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• PRA 2024/25 Business Plan

Embedding competitiveness and growth

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The PRA's latest Business Plan , covering 2024/25, was published on 11 April. The programme of work is intended to maintain the resilience of the UK's banking and insurance sectors and deliver against the same four strategic priorities as last year. The key areas of focus, as expected, are financial and operational resilience, enforcement policies, and diversity and inclusion. Emerging risks called out include the financial risks of climate change, the impacts of artificial intelligence and machine learning, and digital money and innovation.  

There is nothing inherently new or surprising in the Business Plan for firms as it follows relatively soon after the 2024 supervisory priority letters for international banks , UK deposit takers and insurers . However, it is interesting to note the PRA's ongoing concerns about the potential impacts of NBFIs on financial stability and its continuing ambition to become a more dynamic and responsive regulator. 

Competitiveness and growth

This will be the first full year in which the PRA operates under the Financial Services and Markets Act (FSMA 2023), which expanded its rulemaking responsibilities and gave it a new secondary growth and competitiveness objective (the SGCO) in the UK. A significant portion of the plan considers how the PRA will balance the SGCO with its primary commitments to safety and soundness of the banking and insurance sectors. 

The following key initiatives underpin the PRA's work to promote UK competitiveness and growth:

• The 'Strong and Simple' (SDDT) regime  — simplifying regulatory requirements for smaller, non-systemic banks banks and building societies, in order to reduce compliance burdens without compromising on robust prudential standards.
• Reforms to bank ring-fencing  — following the independent Skeoch Review .
• The 'Solvency UK' reforms of insurance capital standards  — aiming to reduce bureaucracy in the regulatory regime, while allowing insurers to invest in a wider range of productive assets.
• Insurance special purpose vehicles (ISPVs)  — consulting on reforms to allow a wider range of transaction structures in the UK regime, improve the speed of the application process, and clarify expectations of UK insurers who cede risks to ISPVs.
• Improvements to the authorisation processes  — building on progress in improving the speed and efficiency of authorisations. Also, introducing a new 'mobilisation' regime to facilitate entry and expansion for new insurers from 31 December 2024. 

Strategic Priorities

The PRA's four strategic priorities (SPs) are to:

• Maintain and build on the safety and soundness of the banking and insurance sectors and ensure continuing resilience.
• Be at the forefront of identifying new and emerging risks, and developing international policy.
• Support competitive and dynamic markets, alongside facilitating international competitiveness and growth, in the sectors that it regulates.
• Run an inclusive, efficient, and modern regulator within the central bank.

SP1 — Maintain and build on the safety and soundness of the banking and insurance sectors and ensure continuing resilience.

Financial resilience priority areas for banks include:

• Basel 3.1  — implementation is due to start in 1 July 2025, with a transitional period of 4.5 years to 1 January 2030. This is in line with the previously communicated timeline. The second near-final policy statement, on the remaining elements of credit risk, the output floor and Pillar 3 disclosure and reporting requirements, will be published `in due course'.  The PRA expects both sets of near-final rules to be made final later in 2024, once the relevant parts of the Capital Requirements Regulation (CRR) have been revoked.
• Stress testing  — in 2024 the Bank of England (BoE) will carry out a desk-based exercise, supported by the PRA. The BoE and PRA will also review and update the framework for concurrent stress testing. Stress tests based on firm submissions will resume in 2025.
• Exposures to non-bank financial institutions (NBFI)  — particularly private equity financing and private credit — the PRA will look for further improvements in firms' ability to identify and assess correlations across financing activities with multiple clients. 
• Model risk management (MRM)  — banks are expected to embed and implement the expectations set out in SS1/23 which takes effect on 17 May 2024. The PRA will also focus on the `hybrid' approach to mortgage modelling, the IRB repair programme and continued assessment of the adequacy of post-model adjustments (PMAs).
• Liquidity risk management  — the PRA will follow up on how firms are responding to lessons learned from market events. It will continue its engagement on authorised firms' access to the BoE Sterling Monetary Framework and monitor closely how how firms consider changes in depositor behaviour and future changes in bank funding and liquidity conditions.
•   Credit risk management  — focus will be on the evolution of credit risk management practices, whether they can be `robust and adaptable' in changing conditions, whether there is appropriate consideration of downside and contagion risks, and firms' monitoring and planning for the impacts of customer refinancing. There will be a thematic review of smaller firms' credit risk management frameworks. The PRA will monitor changes to firms' business mix and credit exposures and exposures to vulnerable segments (e.g. cyclical sectors, key international portfolios, and traditionally higher-risk portfolios such as buy-to-let, credit cards, unsecured personal loans, small to medium-sized enterprises, leveraged lending, and commercial real estate). It will also continue to assess whether the policy framework for trading book risk management, controls, and culture is adequate, robust and accessible. 
• Capital  — the PRA will review its Pillar 2A methodologies once the Basel 3.1 rules are finalised and aims to consult on proposed changes in 2025.
• Securitisation regulation  — simultaneously with the FCA, the PRA will publish final rules to replace or modify the relevant firm-facing provisions in the Securitisation Regulation and related Technical Standards. It also intends to consult on draft PRA rules to replace firm-facing requirements, subject to HMT making the necessary legislation. 

