Welcome! This blog is dedicated to recovery and resolution plans (“RRP”) – more commonly known as “Living Wills”. This will hopefully be the first of many postings and I hope that you enjoy reading it.
During the course of 2012, the EU Commission is due to publish legislative proposals on an EU framework for bank RRPs and a report examining the need for RRPs for certain non-bank financial institutions. Following its 2011 consultation exercise, the FSA is also due to publish a policy statement on proposals for RRP during the first quarter of 2012. Couple this with the RRP provisions of the Dodd-Frank Act and it promises to be a busy year! So how did we get here…?
The legislative impetus behind Living Wills can be traced back to the final communiqué published by the G20 group of nations following the Pittsburgh Summit of September 2009, wherein it was concluded that:
“Major failures of regulation and supervision, plus reckless and irresponsible risk taking by banks and other financial institutions, created dangerous financial fragilities that contributed significantly to the current crisis. A return to the excessive risk taking prevalent in some countries before the crisis is not an option.”
As a result, the G20 resolved to take action, by the end of 2010, to address the cross-border resolution of systemically important financial institutions (“SIFIs”). The Financial Stability Board (“FSB”) was charged with proposing, by the end of October 2010, possible measures to mitigate the “moral hazard” associated with the failure of global financial institutions, including more intensive supervision and specific additional capital and liquidity requirements.
SIFIs would be required to develop internationally-consistent firm-specific contingency and resolution plans. Moreover, authorities would be required to establish crisis management groups for major cross-border financial firms, a legal framework for crisis intervention, improve information sharing in times of stress, and develop resolution tools and frameworks for the effective resolution of financial groups.
The delayed EU Commission proposals represent the beginning of the crystallisation of the original G20 requirements within the EU. Once published, we will be looking at these proposals and how they compare to the legislative efforts of other G20 nations in much more detail, so stay tuned…