UK Finance has responded to Bank of England (BoE) and PRA consultations containing their proposals for a Resolvability Assessment Framework (RAF).

The Bank is proposing to refine how it assesses banks on their resolvability ?capabilities? - i.e the planning, processes and frameworks firms put in place to ensure that, in a stressed or failure scenario, authorities are able to recapitalise, restructure or wind down the firm in an orderly way. Its assessment of the largest banks? resolvability will then be made public.

The PRA, on the other hand, has proposed that the largest, most systemic UK firms develop frameworks to assess their own resolvability, report this to the authorities and also publicly disclose the results. All of the above will in turn support the BoE's own public disclosure regarding the resolvability of the largest UK banks, which we believe should beat an aggregate, pan-industry level.

Implementation of the RAF by the end of 2022, the final large piece of the UK's resolution regime, will further fortify the UK's financial stability. Our response supported its introduction, chiming as it does with UK Finance's commitment to supporting the financial stability of the UK's financial system as a whole, ensuring the continuity of business services in resolution and protecting the customers our members serve.

However, recovery and resolution is a complex and broad policy area and, given the potential economic impacts of a bank failure, it is critical that the final policy is internationally credible and deliverable for banks operating in different jurisdictions. The RAF must be flexible enough to cope with a number of different pathways to resolution and the potential involvement of foreign resolution authorities - all of which must be clear about their expectations and requirements of banks and their management.  

One example is the role and remit of a firm's senior management team vis-à-vis Bank of England officials. Who will be accountable for resolution decisions? How does decision-making interact with directors? duties under company law, or accountability frameworks such as the Senior Managers Regime? How will the Bank of England, the Bail-in Administrator and the Independent Valuer - all key actors in the resolution process - interact between themselves and with the bank's senior management? Knowing the answers to such questions in advance increases the likelihood of resources being correctly deployed to delivering action rather than deliberating on decision-making.

The consultations also make proposals about reporting and disclosure timelines, which we are concerned will be unfeasible without further clarification. Banks do not yet have self-assessment frameworks, let alone frameworks based on the proposed requirements when fully implemented. Of course, the public has a right to know whether or not their banks are resolvable, but they also have a right to information which, to firms? best knowledge, is correct. By rushing transparency requirements, regulators risk debasing the quality of output, which could in turn create market confusion. Our members want to ensure that their RAFs are well designed and ownership of them is embedded across the firm. Building capabilities to weather an unpredictable storm takes time, especially when the stakes are high and public confidence could be at stake. Banks support the RAF initiative but its development must not be rushed.