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13 August 2014

European Banking Authority publishes final draft technical standards and guidelines on recovery plans


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The EBA published two final draft 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:
  • the summary of the recovery plan;
  • information on governance;
  • a strategic analysis;
  • a communication plan;
  • a description of preparatory measures.
The second set of RTS identifies the principles and criteria which supervisory authorities shall follow when assessing:
  • the completeness,
  • the quality and
  • 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.
 


© EBA


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