- Policyholder protection
- Operational continuity in resolution
The ring-fencing consultation paper CP19/14 covers the legal structure arrangements of banks that will be subject to ring-fencing rules (this includes banks with deposits greater than £25bn); the governance arrangements of ring-fenced bodies and arrangements to ensure continuity of services and facilities to ring-fenced bodies.
The paper says in particular that ring-fenced bodies (RFBs) “may receive shared services and facilities only from other group entities where such entities are part of the RFB’s subgroup or are dedicated intragroup services entities”. Such services include data-processing services; property management services; information technology; data centres; and back office functions.
It adds that services and facilities from other group entities and third parties to an RFB should not be capable of being disrupted through the acts, omissions, or insolvency of other group members. For example, contracts should not contain clauses such as set off rights, liens, netting arrangements, or material adverse event provisions.
RFBs must ensure that a material deterioration in the financial circumstances of another group entity, or an insolvency or resolution event, does not disrupt any arrangements the RFB has with relevant parties which are necessary for it to conduct its core activities.
The PRA intends to consult further next year and then publish final rules in 2016 so as to give firms time to comply before the government’s intended implementation date of 1 January 2019.
2. Depositor protection:
The PRA’s consultation paper on depositor protection CP20/14 deals with proposed changes relating to the Deposit Guarantee Scheme Directive (DGSD), the single customer view (SCV) rules affecting banks and the Financial Services Compensation Scheme (FSCS) to ensure that customers can have continuity of access to their accounts during the course of a resolution.
The DGSC proposed changes mean that most large coporate depositors will now be eligible for depositor protection. Wholesale-only deposit-takers will now be within the scope of PRA requirements for firms holding FSCS-eligible deposits. There are also new rulews affecting disclosure of information to depositors as well as requirements that would increase the speed of FSCS payout from 20 working days to 7.
The SCV rule changes will result in standardised data fields and a requirement to produce the SCV file within 24 hours rather than 72.
Firms will have to create systems that can separate eligible covered and uncovered balances and place the uncovered balances into a separate account. Where customers have more than £85,000 across multiple accounts, amounts held in more accessible accounts will be prioritised when separating covered and uncovered balances.
3. Policyholder protection:
Policyholder protection consultation paper CP21/14 covers proposed changes to PRA rules that aim to provide continuity of cover, payment of benefits due and compensation in the event of the failure of an insurance firm. The rules include increased payout limits, continuation of FSCS cover post-transfer to a successor insurer, and give the FSCS flexibility in the way it seeks recoveries from failed insurers.
4. Ensuring operational continuity:
The PRA’s discussion paper on ensuring operational continuity in resolution DP1/14 sets out its preliminary views on the principles that firms’ operational arrangements must satisfy in order to facilitate recovery actions, resolution or post resolution restructuring of firms.
A key focus for the paper is objective of ensuring the continuity of critical shared services. The PRA is proposing an “outcome-based approach” that builds on existing industry requirements and practices.
Design principles cover restructuring capabilities, contractual service provisions and financial and operational resilience.
The PRA’s proposed assessment criteria include looking at the ownership structure, service level agreements (SLAs), charging structure, governance, ownership or access to operational assets, amongst other issues.
The discussion paper poses questions relating to issues such as whether firms should be mandated to have a central repository of SLAs, the management skills and other assets needed in a shared service provider and the financial resilience proposals.
As with the three consultation papers above, the consultation period is open until 6 January 2015. A consultation paper with draft rules may be published in 2015.