Financial resilience focus areas for insurers include:

• Solvency UK implementation  — the PRA is consulting on how to transfer remaining Solvency II requirements from assimilated law into the PRA Rulebook. It will also streamline internal model and matching adjustment approval processes, supported by the establishment of dedicated, specialised teams, and publication of templates to facilitate firms' implementation of new requirements. 
• Matching adjustment (MA) reforms  — publication of final policy in June 2024. The bulk of the reform will take effect at end-June, with the remainder on 31 December 2024. This staggered approach is in response to insurers' concerns about ability to produce attestations in time for mid-year results. The PRA will also explore creating 'sandboxes' to allow for either self-certification or further expansion of MA-eligible assets.
• Single regulatory reporting insurance taxonomy  — this will be published in Q2 2024, followed by industry roundtables to support implementation by year end.
• Stress testing  — the next stress test will take place in 2025. This will be the first time that the PRA publishes the individual results of the largest annuity-writing firms and the first time an exploratory scenario will be included to assess exposure to the recapture of funded reinsurance contracts. In 2025, the PRA will run its first dynamic stress test for general insurers — details will be published in 2024.
• Cyber underwriting risk  — there will continue to be supervisory focus on cyber exposure. The PRA is monitoring the risk landscape, including contract uncertainty.
• Model drift  — in 2024, the PRA will address perceived systemic trends that may weaken the robustness of internal models across the market as a whole, and continue to address firm-level model drift.
• Funded reinsurance  — this continues to be a key policy and supervisory area of concern. In 2024, the PRA will finalise and implement its policy expectations. Assessing resilience of funded reinsurance arrangements is also part of the 2025 life insurance stress test.
• Impact of claims inflation  — the PRA will continue to monitor data throughout 2024 to assess if further work is needed.  Concerns remain around optimistic assumptions.
•   Liquidity risk management  — following market events, the PRA will develop liquidity reporting requirements for insurance firms most exposed to liquidity risk. 
• Credit risk management  — as insurers' exposure grows, the PRA will monitor how firms' credit risk management evolves as a result. Areas of focus are concentrations in exposure to internally valued and rated assets.

Other regulatory reforms:

• Operational risk and resilience  — the PRA will continue working with the FCA to assess firms' progress on their ability to deliver important business services within defined impact tolerances during severe but plausible scenarios (no later than March 2025).
• Critical third parties to the UK financial sector  — the PRA will continue working with other authorities to develop a final policy and oversight approach in 2024 on CP26/23 (Operational resilience: critical third parties to the UK financial sector).
• Review of enforcement policies  — following the principles of PS1/24 (Bank of England's approach to enforcement).
• Diversity and inclusion in PRA-regulated firms  — the PRA will continue industry engagement and provide a further update in due course.

 SP2 — Be at the forefront of identifying new and emerging risks, and developing international policy

The PRA will continue to use its horizon-scanning programme to focus on:

• International engagement and influencing regulatory standards — participating actively in bodies such as the BCBS, IAIS and FSB.
• Promoting supervisory co-operation  — via colleges and existing memoranda of understanding (MoUs).
• Overseas bank branches — consulting on targeted refinements to its approach to banks branching into the UK, reflecting lessons from the failure of SVB.
• Operational and cyber resilience  — continuing its work on the G7 Cyber Expert Group and other similar bodies.
• Managing the financial risks of climate change  — publishing thematic findings in 2024 on banks' processes to quantify the impact of climate risks on expected credit losses and commencing work to update SS3/19.
• Artificial intelligence and machine learning  — the third joint PRA/FCA survey on machine learning in UK financial services will be conducted in Q2 2024.
• International policy on digitalisation  and managing associated risks.
• Digital money and innovation  — continuing to work with HMT and the FCA on issues such as a regulatory regime for crypto-assets, and wholesale payments/ settlements and their interaction with retail payments.

SP3 — Support competitive and dynamic markets, alongside facilitating international competitiveness and growth (in the sectors that it regulates)

In addition to the areas mentioned above, the PRA will focus on developing proportionate and efficient prudential requirements including:

• Regulatory change  — embedding its approach to rulemaking, using its new powers under FSMA 2023 to repeal and replace assimilated law relating to financial services. 
• The Banking Data Review  — intended to reduce the burden on firms by focusing our data collection on the most useful and relevant information.
• Ease of exit  — the policy statement on solvent exit planning for insurers is expected in H2 2024.
• Remuneration reforms  — the PRA will consult on any changes in H2 2024.
• Changes to the Senior Managers & Certification Regime (SM&CR)  — consulting alongside HMT and the FCA on proposed changes in H1 2024.
• Improvements to the PRA Rulebook and Cost Benefit Analysis  (CBA) framework. 

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PRA publishes Business Plan 2024/25

The regulator shared its annual plan on how it will deliver strategic goals, identifying three key objectives for 2024/25:

1 maintain and build on the safety and soundness of the banking and insurance sectors, and ensure continuing resilience

2 be at the forefront of identifying new and emerging risks, and developing international policy

3 support competitive and dynamic markets, alongside facilitating international competitiveness and growth

Bolstering banks

The first near-final PS on Basel 3.1 was published in December 2023. The PRA will soon publish the second near-final PS, covering the remaining elements of credit risk, the output floor, as well as Pillar 3 disclosure and reporting requirements. The PRA will increase supervisory focus on firms' implementation plans.

Bank stress-testing

The PRA will support the Bank of England in updating its framework for concurrent bank stress testing in 2024, drawing on lessons from the first decade of stress testing. The Bank is also conducting a system-wide exploratory scenario, working with the PRA, FCA, and TPR to improve understanding of the behaviours of banks and non-bank financial institutions in stressed financial market conditions.

