate regulator may, within the four month period, refer to EBA in accordance with Article 19 of the EBA Regulation any matter relating to a proposal by a relevant competent authority to direct a group institution to take relevant measures with the object of—

(a) reducing the institution’s risk profile, including its liquidity risk profile;

(b) enabling it to undertake timely recapitalisation; or

(c) changing its funding strategy in order to improve the resilience of core business lines and critical functions.

(4) For the purposes of a reference to EBA of a matter to which this article refers the four month period is deemed to be the conciliation phase referred to in Article 19.2 of the EBA Regulation.

Requesting the assistance of EBA

26.  The appropriate regulator may ask EBA to assist the competent authorities in accordance with Article 31(c) of the EBA Regulation (non-binding mediation) to reach a joint decision on—

(a) the assessment of the group recovery plan;

(b) whether to require group institutions to draw up and submit recovery plans on an individual basis; or

(c) whether to direct a UK group entity to submit a revision of the group recovery plan, make specific changes to the plan, propose business changes or take relevant measures.

CHAPTER 3 Assessment of group recovery plan where neither the PRA nor the FCA is the consolidating supervisor

Application and interpretation of Chapter 3

27.—(1) This Chapter applies where, in relation to a relevant group—

(a) neither the PRA nor the FCA is the consolidating supervisor; and

(b) the PRA or FCA (or each of them) receives a copy of a group recovery plan submitted to the consolidating supervisor for assessment.

(2) In this Chapter—

“business changes”, “group institution”, “relevant matters”, “relevant measures” and “UK group entity” have the same meaning for the relevant group as they have for a relevant group in Chapter 2; and

“four month period” means four months beginning with the date on which the appropriate regulator receives a copy of the group recovery plan.

Purpose of assessment

28.—(1) The purpose of the assessment of the group recovery plan is to determine whether the plan meets the criteria for assessment and decide other relevant matters.

(2) The criteria for assessment, subject to the imposition of any simplified obligations imposed by the consolidating supervisor under Article 4 of the recovery and resolution directive (simplified obligations for certain institutions), are that—

(a) the plan must satisfy the requirements of Articles 5 and 9 of that directive (recovery plans and recovery plan indicators); and

(b) the arrangements proposed in the plan—

(i) would, if implemented, be reasonably likely to maintain or restore the viability and financial position of group institutions; and

(ii) would be reasonably likely to be implemented quickly and effectively in situations of financial stress and, as far as possible, without any material adverse impact on the financial system of any EEA State.

Joint assessment of plan

29.—(1) The appropriate regulator must assess the group recovery plan jointly with other relevant competent authorities and the consolidating supervisor and in consultation with EBA.

(2) The appropriate regulator must endeavour to conclude the assessment within the four month period, and must for this purpose endeavour to reach a joint decision on relevant matters.

(3) Where the appropriate regulator concludes a joint assessment of the group recovery plan, it must exercise its powers under FSMA, so far as necessary, for the purpose of implementing a joint decision on relevant matters, including a decision to direct a UK group entity to—

(a) submit a revision of the plan;

(b) propose business changes; or

(c) take relevant measures.

(4) Where the appropriate regulator and the consolidating supervisor—

(a) are able to conclude a joint assessment of the group recovery plan, but

(b) are unable to reach a joint decision on whether to require group institutions to draw up and submit recovery plans on an individual basis,

the appropriate regulator must decide the matter referred to in sub-paragraph (b) for group institutions for which it is the competent authority.

(5) Where the appropriate regulator and the consolidating supervisor are unable to conclude a joint assessment of the group recovery plan, the appropriate regulator may—

(a) require group institutions for which it is the competent authority to draw up and submit recovery plans on an individual basis; or

(b) require those institutions to draw up and submit a single recovery plan for all or any of them.

(6) Where the appropriate regulator requires a single recovery plan to be drawn up and submitted under paragraph (5)(b), the appropriate regulator must assess the plan submitted as if it were a group recovery plan for whose assessment the appropriate regulator was solely responsible under Chapter 2.

Assessment of recovery plans drawn up on an individual basis

30.  Where the appropriate regulator requires a group institution to draw up and submit a recovery plan on an individual basis, Chapter 1 applies for the purpose of the assessment of the plan, but has effect for that purpose as if each reference to an institution were a reference to the group institution.

References to EBA

31.—(1) Paragraph (2) applies where, before the end of the four month period, another competent authority has referred to EBA in accordance with Article 19 of the EBA Regulation any matter relating to a proposal by the appropriate regulator to direct relevant measures to be taken with the object of—

(a) reducing a group institution’s risk profile, including its liquidity risk profile;

(b) enabling a group institution to undertake timely recapitalisation; or

(c) changing a group institution’s funding strategy in order to improve the resilience of core business lines and critical functions.

(2) The appropriate regulator must—

(a) defer its decision on the matter referred for one month beginning with the date on which the four month period ends; and

(b) ensure that the decision conforms with any decision taken by EBA before the end of that month under Article 19.3 of the EBA Regulation.

(3) The appropriate regulator may, within the four month period, refer to EBA in accordance with Article 19 of the EBA Regulation any matter relating to—

(a) the assessment of the group recovery plan; or

(b) a proposal by another competent authority to direct relevant measures to be taken with the object of—

(i) reducing a group institution’s risk profile, including its liquidity risk profile;

(ii) enabling a group institution to undertake timely recapitalisation; or

(iii) changing a group institution’s funding strategy in order to improve the resilience of core business lines and critical functions.

