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The Actuary The magazine of the Institute & Faculty of Actuaries

FSA outlines recovery and resolution plans

The consultation paper covers the requirement for banks and large investment firms in the UK to prepare and maintain recovery and resolution plans, while the discussion paper explores matters relevant to the resolution of financial services firms. Both cover policy proposals aimed at reducing the impact of firms' failure in relation to their investment business client money and custody assets holdings.

The 2008 banking crisis highlighted the need for firms to have an effective recovery plan in place in order to better cope with the stresses that developed and failures that might have been avoided. Since the crisis G20 has called for the rapid development of internationally consistent, firm-specific recovery and resolution plans and tools by the end of 2010 and the Financial Stability Board has set up a timetable for recovery and resolution plans of systematically important firms to be completed by the end of 2012. Under the Financial Services Act 2010 all UK deposit-takers are required to have recovery and resolution plans in place. The consultation and discussion papers put the process for implementing this requirement in place.

The document sets out the FSA's proposals on what is expected of firms with regards to planning for a stressed situation which will require a firm to take action to recover, or, if necessary, wind-down in n orderly manner without putting taxpayers at risk of loss.

The paper builds on the recent work published by the FSB and the Special Resolution Regime put in place under the Banking Act 2009.

FSA executive committee member, Thomas Huertas explained: "The financial crisis highlighted that firms failed to consider that they would need to do when faced with a potential failure of their business models. The result meant that billions of pounds of public money was required to support financial institutions around the globe and that financial stability was put at risk.

"This consultation will play an important role in helping authorities develop their policy in this complex area, By putting in place clear plans to recover from a crisis, or wind-down in an orderly manner, firms can take the necessary action to reduce the impact on financial stability and reduce taxpayer support."

The consultation paper and the discussion paper can be found on the FSA website.