Stress-testing exercises involving firm submissions of stressed projections are expected to resume in 2025.

Private equity and credit

The PRA is closely monitoring private asset-financing and the risks associated with illiquid private equity financing and private credit, particularly the potential challenges that may arise with exposures to non-bank financial institutions (NBFI).

The PRA will focus on improving firms' ability to identify and assess correlations across financing activities with multiple clients to ensure robust governance, risk management, and controls in the face of an evolving macro-environment that is expected to increase risk management challenges.

Replacing assimilated law

The PRA will consult on proposed rules in 2024/25 to replace relevant firm-facing provisions in Part Two of the CRR with modifications where appropriate, moving towards a more UK-style of regulation.

Model risk management (MRM) and internal ratings-based approach/hybrid models

The PRA will focus on how banks are implementing the principles set out in SS1/23 in 2024, and firms are expected to conduct an initial self-assessment and prepare remediation plans where necessary. The PRA will also continue to work with firms on changes to the IRB approach to credit risk, focusing on the hybrid approach to mortgage modelling and the IRB repair programme, and assess the adequacy of post-model adjustments to mitigate potential capital underestimation.

Liquidity risk management

The PRA will continue to closely supervise firms' liquidity and funding risks, with a focus on deposit outflows experienced by deposit takers and the lessons learnt from the events at CS and SVB.

The PRA will use its L-SREPs to assess firms' liquidity and funding risks and ensure appropriate resources are in place to manage and mitigate these risks. The PRA will also engage with firms and the wider Bank on access to the Sterling Monetary Framework and monitor how firms consider changes in depositor behaviour and forthcoming changes in bank funding and liquidity conditions.

Credit risk management

The PRA is closely monitoring firms' credit risk management practices, especially in light of the uncertain credit risk outlook across key markets.

The PRA will also monitor changes to firms' business mix and credit exposures, with counterparty credit risk remaining a key area of focus, and will undertake a thematic review of smaller firms' credit risk management frameworks in 2024/25.

In addition, the PRA will continue to review its regulatory policies on trading-book risk management, controls, and culture.

The PRA acknowledges that the UK banking system is well capitalised but the overall environment remains challenging, requiring firms to manage their financial resilience.

The PRA will assess firms' capital positions and planning, including their use of forward-looking capital indicators, stress testing, and contingency plans.

The PRA plans to review its Pillar 2A methodologies for banks after the finalisation of rules on Basel 3.1, with a view to consulting on any proposed changes in 2025.

Securitisation regulation

HMT has prioritised the Securitisation Regulation in transferring assimilated law into regulatory rules and legislation, and the PRA will publish its final policy on replacing or modifying relevant firm-facing provisions in 2024-25.

The PRA intends to consult on draft rules to replace firm-facing requirements, and has gathered views and evidence through DP3/23 to inform its approach to capital requirements for securitisation.

Strengthening the insurance sector 

Solvency ii reporting reforms.

The PRA has published PS3/24, which includes finalised templates and instructions for Solvency II reporting and disclosure phase 2. A single taxonomy package will be published in 2024 Q2, and industry roundtables will be held to help firms prepare for new reporting requirements. The PRA will engage with firms to ensure they can meet the new requirements by the deadline.

Solvency II transfer

The PRA will transfer the remaining Solvency II requirements into the PRA Rulebook and other policy material, which will create a more comprehensive Rulebook and make it easier for firms to navigate the rules that apply to them. A CP will be published in 2024 H1 to outline how this will be done.

Insurance stress-testing

The next stress test for major life insurers will take place in 2025. For the first time, the PRA will publish the individual results of the largest annuity-writing firms to strengthen market discipline.

The PRA will also run its first dynamic stress test for general insurers in 2025, which will involve simulating a sequential set of adverse events over a short period of time. The PRA will engage with industry trade bodies and provide more details on the exercise in 2024.

Cyber underwriting risk

The PRA will share the findings of its recent thematic project on cyber underwriting risk with the industry and continue to identify and assess potential risk drivers.

Model drift

The PRA identified several findings in its 2023 model drift analysis related to non-life firms' levels of allowances for inflation uncertainty, expected underwriting profits, reinsurance costs and benefits, and limited allowance for economic and geopolitical uncertainties.

In 2024, the PRA will address systemic trends that may weaken model robustness across the market and focus on improving internal model validation to enable firms to identify and address potential challenges.

Funded reinsurance

The PRA will closely monitor the increasing use of funded reinsurance transactions in the UK life insurance market and the risks they pose to policyholder protection and UK financial stability, particularly regarding erosion in asset collateral standards and concentrated exposures to credit-focused counterparties.

The PRA will examine exposures to the recapture of funded reinsurance in the 2025 life insurance stress test and finalise its policy expectations for UK life insurers that use funded reinsurance arrangements in 2024.

Impact on general and claims inflation

While reserves have increased, the PRA anticipates a continued lag in the emergence of claims inflation in the data, which insurers should be alert to. The PRA will continue to monitor the impact through regulatory data and supervisory activities in 2024. If the PRA's assessment of the risk changes, it may consider further focused work.

The PRA will develop liquidity reporting requirements for insurance firms most exposed to liquidity risk, building on the existing liquidity framework set out in SS5/19.

The PRA will work closely with firms to inform them about these requirements and explore the necessity of a minimum liquidity requirement as part of a future policy consultation.

