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EBA Final Draft Regulatory Technical Standards on Recovery Plans

Core Content

The EBA final draft Regulatory Technical Standards (RTS) on the content of recovery plans under Article 5(10) of Directive 2014/59/EU aim to establish a uniform framework for recovery planning across the European Union. These RTS are designed to guide credit institutions and investment firms in creating and maintaining recovery plans that can be implemented in the event of severe financial stress, thereby preventing the need for resolution tools and enhancing financial stability.

Main Views

• Purpose of Recovery Plans: To ensure that institutions and groups can restore financial and economic viability in the face of severe stress, without relying on extraordinary public financial support.
• Structure of Recovery Plans: The RTS group the essential information into five main sections: summary of the recovery plan, governance information, strategic analysis, communication and disclosure plan, and analysis of preparatory measures.
• Proportionality Principle: Competent authorities may apply simplified obligations for institutions where the impact of failure is less significant, as per Article 4 of Directive 2014/59/EU.
• International Alignment: The RTS are informed by international standards, including the Financial Stability Board (FSB) guidance on recovery triggers and stress scenarios.
• Dynamic Nature of Recovery Planning: Recovery planning is an ongoing process that must reflect changes in the institution's profile and be regularly updated.

Key Information

1. Summary of the Recovery Plan

The summary must include:

• A concise overview of the governance section.
• A summary of the strategic analysis, including the overall recovery capacity.
• Information on any material changes to the institution, group, or recovery plan since the last submission.
• A summary of the communication and disclosure plan.
• A summary of the preparatory measures.

2. Governance Information

This section includes:

• A detailed description of how the recovery plan was developed, including the roles of responsible persons and the process for updating the plan.
• Policies and procedures for the approval of the recovery plan, such as internal audit review and management approval.
• Conditions and procedures for the timely implementation of recovery options, including escalation and decision-making processes.
• Description of indicators used to trigger the recovery plan and their relationship to the general risk management framework.
• Information on management information systems that ensure reliable and timely access to data during stress.

3. Strategic Analysis

The strategic analysis must:

• Identify core business lines and critical functions.
• Describe the entity or entities covered by the recovery plan, including their business model, global strategy, and financial structure.
• Map core business lines and critical functions to material legal entities and branches.
• Analyze internal and external interconnectedness, including intra-group exposures, legal agreements, operational dependencies, and external counterparties.
• Outline recovery options and test them against financial stress scenarios, ensuring they are feasible and effective.

4. Communication and Disclosure Plan

• The recovery plan must include a communication strategy for both internal and external stakeholders.
• It should address communication with shareholders, investors, competent authorities, and the general public.
• The plan must ensure transparency and coordination during a crisis.

5. Analysis of Preparatory Measures

• The recovery plan should describe preparatory actions taken to facilitate the implementation of recovery options.
• These measures may include organizational changes, monitoring mechanisms, or steps to address identified impediments.
• The analysis must support the assessment of the plan's effectiveness and its implementation.

Supporting Documents

• Draft Cost-Benefit Analysis / Impact Assessment: Provides an evaluation of the potential costs and benefits of the RTS, particularly in relation to simplified planning obligations.
• Feedback on Public Consultation: Summarizes the responses received during the consultation process, which helped clarify aspects of the RTS and align them with stakeholder expectations.

Conclusion

These RTS serve as a minimum standard for recovery plans and are intended to enhance regulatory harmonization and crisis prevention across the EU. They are subject to review based on further regulatory developments and practical supervisory experience. The EBA's role in drafting the RTS is based on its mandate and incorporates input from stakeholders and international standards.