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The Bank of England, as the UK resolution authority, is today launching a three-month consultation on its proposed approach to exercising its statutory power to direct institutions to address impediments to their resolvability. The purpose of the consultation paper is to describe the context of this new power, which was introduced into the UK special resolution regime following transposition of the Bank Recovery and Resolution Directive (2014/59/EU), and to consult on a proposed Statement of Policy regarding that power, as required by section 3B (9) of the Banking Act 2009.
The Bank of England’s power of direction applies to:
(a) banks, building societies and certain investment firms (i.e. those that deal as principal and are required to hold initial capital of €730,000), that are authorised by the Prudential Regulation Authority (PRA) or Financial Conduct Authority (FCA);
(b) parent companies of such institutions that are financial holding companies or mixed financial holding companies; and
(c) PRA or FCA-authorised financial institutions that are subsidiaries of such institutions or such parent companies.
Background
In order for resolution to be feasible and credible, institutions need to be organised and operate in a way that facilitates either the effective use of the stabilisation powers contained in the special resolution regime or, if appropriate, the winding up of the relevant institution.
The Bank of England prepares resolution plans for all institutions within scope of the special resolution regime. Resolution planning aims to develop a set of actions that would be taken by the Bank of England and relevant stakeholders (including other UK and overseas authorities) in the event that an institution fails, and includes: (a) gathering information to facilitate resolution; (b) conducting resolvability assessments; (c) developing resolution strategies; and (d) enhancing resolvability.
Resolvability assessments and the actions flowing from them are therefore a key part of resolution planning on a ‘business as usual’ basis, before an institution actually encounters distress. The Bank of England will work with institutions to ensure that any impediments that are identified through resolvability assessments are addressed. Where necessary, this could involve the use of the Bank of England’s power to direct the institution to take action. The proposed Statement of Policy explains the Bank of England’s general approach to and process for using the power of direction, and includes a non-exhaustive list of examples of how the power could be applied.
Responses
The Bank of England welcomes comments from interested parties on the proposed Statement of Policy by 22 August 2015.
Please address any comments or enquiries to CP_2015resolvability@bankofengland.co.uk
Consultation Paper