Credit-risk management

The expected growth in the bulk purchase annuity (BPA) market may lead to further credit risk exposure and potentially concentrations in internally valued and rated assets.

The PRA will continue to focus on the effectiveness of firms' credit risk management capabilities and assess the evolution of their credit risk management frameworks in line with supervisory expectations. The PRA will review the suitability of firms' current and forward-looking internal credit assessment validation plans and approaches and provide feedback on a firm-specific or thematic basis as appropriate.

Cross-sector

Operational risk and resilience.

The PRA will work closely with the FCA to assess firms' progress, particularly their ability to deliver important business services within defined impact tolerances during severe but plausible scenarios over a reasonable timeframe, and no later than March 2025. The PRA will also monitor threats to firms' resilience, such as growing dependency on third parties, while maintaining proportionality.

Critical third parties to the UK financial sector

In December 2023, the PRA, Bank, and FCA jointly published CP26/23 - Operational resilience: Critical third parties to the UK financial sector, proposing how these powers could be used to assess and strengthen the resilience of services provided by CTPs to firms and FMIs, reducing the risk of systemic disruption. The PRA will work with other authorities to develop the final policy and oversight approach in 2024.

Additionally, the PRA is developing regulatory expectations on incident reporting, aligned with its operational resilience expectations.

Review of enforcement policies

The PRA is committed to holding individuals accountable and taking regulatory and/or enforcement action against those who breach its standards.

In January 2024, the PRA published PS1/24 - The Bank of England's approach to enforcement, which sets out the revised approach to enforcement across the Bank's full remit, including when acting as the PRA. PS1/24 introduced a new Early Account Scheme (EAS) that provides a new path for early cooperation and greater incentives for early admissions to reach outcomes more quickly in specific cases.

Diversity and inclusion in PRA-regulated firms

In September 2023, the PRA published CP18/23 - Diversity and inclusion in PRA-regulated firms, proposing that all in-scope firms must understand their D&I position, develop appropriate strategies to make meaningful progress, and monitor and report on progress.

In 2024, the PRA will continue its industry engagement, assess responses to CP18/23, and provide a further update in due course.

Identifying emerging risks and supporting competitive markets

The PRA also outlined it’s focus on it’s two other objectives.

On identifying and mitigating emerging risks, the regulator laid its plans on:

• international engagement and influencing regulatory standards
• supervisory co-operation
• overseas bank branches
• operational and cyber resilience
• managing the financial risks arising from climate change
• artificial Intelligence and Machine Learning
• international policy on digitalisation and managing associated risks
• digital money and innovation

On maintaining market competition, the PRA highlighted its commitments on:

• regulatory change – embedding the PRA’s approach to rule-making
• secondary competitiveness and growth objective (SCGO)
• strong and simple framework
• insurance Special Purpose Vehicles regime
• remuneration reforms
• implementing changes to the Senior Managers & Certification Regime (SM&CR)
• complete the establishment of the Cost Benefit Analysis (CBA) Panel
• PRA Rulebook
• banking Data Review
• supporting and authorising new market entrants via new ‘mobilisation’ regime
• ease of exit
• ring-fencing regime
• effective authorisation processes

To learn more about the PRA’s areas of focus, contact Paul Young .

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PRA Regulatory Digest - May 2023

Top news and publications.

Prudential Regulation Authority Business Plan 2023/24

CP9/23 – The Bank of England’s approach to enforcement: proposed changes and clarifications

PS6/23 – Model risk management principles for banks

News and speeches

Joint statement from fca, pra, and bank of england on the government’s proposed amendments to the ccp run-off regime, 26 may 2023.

The FCA and the PRA are responsible for the supervision of regulated banks to which certain central counterparties (CCPs) provide services. The Bank of England is responsible for the supervision of CCPs in the UK.

The FCA, the PRA and the Bank of England (the regulators) welcome HM Treasury’s statement and the government’s proposed amendments to the Financial Services and Markets Bill relating to the CCP run-off regime.

The regulators recognise and fully support the intention to facilitate the continuity of these clearing services to UK firms consistent with the original amendment tabled for these purposes in January 2023. The regulators continue to work together towards this aim, having regard to their respective duties. In the event of a gap between 1 July and Royal Assent, the regulators will take a proportionate and risk-based approach when giving consideration to the use of their supervisory powers in relation to firms that may be impacted pending Royal Assent.

Joint statement from FCA, PRA and Bank of England on the government’s proposed amendments to the CCP run-off regime

Conference on the role of financial regulation in international competitiveness and economic growth

The PRA is hosting a major international conference on Tuesday 19 September to develop a deeper understanding of the core linkages and relationships between financial regulation and international competitiveness and growth.

Supervision and Data − to boldly regulate as no one has regulated before − speech by Rebecca Jackson

16 May 2023

Rebecca Jackson discusses a step change in how the PRA uses supervisory and firm data. This is the data we collect and how we collect it, informed by our statutory objectives, post-Brexit freedoms and technological and market developments.

The challenges and opportunities ahead for the mutual sector − speech by David Bailey

David Bailey outlines why credit risk is a key priority in the PRA’s supervision of UK deposit takers in 2023; and what steps it expects regulated firms to be taking in proactively managing credit risk within their portfolios.

His remarks also cover two important areas of policy development: Basel 3.1 and the PRA’s Strong and Simple prudential framework for domestically focused non-systemic firms.