(4) For the purposes of a reference to EBA of a matter to which this article refers the four month period is deemed to be the conciliation phase referred to in Article 19.2 of the EBA Regulation.

Requesting the assistance of EBA

32.  The appropriate regulator may ask EBA to assist the competent authorities in accordance with Article 31(c) of the EBA Regulation to reach a joint decision on—

(a) the assessment of the group recovery plan;

(b) whether to require group institutions to draw up and submit recovery plans on an individual basis; or

(c) whether to direct a UK group entity to submit a revision of the group recovery plan, make specific changes to the plan, propose business changes or take relevant measures.

CHAPTER 4 Review of recovery plans and group recovery plans

Review of recovery plan

33.—(1) This article applies where a recovery plan drawn up by an institution has been assessed under Chapter 1, including that Chapter as applied by article 24 or 30.

(2) The appropriate regulator must require the institution to review the recovery plan and make any appropriate amendment at least—

(a) once a year; or

(b) if the appropriate regulator has made a determination under article 7(4), at the intervals determined.

(3) The appropriate regulator must require the institution to—

(a) review the recovery plan where any material change has been made to the legal or organisational structure of the institution or to its business or financial position; and

(b) make appropriate amendments if such a change could have a material impact on the effectiveness of the plan or necessitate amendment for any other reason.

(4) Where the appropriate regulator considers that the plan ought to be reassessed following a decision by a competent authority to prohibit or restrict the provision of financial support under an authorised agreement (within the meaning given in Chapter 4 of Part 7), it may require the institution to review the recovery plan and make any appropriate amendment.

(5) For the purposes of any review of the recovery plan the appropriate regulator may make a determination under article 7(3).

(6) Where the institution submits an up-dated plan for assessment, the appropriate regulator must assess that plan—

(a) if the institution is authorised by the PRA or FCA and is not part of a group subject to supervision on a consolidated basis in accordance with Article 111 of the capital requirements directive, in accordance with Chapter 1; or

(b) if the institution is a group institution within the meaning given in Chapter 2 or 3, in accordance with Chapter 1 as applied by article 24 or 30.

(7) For the purposes of this article Part 3 and Chapter 1 have effect with the modifications specified in the table—

Article	Modification
Article 7	In paragraph (3) the reference to a recovery plan is a reference to the up-dated plan.
Article 11	Ignore paragraph (1).
Articles 12 to 15	Each reference to the recovery plan (but not the reference to recovery plans in article 13(2)(b)) is a reference to the up-dated plan.

(8) In this article “up-dated plan” means the recovery plan after it has been reviewed pursuant to this article (whether or not it has been amended on review).

Review of group recovery plan assessed under Chapter 2

34.—(1) This article applies where, in relation to a relevant group, a group recovery plan has been assessed under Chapter 2.

(2) The appropriate regulator must require a UK group entity to review the plan and make any appropriate amendment at least—

(a) once a year; or

(b) if the appropriate regulator has made a determination under article 7(4), at the intervals determined.

(3) The appropriate regulator must require a UK group entity to—

(a) review the plan where any material change has been made to the legal or organisational structure of the relevant group or any group entity or to its business or financial position; and

(b) make appropriate amendments if such a change could have a material impact on the effectiveness of the plan or necessitate amendment for any other reason.

(4) Where the appropriate regulator considers that the plan ought to be reassessed following a decision by a competent authority to prohibit or restrict the provision of financial support under an authorised agreement (within the meaning given in Chapter 4 of Part 7), it may require a UK group entity to review the plan and make any appropriate amendment.

(5) For the purposes of any review of the plan the appropriate regulator may make a determination under article 7(3).

(6) Where a group entity submits an up-dated plan for assessment, the appropriate regulator must assess that plan in accordance with Chapter 2.

(7) For the purposes of this article Part 3 and Chapter 2 have effect with the modifications specified in the table—

Article	Modification
Article 7	In paragraph (3) the reference to a group recovery plan is a reference to the up-dated plan.
Article 16	Ignore paragraph (1).
Articles 16 to 23, 25 and 26	Each reference to the group recovery plan is a reference to the up-dated plan.

(8) In this article—

“UK group entity” has the same meaning as in Chapter 2; and

“up-dated plan” means the group recovery plan after it has been reviewed pursuant to this article (whether or not it has been amended on review).

Review of group recovery plan assessed under Chapter 3

35.—(1) This article applies where, in relation to a relevant group, a group recovery plan has been assessed under Chapter 3.

(2) The appropriate regulator must endeavour to reach a joint decision on the assessment of an up-dated plan as if it were a group recovery plan of which the appropriate regulator has received a copy for assessment under Chapter 3.

(3) The appropriate regulator must make the assessment in accordance with that Chapter, which has effect for that purpose with the modifications specified in the table—

Article	Modification
Article 27	Ignore paragraph (1).
Articles 27 to 29, 31 and 32	Each reference to the group recovery plan is a reference to the up-dated plan.

(4) In this article “up-dated plan” means a group recovery plan which—

(a) was assessed by the appropriate regulator under Chapter 3; and

(b) has been reviewed by a group entity (whether or not it has been amended on review).

(1)

For the meaning of “significant branch” see the recovery and resolution directive, Article 2.1, point (34).

(2)

Section 348 was amended by the Financial Services Act 2010 (c. 28), section 24(1) and (2) and Schedule 2, paragraphs 1 and 26; by the Financial Services Act 2012, section 41 and Schedule 12, paragraph 18, and by the Financial Services (Banking Reform) Act 2013, section 129 and Schedule 8, paragraph 5.