Sarah Jane Leake | Bloomberg Law Recovery and Resolution Plans – Financial Services Authority Consultation Paper and Discussion Paper CP11/16 of 9 August 2011; FSA publishes Recovery and Resolution Plans consultation – Financial Services Authority Press Release FSA/PN/070/2011of 9 August 2011 The financial crisis served to highlight that firms did not have sufficient recovery plans in place. In the wake of the crisis, the G20 called for the development of "internationally-consistent firm-specific contingency and resolution plans" by end-2010.1 In a similar vein, the Financial Stability Board (FSB) expects systemically important firms to have Recovery and Resolution Plans (RRPs) in place by end-2012. On 9 August, the FSA published for consultation2 a number of proposals for RRPs required of certain financial services firms, and for additional preparations as to their investment client money and custody assets (CMA) holdings. In its latest consultation paper, the FSA also sets out what should be expected of firms with regard to planning for a stressed situation. In essence, this will require a firm to take action to recover or, where necessary, wind-down in an orderly fashion without recourse to public funds.
Recovery and Resolution PlansRRPs primarily seek to:
— Recovery PlansA Recovery Plan is intended to reduce the likelihood of failure by requiring firms to identify the options it could take to achieve recovery in the event of a crisis. To safeguard their business successfully, firms must ensure that appropriate measures and preparations are established and maintained well before any glimpse of a crisis appears on the horizon. In the FSA's view, firms should be required to:
— Resolution PlansResolution Plans provide a strategy for how a firm will wind-down should it fail for any reason. They are designed to minimise the impact on financial stability without resorting to public sector funds. Since these Plans will be prepared by the relevant regulatory authorities, they will need up-to-date information on each firm's business operation, structure and critical economic functions4 as well as comprehensive resolution analysis from each firm. To perform this role effectively, the authorities will be asking firms to prepare a "separability or wind-down analysis" for each of its critical economic functions. The FSA refers to this information and analysis as the "Resolution Pack." According to the FSA, the information and analysis set out in the Resolution Pack will help the authorities prepare a Resolution Plan for each firm which will aim to:
— ScopeUK-incorporated deposit-takers, subsidiaries and significant investment firms with assets exceeding
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