The 2023/24 Business Plan sets out the workplan for each of our strategic priorities to support the delivery of the PRA’s strategy, together with an overview of the PRA’s budget for 2023/24.

Cross cutting publications and updates

Ps4/23 – moving senior managers regime forms from the pra rulebook.

This PS provides feedback to responses to CP2/23 – Moving Senior Managers Regime forms from the PRA Rulebook. It also contains the PRA’s final policy, as follows:

• amendments to the Insurance - Senior Managers Regime – Applications and Notifications Part of the PRA Rulebook (Appendix 1);
• amendments to the Non-Solvency II Firms – Senior Managers Regime – Applications and Notifications Part of the PRA Rulebook;
• amendments to the Large Non-Solvency II Firms – Senior Managers Regime – Applications and Notifications Part of the PRA Rulebook (Appendix 1); and
• amendments to the Senior Managers Regime – Applications and Notifications Part of the PRA Rulebook (Appendix 1);

This PS is relevant to all PRA-authorised firms, including credit unions. Forms submitted before the final policy takes effect would be unaffected.

PS4/23 - Moving Senior Managers Regime forms from the PRA Rulebook

This CP proposes changes to the Bank of England and the PRA’s enforcement policies and procedures, the PRA’s policies and procedures for making supervisory and non-enforcement statutory notice decisions, and to the procedures of the Enforcement Decision Making Committee (EDMC).

The CP sets out the Bank’s and the PRA’s proposed amendments to:

• the PRA’s approach to enforcement: statutory statements of policy and procedure  (the PRA Enforcement Approach Document);
• the statement of policy for financial penalties imposed by the Bank under the Financial Services and Markets Act 2000 or under Part 5 of the Banking Act 2009  (the Financial Market Infrastructure (FMI) Penalty Policy);
• the Bank’s statutory statements of procedure in respect of the Bank’s supervision of financial market infrastructures  (the FMI Procedures); and
• the EDMC Procedures .

The Bank and the PRA propose creating a consolidated set of statements of policy (SoPs) entitled ‘The Bank of England’s approach to enforcement: statements of policy and procedure’ (the Bank Enforcement Approach).

The PRA also proposes creating a new separate SoP entitled ‘The PRA’s allocation of decision-making and approach to supervisory decisions’ (the PRA Supervisory Decision-Making Policy).

The proposed amendments seek to:

• clarify the scope of the Bank’s enforcement powers by creating a document that draws together the Bank’s existing enforcement policies and procedures into one consolidated document – the Bank Enforcement Approach;
• move those sections of the current PRA Enforcement Approach Document which relate to the use of statutory tools other than enforcement powers into the proposed PRA Supervisory Decision-Making Policy;
• make specific and consequential amendments to policies and procedures relating to the PRA Enforcement Approach Document to further incentivise cooperation by subjects under investigation;
• clarify the approach and procedures the Bank would adopt in FMI enforcement investigations;
• set out in the new PRA Supervisory Decision-Making Policy revised policies which ensure operational efficiency and better advance the PRA’s statutory objectives;
• update the EDMC remit to include various enforcement powers available to the PRA and/or the Bank under the Financial Services and Markets Act 2000 (FSMA); and
• clarify the EDMC Procedures to reflect how the procedures have operated in practice and clarify the roles and responsibilities of the EDMC, in light of practical experience of the EDMC in dealing with cases.

This CP is relevant to PRA-authorised banks, building societies, PRA-designated investment firms, FMIs, qualifying parent undertakings, insurers, actuaries, auditors, and senior employees of those entities (including, but not limited to, authorised senior management function holders and certified employees under the Senior Managers and Certification Regime (SM&CR)). It is also relevant to credit unions and of interest to professional advisers who represent firms and individuals potentially subject to enforcement action taken by the Bank and/or the PRA.

The Bank will be holding a series of roundtable discussions on the Bank’s and PRA’s proposals, providing an additional opportunity for external stakeholders to engage with the proposals and provide feedback on the proposed changes. These roundtable discussions will be held on Tuesday 27 June and Tuesday 4 July. There will be options to attend remotely or in person. If you are interested in attending, please complete the form by Friday 9 June 2023.

Banking publications and updates

Version 3.7.0 pwd bank of england banking xbrl taxonomy, 31 may 2023.

This Public Working Draft (PWD) of the Bank of England Banking Taxonomy sets out the technical implementation of the proposals outlined in CP16/22 and CP6/23. We have provided the Data Point Model (DPM) annotated templates and data dictionary to request industry feedback on the proposed data point modelling and business validation rules.We invite feedback from firms and software vendors on the PWD technical artefacts to [email protected] by Friday 14 July 2023. This PWD should not be used for reporting. Banks, building societies and investment firms

17 May 2023

This PS provides feedback to the responses to CP6/22 – Model risk management principles for banks . It also contains the PRA’s final policy, as follows:

• supervisory statement (SS) 1/23 – Model risk management principles for banks (see Appendix 1).

The feedback to the responses to CP6/22 in this PS is relevant to all regulated UK-incorporated banks, building societies, and PRA-designated investment firms (hereinafter ‘firms’). For the reasons explained in the Change in scope section below, the final policy in Appendix 1 (SS1/23) only applies to firms with internal model (IM) approval to calculate regulatory capital requirements.

