FSA Publishes Feedback Statement FS12/1 on Recovery and Resolution Plans


On 10 May 2012, the FSA published Feedback Statement FS12/1 on Recovery and Resolution Plans.  The main purpose of FS12/1 is to provide an update to the market on the current state of the RRP process.

Proposed Date of Final RRP Rules

A Policy Statement with final RRP rules will be published by the FSA no later than autumn 2012.  The final rules are expected to be based on the contents of FS12/1, so firms should pay particular attention to the “RRP Information Pack” which supplements FS12/1 and sets out detailed informational requirements on RRP.  Publication has been delayed so as to allow the final rules to be aligned with other regulatory initiatives, including the:

  • EU Recovery and Resolution Directive;
  • EU Commission Technical Discussion Paper on ‘bail-in’;
  • FSB’s final rules on the Key Attributes of Effective Resolution Regimes; and
  • legislation that will follow the ICB white paper and consultation paper to be published during the summer of 2012.

In the meantime, the FSA will also consult as to whether the final RRP rules should apply to a wider set of firms – specifically UK branches of non-EEA firms.

Proposed changes to RRP Rules

The FSA makes reference to a number of changes between the requirements of the “RRP Information Pack” which supplements FS12/1 and the “RRP Guidance Pack for Firms” which constituted part of CP11/16, including: 

  • the merger of recovery plans and Contingency Funding Plans so as to reduce unnecessary duplication;
  • the provision of additional information by firms to the FSA on issued debt so as to assist in the development of ‘bail-in’ strategies;
  • revisions to the ‘Interbank Exposures’ and ‘Derivatives and Securities Financing’ templates which form part of the data collection requirements of the RRP rules;
  • additional information concerning the triggers for resolution and the actions that are required when resolution triggers are met; and
  • the identification of new economic functions for the purposes of RRP Modules 4 and 5.

Deadline for Submission of RRPs

The deadlines for submission of RRPs are as follows:

Type of Firm

Informational Requirement


UK headquartered G-SIFIs that have been part of the FSA’s pilot exercise

Module 1-6

30 June 2012

Non-UK headquartered G-SIFIs

Module 1-4

30 June 2012

Non-UK headquartered G-SIFIs

Module 5-6

End of 2012

Small and medium sized firms

No uniform requirement

Supervisors will discuss deadlines with individual firms

Firms which have not yet been contacted with respect to their particular RRP submission deadline date should expect to hear from the FSA during the second half of 2012.  The FSA will normally aim to give three months’ notice of the requirement to submit an RRP.



On 26 March 2012, the FSA published Policy Statement PS 12/6 on CASS Resolution Packs.  We now know that all firms holding client money or safe custody assets will have until 1 October 2012 to be fully compliant with the CASS RP rules.

A full review of the policy statement will be posted within the next couple of days, so please remember to log back in.

All the best


If There Was Only One Reason Why Firms Should Want to Commit to Robust RRPs, This Must Surely Be It…

By any measure, the costs of properly implementing a recovery and resolution plan (“RRP”) are significant.  Using the FSA’s own cost-benefit analysis conducted as part of Consultation Paper CP11/16, the costs to firms of preparing and maintaining a Recovery and Resolution Plan (excluding the costs associated with CASS Resolution Packs) over the next five years are:

  • High Impact Firms:  GBP 56,490,833
  • Medium High Impact Firms: 8,522,417
  • Medium Low and Low Impact Firms: 3,299,333

In light of this cost, it’s hardly surprising that some firms intend to do the minimum necessary to comply.  But are firms missing a trick in adopting this attitude?  There are many benefits to implementing a robust recovery and resolution planning regime, but the one most often overlooked relates to risk-weighted assets.

Once enacted, Basle III will require systemically important banks to have equity of at least 10% of risk-weighted assets (RWAs) plus credibly loss-absorbing debt.  However, some jurisdictions have gone further in “gold-plating” (or applying a “Swiss finish”) to regulatory capital requirements on their local banks.

The UK appears to be one such jurisdiction.  In September 2011, the Independent Commission on Banking (“ICB”) issued its final report, the conclusions of which were accepted in full by the UK government in December of that year.  The ICB has recommended that the retail and other activities of large UK banking groups should both have primary loss-absorbing capacity (i.e. regulatory capital and bail-in bonds) of at least 17%-20% of RWAs.

Within the 17%-20% range detailed above the ICB recommends applying regulatory discretion about the amount and type of loss-absorbing capacity.  In particular, the ICB has suggested that 3% extra equity capital might be required of a UK banking group that was judged “insufficiently resolvable to remove all risk to the public finances”.  In contrast, no additional equity capital might be needed for a bank with “strongly credible recovery and resolution plans”.

It would be simplistic to assume that the ICB’s recommendations would be applied in a binary fashion by the FSA, or its successor, the Prudential Regulation Authority (i.e. a 3% RWA penalty or no penalty at all with nothing in between).  Nonetheless, it is instructive to attempt to place an actual value on this 3% figure.  The table below is based on the 2010 financial statements of a number of major UK banks and building societies, and quantifies the annual amount of interest (assuming a rate of 50 basis points) that would be payable if an amount equal to 3% of RWA, being freed up as a result of having a robust recovery and resolution plan, were simply placed on overnight deposit.



Risk-Weighted Assets (GBP Million)1

3% of Risk Weighted Assets (GBP Million)

Overnight Interest (GBP Million)2

Barclays PLC




Clydesdale Bank plc




HSBC Bank plc




Lloyds Banking Group




Nationwide Building Society




Northern Rock Plc (now Virgin Money)




Principality Building Society




Royal Bank of Scotland plc




Santander UK plc




Standard Chartered Bank plc




Yorkshire Building Society





1 Where financial statements are reported in USD, the USD/GBP exchange rate as at 8 March 2012 has been used for comparison purposes

 2 Assuming an overnight interest rate of 0.5%

The potential dangers of false economy become clear – the opportunity cost of not implementing a robust recovery and resolution planning regime may quickly outweigh the marginal cost savings derived by doing just enough, but not more, to pass muster with the FSA.