RAF blog_operationalisationLast week, the Bank of England (BoE) published its final Policy Statement on the Resolvability Assessment Framework (RAF). In our previous blog we outlined details of the original Consultation Paper, which remain largely unchanged in the final policy. This blog sets out our views about how to deliver a structured approach that creates long lasting enhancements to resolvability, tailored to your business model and the importance of a top down strategic assessment and prioritisation.

The regulatory drivers

The heart of the RAF is about establishing that accountability for achieving resolvability rests with firms. It is coupled with proposed changes to the prescribed responsibilities under the Senior Manager and Certification Regime, which emphasises individual accountability for carrying out resolution assessments and related obligations.

The BoE has made a very public commitment to Parliament that major UK firms will be resolvable by 2022 and has required progress reports and public disclosure to help keep both pressure on firms and itself. From October 2020, firms that fall within the scope of the requirements will need to submit their first report outlining their assessment of their own resolvability. From June 2021, firms will need to disclose publically summaries of this.

The shift in responsibility for achieving and demonstrating resolvability will require a structured and robust approach to demonstrating progress and the creation of sustainable capabilities.

What does good look like?

Below is Deloitte’s view on the key components that need to be in place. Whilst these components should not surprise many people, there are two overarching themes to our framework.

  1. The framework emphasises the importance of truly understanding the resolution strategy for your business and what would happen in an actual resolution. This should cascade through all aspects of your thinking when developing capabilities. It is important to remember that there is always a possibility that you may need to be resolved at some point in the future so make sure what you put in place is useful in this situation and not a compliance driven exercise. This top down approach also applies to setting up the right programme priorities and approach and, in our experience, can reduce unnecessary work that appears to achieve compliance but does not add to the overall resolution approach and outcome. The time and cost saved can be reallocated to solve real, practical challenges in a meaningful way.
  2. The framework allows for a robust approach to implementation, which is necessary to effectively remove barriers and ensure that the resolution plan is useful in practice. You should emphasise the creation of robust and sustainable capabilities. Given the high standards from both the regulator and the pressure created by public disclosures, you run the risk of being in a perpetual enhancement phase by focusing on short term, tactical solutions. There is no benefit to being lumbered with maintaining many intensive, manual processes.

RAFWe believe this framework is equally applicable to both international headquartered firms and those in the UK, as the fundamental components needed are universal and consistent with the barriers identified by the Financial Stability Board.

Why embrace resolvability?

There is no getting away from it, the standards set by the RAF will be demanding and will create a lot of work. Public disclosure requirements for US banks required significant budgets and substantial management time and attention. However, we think the RAF presents an opportunity to shape and tailor the approach you take and allow you to avoid having to adopt generic solutions or make gradual enhancements, which can amount to death by a thousand cuts.

Adopting a rigorous and structured approach will bring the following benefits:

  • better engagement with regulators, allowing clear ownership, more constructive dialogue and avoiding public naming and shaming, along with preventing regulatory actions from failing to demonstrate you are resolvable;
  • facilitation of better engagement from the Board and the relevant Senior Manager;
  • support for long term solutions with a clear purpose and avoiding unnecessary costs from ad-hoc solutions;
  • broader business benefits from better data, management information (MI) and understanding of the operating model; and
  • more effective engagement with regulators and key stakeholders such as shareholders, debtholders, financial market infrastructures (FMIs), and rating agencies in a resolution scenario.

The regulators have been clear that assessing resolvability will inevitably require a lot of judgement. This necessitates a more thoughtful and sophisticated approach rather than a simple, tick box mentality.         

To support this and promote awareness and discussion around the necessary RAF components we intend to publish a series of blogs on key topics from our framework over the course of this year.

We start this series with a discussion around Master Playbooks.

Alastair_Morley_110x100

Alastair Morley - Partner

Alastair specialises in the resolvability of banks and accompanying regulation and works with National Resolution Authorities and banks on resolution assessments, operational continuity projects as well as live contingency planning and valuation cases. Alastair is a leading member of our global team focusing on recovery and resolution and has been working actively in this area for over a decade, since the Icelandic banking collapse. He has led some of our largest projects in this area, working with Deloitte teams globally and representing Deloitte on industry groups and in discussions with regulators around the world on this topic.

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Andrew Gracie Left

Andrew Gracie – Special Adviser

Andrew Gracie is a Special Adviser with Deloitte. He helps support clients on their resolution preparedness, including recovery and resilience planning. Andrew joined from the Bank of England where he chaired the Financial Stability Board’s working group on resolution. During a career which has overseen vast regulatory change, he has been at the forefront of introducing new domestic and international resolvability standards. 

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Alex Brown - Director

Alex has 16 years’ experience in prudential regulation. Prior to Deloitte, Alex spent 13 years in the regulator including leading the recovery and resolution team at the PRA and driving a lot of the initial thinking around the topic. He has worked as a consultant for the last 3 years and helped a wide range of clients with a variety of recovery and resolution challenges, along with capital, liquidity and broader prudential regulatory topics.

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Nikoletta Kle

Nikoletta Kleftouri - Manager

Nikoletta is a Manager within Deloitte’s Risk and Capital Management practice, and a qualified EU lawyer. She brings with her several years of regulatory experience, having previously worked as a Bank Expert in the European Banking Authority (EBA), Legal Counsel of the UK Prudential Regulation Authority (PRA) and Policy Analyst in the Bank of England. She holds a PhD, LLM and LLB, specialising in Banking Law.

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