PS5/23 – Risks from contingent leverage

11 May 2023

This PS provides feedback to responses to CP12/22 – Risks from contingent leverage . It also contains the PRA’s final policy, as follows:

• updated supervisory statement (SS) 31/15 – ‘The Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review and Evaluation Process (SREP)’ (Appendix 1);
• amendments to the Reporting (CRR) Part of the PRA Rulebook (Appendix 2);
• introduction of reporting templates LV49-52 (Appendix 3);
• updated ‘Instructions for reporting on leverage’ (Appendix 4); and
• updated SS45/15 – ‘The UK leverage ratio framework’ (Appendix 5), to add LV49-52 to the list of leverage reporting templates.

This PS is relevant to banks, building societies, and PRA-designated investment firms, and their qualifying parent undertakings (referred to as ‘firms’) that perform the Internal Capital Adequacy Assessment Process (ICAAP) as far as the updates to SS31/15 are concerned, and to firms subject to a leverage ratio minimum requirement (LREQ firms) as regards to the reporting rules, template, instructions, and SS45/15.

Insurance publications and updates

New Insurer Start-up Unit

This web page was updated to include information on the Wholesale Insurance Accelerated Pathway. This is developed jointly between the PRA and FCA, aiming to provide an accelerated route to authorisation for a sub-set of London market wholesale applicants.

More information

Bank Underground – a blog for Bank of England staff to share views that challenge – or support – prevailing policy orthodoxies. The views expressed here are those of the authors, and are not necessarily those of the Bank of England or its policy committees.

Bank Overground – the purpose of Bank Overground is to share our internal analysis. Each bite-size post summarises a piece of analysis that support a policy or operational decision.

Explainers – from interest rates and inflation through to bank failures and financial crises , Explainers uses everyday examples and engaging visuals to bring economics to life.

European and International developments – readers are referred to the following websites:

• European Banking Authority
• European Insurance and Occupational Pensions Authority
• Basel Committee on Banking Supervision
• International Association of Insurance Supervisors
• Financial Stability Board

Other prudential regulation releases

Pra regulatory digest - july 2024, pra practitioner panel: annual report 2023/24, the prescribed persons (reports on disclosures..., the prescribed persons (reports on disclosures of information) regulations 2017 – annual report 2023/24, cp11/24 – international firms: updates to..., cp11/24 – international firms: updates to ss5/21 and branch reporting.

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Insurance Insights

Main heading component (if no main heading is visible immediately below this text, please delete it and use a clear float instead), pra business plan 2023/24 and key points for the uk insurance sector.

25 May 2023

The PRA has recently published its 2023/24 Business Plan . The plan provides an update on the PRA's strategy and sets out its priorities over the next 12 months.

As expected, the Financial Services and Markets Bill (FSM Bill) and the implementation of the Future Regulatory Framework (FRF) review are key priorities. The plan makes clear that a critical element of this will be the PRA's new secondary objective to " facilitate international competitiveness and medium to long-run growth of the UK economy " and the business plan sets out the PRA's commitment to " vigorously " take forward this new objective. Notably, the PRA are of the view that there is " no contradiction between robust standards and economic growth " and that such " safety and soundness is most likely to be achieved in a growing, competitive economy ". Such an approach will be welcomed by UK firms, although it remains to be seen how this will translate into tangible practices. Interestingly, HM Treasury has separately published a 'Call for Proposals' to measure the success of the new competitiveness and growth objective and therefore to hold the PRA to account (to learn more on the Call for Proposals click here ).

These are potentially highly significant developments to the regulatory landscape which, taken alongside the other strategic priorities set out in the PRA's 2023/24 business plan (e.g. to be at the forefront of identifying new and emerging risks, such as AI, focusing on financial resilience) suggest that the next 12 months will be a very busy period for UK regulation.

Key priorities in 2023/24

The 2023/24 Business Plan is centred around four strategic priorities, further described below. For the purposes of this article, we have focused only on the key points for the UK insurance sector although some of these points will also be relevant for other firms within the PRA's perimeter.

1. To maintain and build on the safety and soundness of the banking and insurance sectors, and ensure continuing resilience

The main focus is on resilience, both in operational and financial terms. The PRA intends to achieve this through legislative reforms in co-operation with HM Treasury and a host of policy work, risk management and supervision.

To facilitate this, the PRA will issue a series of consultations on rule changes and expectations to implement reforms to the Solvency UK regime (for an overview of the reforms click here ).

The PRA intends to focus on the following areas:

• Insurance Resolution Regime (IRR) – The PRA will continue to assist HM Treasury with the creation and implementation of a resolution regime for insurers in the UK.
• Stress Testing – A timeline for the next insurance stress test will be published in H2 2023. The PRA will also look to engage with firms on the development of its insurance stress testing regime and the publication of stress test results at an individual firm level.
• Reinsurance Risk – The concentration of reinsurance risk for annuity business, and the emergence of "funded reinsurance" in the UK life market and risks to the protection of UK policyholders remains an area of focus.
• Operational Risk and Resilience – Working with the FCA to assess progress of firms' implementation of the operational resilience policies that came into force in March 2022 and continuing to monitor threats to firms' resilience due to critical third party dependencies.
• Senior Managers & Certification Regime (SM&CR) review and reform – The PRA and FCA issued a joint discussion paper (DP1/23) in March 2023 alongside HM Treasury's Call for Evidence.
• Diversity and Inclusion – Building on the feedback and data received in response to DP2/21 on diversity and inclusion in the financial sector, the PRA expects to publish with the FCA a consultation paper with further proposals on diversity and inclusion later this year with the expectation that the final policy will be published in 2024.
• Cyber – The PRA will continue to monitor and assess firms' ability to manage cyber threats through the use of CBEST and the cyber questionnaire (CQUEST).
• Inflation –The PRA plans to continue working with firms to help them assess, monitor and account for the impact of claims inflation in general insurance, particularly in relation to motor and home insurance.
• Regulatory Reporting Requirements – As part of the second phase of changes to regulatory reporting requirements the PRA intends to issue a policy statement containing all reporting changes later this year followed by a final taxonomy for firms to begin implementing the reporting changes ahead of a proposed implementation date of 31 December 2024 for all phases.

