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09 January 2015

AFME/IIF respond to Discussion Paper on ensuring operational continuity in resolution

The Associations strongly support the objectives of establishing credible and effective resolution plans and preparing for resolution with minimum disruption.

AFME and the Institute of International Finance (“IIF”) (together the “Associations”) welcomed the opportunity to respond to the PRA Discussion Paper DP1/14 “Ensuring operational continuity in resolution” (the “Discussion Paper”).

They agree that this objective requires that firms put in place arrangements to ensure the continuity of critical economic functions in resolution. They strongly agree with the statement that these arrangements need to be considered as part of the resolution planning process and will be informed by the critical economic function identification and resolvability assessment processes. While guidance on operational continuity criteria is very welcome, the scope, definitions and arrangements for critical shared services should be refined to anchor them in this context, rather than, as currently drafted, coming across as additional or automatic requirements.

The Associations believe that the focus of operational continuity guidelines should be to facilitate the group resolution plan and to enable the group to be recapitalised and stabilised with no interruption to the continuity of its critical economic functions. We therefore support the proposed “Design Principle 1”.

However, in order to achieve this objective, they consider it essential that operational continuity guidelines are led by and tailored to the relevant group resolution plan. This principle should be given greater emphasis than is proposed in the Discussion Paper and the assessment criteria should be adapted to recognise this more clearly. They note that the FSB Guidance on Developing Effective Resolution Strategies (the “FSB Guidance”) states that “a firm needs to be legally and operationally structured in a way that supports effective resolution under the chosen strategy….”

The Associations believe that operational continuity guidelines should be discussed and agreed within Crisis Management Groups as part of the group resolution planning and resolvability assessment process. In this regard the Associations strongly welcome the commitment by the FSB that it will develop a proposal on measures to support operational continuity in resolution in 2015.

Specifically, in relation to paragraph 2.17 of the Discussion Paper, they do not consider the ring-fencing of financial resources within an intragroup service company not regulated by the PRA to be consistent with the spirit of cooperation that underpins the FSB’s Key Attributes of Effective Resolution Regimes for Financial Institutions (the “Key Attributes”). Such an approach does not accord with the requirement under the Key Attributes for national authorities to consider the impact of resolution actions on the financial stability in other jurisdictions, since by ring-fencing capital resources for the benefit of UK entities, other non-UK group entities may be disadvantaged.

Full position paper


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