Michael Beaton is a lawyer and managing partner of Derivatives Risk Solutions LLP. He can be contacted at email@example.com
On 23 January 2013, the European Banking Authority (EBA) published its recommendation on the development of recovery plans.
The recommendation is a follow-up to the EBA’s Discussion Paper on recovery plans published on 15 May 2012 and is primarily for the benefit of national competent authorities pending the finalisation of the EU directive establishing a framework for the recovery and resolution of credit institutions and investment firms (the “RRD”). It aims to ensure consistency and convergence on highest standards across the EU.
The requirement to complete the template recovery plan outlined in the recommendation applies to a list of 39 banks, as detailed in Schedule 1 to this article. The template itself must be completed no later than 31 December 2013.
Summary of Recovery Plan Template
The template recovery plan itself is divided into three sections:
- General overview – providing background information on the structure of the group and the governance processes supporting the recovery plan;
- Core of recovery plan – dealing with the design and implementation of credible recovery options; and
- Follow-up – addressing the measures that can be taken to optimise successful resolution strategies.
A more detailed summary of the requirements is provided in Schedule 2 to this article.
The Data Challenge
Whilst much inevitably depends on the specific drafting of an individual group’s recovery plan, the EBA template does raise the prospect that a number of EU banks will be required to effectively produce two recovery plans. Taking the UK as an example, broadly speaking, banks preparing recovery plans pursuant to FS12/1 will find that they have already undertaken most of the analysis necessary in order to produce an EBA compliant recovery plan. Thankfully, much of the required data will have been generated as part of their Module 2 (Recovery Plans) submissions. However, firms may need to look further afield into Modules 3, 4 and 5 in order to meet certain other requirements of the EBA template, such as those regarding:
- group legal structure diagrams;
- functional mappings;
- intra-group dependencies; and
- information management processes.
The practical difficulties presented by the EBA template recovery plan are symptomatic of a wider issue hampering the ability of firms to meet the RRP needs of regulators. This stems from the absence of any kind of real agreement amongst national regulators as to the set of information to be generated by firms in support of their RRPs. Unfortunately, current indications are that any chance of uniformity with respect to RRP data requirements is actually receding yet further, with authorities in jurisdictions such as Canada and Hong Kong largely declining to follow earlier precedents set by regulators such as the FSA. Given the administrative and financial burden associated with RRP production, the challenge to firms in the future will be to find a way to create a flexible enough view of underlying data so as to avoid having to completely reinvent the wheel for each regulator. A technology led solution would seem to be the answer and is long overdue.
Schedule 1: List of Banks Subject to the EBA Recommendation on Recovery Plans
ABN AMRO Group NV
Allied Irish Banks, Plc
Alpha Bank AE
Banco Bilbao Vizcaya Argentaria, SA
Banco Comercial Portugues SA
Banco Santander SA
Bank of Cyprus Public Company Limited
Bank of Ireland
BNP Paribas SA
Credit Agricole Group
Cyprus Popular Bank Public Co Ltd
Danske Bank A/S
Deutsche Bank AG
Deutsche Zentral-Genossenschaftsbank AG
DNB Bank AB
Erste Group Bank AG
HSBC Holdings PLC
ING Bank N.V.
Intesa Sanpaolo SpA
KBC Group NV
Lloyds Banking Group Plc
National Bank of Greece
Nordea Bank AB
OTP Bank Nyrt
Raiffeisen Zentralbank AG
Royal Bank of Scotland Group Plc
Skandinaviska Enskilda Banken AB
Societe Generale SA
Svenska Handelsbanken AB