2. To be at the forefront of identifying new and emerging risks, and developing international policy

The PRA intends to lead and influence the setting of international regulatory standards through participation in the International Association of Insurance Supervisors ("IAIS") with a focus on the development of the Insurance Capital Standard, work on private equity and risk transfers, and the implementation of a framework for assessing and mitigating systemic risk in the insurance sector.

The PRA also intends to engage with opportunities and risks arising from the following key areas:

• Digital Innovation within the financial sector with developments monitored by the PRA's Fintech Hub. The PRA will consider policy proposals to respond to digitalisation and the new insurer start-up unit will engage with applicant firms using novel technology. The PRA will also play an "active part" of the IAIS Fintech Form;
• AI and Machine Learning  and their use in UK financial services focusing on the safe and responsible adoption of these technologies. The PRA will be considering how best to address the issues raised by AI and machine learning whilst accounting for the wider policy debate on AI, including the UK Government's policy paper on 'Establishing a pro-innovation approach to regulating AI'; and
• Climate Change  and the associated increased financial risk to firms and the financial system. The PRA will assess firms' abilities to manage climate-related financial risks and meet supervisory expectations in a proportionate way.

3. To support competitive and dynamic markets, alongside facilitating international competitiveness and growth, in the sectors that we regulate

The proposed new secondary competitiveness and growth objective has spurred the PRA to work on initiatives to shift its policy focus and to develop more proportionate and agile prudential requirements. For example, reducing regulatory burdens on small firms. The PRA also expects that the ongoing FRF will enable it to be more responsive and proactive in advancing its objectives and ensuring that rules are appropriately tailored to the UK market.

Following on from DP4/22 on the PRA's intended approach to policymaking, the PRA expects to publish a consultation paper on the same topic to further this work during 2023. Work with HM Treasury to transfer various direct firm-facing rules to the PRA Rulebook is also ongoing. Once passed, the FSM Bill will also require the PRA to keep its rules under review, carry out rule reviews and publish a statement of policy with respect to its review of rules. The PRA expects to publish a consultation paper on its approach to rule reviews later this year.

The PRA is also working on how its Cost Benefit Analysis (CBA) panel will be structured and will look to publish a statement of policy on panel members' appointments later this year before setting up the CBA panel. Following which, the PRA will also consult on a CBA framework.

The PRA intends to support market entrants in navigating the authorisation process through the work of the New Insurer Start-up Unit including providing clear online guidance and offering potential applicants the opportunity to meet with PRA staff through a structured pre-application stage. The introduction of a mobilisation stage for new insurers to operate on a restricted basis while they complete their set up is also being considered.

The PRA also intends to embed an accelerated authorisation pathway for participants in the wholesale insurance market with a "highly credible" track record who wish to set up insurance special purpose vehicles to support the UK's insurance linked securities (ILS) regime.

4. To run an inclusive, efficient, and modern regulator within the central bank

The PRA intends to:

• increase operational efficiency on regulatory transactions by increasing resources and streamlining reviews of transactions;
• enhance its transparency on authorisations through introducing quarterly reporting of performance metrics for a range of regulatory transactions, which will include the time taken to determine cases;
• implement the recommendations of the Bank's Court review into ethnic diversity and inclusion to embed inclusive recruitment and invest in talent support/development;
• implement its digital skills strategy including use of technology to supervise firms and hire data scientists and specialists to support supervisors and data analysts; and
• update its published supervisory approach documents during the course of 2023 to reflect recent updates to the PRA's supervisory approach, which now categorises firms according to their 'potential impact' on financial stability on a scale of 1 to 4.

The upcoming year looks to be very busy for the PRA and firms alike, with a broad spectrum of incoming regulatory reforms alongside numerous reviews of existing policies and practices. We would recommend that firms routinely monitor announcements from the PRA, FCA and HM Treasury on the Edinburgh Reforms and Solvency UK, as well as the various consultation papers proposed by the PRA in its 2023/24 Business Plan and referenced above.

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• Publications

Business Plan 2023/24

Our Business Plan details the work we'll do over the next 12 months to help deliver the commitments in our Strategy.

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Introduction

Our objectives, wholesale markets, cost of living and consumer duty, our locations, data and technology led regulation, who we work with, cryptoassets, deferred payment credit (exempt buy-now-pay-later, bnpl), annual funding requirement, fees consultation, prioritising our work, our regulatory programme, how we'll deliver our commitments, dealing with problem firms, improving the redress framework, reducing harm from firm failure, improving oversight of appointed representatives, reducing and preventing financial crime, delivering assertive action on market abuse, putting consumers' needs first, enabling consumers to help themselves, a strategy for positive change: our environmental, social and governance (esg) priorities, minimising the impact of operational disruptions, preparing financial services for the future, strengthening the uk’s position in global wholesale markets, shaping digital markets to achieve good outcomes, annual funding requirement, the ora budget, financial regulatory framework, consumer duty, transformation, consumer harm campaign, scope change recovery, capital expenditure.

• About the FCA
• How we work
• FCA outcomes and metrics
• Our Strategy (PDF)
• Our commitments and objectives in full (PDF)
• CP23/7: Regulatory fees and levies: policy proposals for 2023/24
• Business Plan 2023/24 (PDF)

We are committed to protecting consumers, enhancing market integrity, and promoting competition in the interest of consumers. 

As we continue to see significant and rapid change in financial services, we remain committed to becoming a more assertive, adaptive and innovative regulator. Our work affects firms, consumers and the UK economy.

Last year we published our Strategy and set out the three themes where we are strengthening our focus and the 13 commitments to support these themes:

• reducing and preventing serious harm
• setting and testing higher standards 
• promoting competition and positive change

Together these themes help to create the conditions for financial services to deliver the outcomes we expect, and delivery of these commitments is well underway. 

This Business Plan sets out how we’ll deliver the second year of our Strategy. Our Annual Report later in the year will report on progress against the activities we set out in our Business Plan 2022/23 and will provide the latest data against our outcomes and metrics .

Our strategic objective is to ensure financial services markets function well. 

Our operational objectives are to: 

• secure an appropriate degree of protection for consumers 
• protect and enhance the integrity of the UK financial system 
• promote effective competition in the interests of consumers

We will soon also have a new secondary objective to facilitate the international competitiveness of the UK economy and its growth in the medium to long term.  This is being introduced as part of the Financial Services and Markets Bill which is currently going through Parliament.

As a financial services regulator, we have an important role in the continued success of the UK financial services markets and their contribution to the UK economy.

When markets are efficiently and proportionately regulated and firms are able to compete and innovate in a safe, trusted and stable environment, it benefits consumers and investors, and it ensures the UK economy, including financial services, sustains its international competitiveness.

We fully embrace this secondary objective as already significantly in line with our approach. We will further increase our focus on international competitiveness and growth in delivering our primary objectives, while ensuring that there is no compromise on consumer protection, market integrity or competition in the interests of consumers. 

Our work includes improving the attractiveness and global reach of our wholesale markets. This includes using the opportunity created by the transfer of retained EU law; sharpening our operational effectiveness through continued improvements to our authorisations processes; and providing opportunities for UK financial services companies to invest, innovate and expand in the UK through, our Sandboxes, Innovation Pathways process, leadership of the Global Financial Innovation Network and TechSprint programmes. 

Accountability is a key part of ensuring we as a regulator deliver what is expected of us. We will report each year on how we’re delivering our new secondary objective and are developing how best to measure our success. As international competitiveness and growth are affected by wider Government policy (such as tax and labour markets policy), monetary policy and economic conditions, we will focus on measuring those aspects we can influence directly, and which are relevant to our policy decisions and explain where relevant the interactions with other areas of Government policy. We will focus on the key drivers of productivity and will explain how we expect our actions and outputs to facilitate international competitiveness and growth.

The challenges of the year ahead

Over the past year we have seen record levels of volatility. We expect the economic and geopolitical environment to remain highly uncertain over the year ahead.  While there are some positive developments in the UK economy the situation will remain uncertain over the coming year, including a heightened risk of firm failure. Events over recent weeks including the resolution of Silicon Valley Bank UK and interventions in relation to Credit Suisse have underlined this.

Key uncertainties include:

• Interest rates and inflation : Financial market expectations of interest rates in the UK and in other jurisdictions remain volatile as do expectations with respect to inflation. 
• The risk that unemployment increases more than currently projected : The OBR now forecasts that the UK will avoid a technical recession in 2023, but expects the economy to contract by 0.2%. While unemployment remains low, the Bank of England’s wide range of possible unemployment rate outcomes for the period 2022 Q4 to 2026 Q1 (around 3%-8%) shows there is significant uncertainty.
• Potential for further declines in real household disposable incomes : Higher mortgage rates alongside the broader squeeze on real incomes are reducing consumer budgets. Pressures on real incomes may start to ease as inflation falls, but the effect on real incomes is lagged. This means that even when immediate pressures ease, some households may still have a negative cash flow. 
• Potential for further market volatility : Heightened geo-political tensions from the war in Ukraine still pose risks of further periods of market volatility. Markets are also on high alert for any widespread contagion from increasing volatility.

Wholesale markets have recovered from the gilts markets volatility and the impact on pension funds in the Autumn of last year and are functioning effectively. We will remain alert to potential problems and be ready to act if necessary, and participants in the wholesale markets may need to take action to manage heightened operational and market risks.

Rising interest rates and elevated inflation have contributed to an elevated number of people stretched financially and many consumers face significant financial pressure.

Our role is to make sure firms treat customers fairly, support those in difficulty and give them the information they need to make good decisions. Our work to identify and track early indications of problems is vital to enable us to respond proactively. We will continue to look for joined-up solutions, working closely with a range of partners , other regulators, Government and the devolved administrations, such as in our work with debt advice charities. The Consumer Duty which comes into force on 31 July will play a key role in underpinning this work, including for vulnerable consumers.

Many of the activities that we are already doing across a range of commitments also support those who are vulnerable or financially stretched, including those to support our commitments to Reduce and prevent financial crime and to Put consumers' needs first.

There is also potential for longer term consequences from the current cost of living pressures due to the impacts on consumers, firms and markets, for example in relation to pensions saving.  We will work to understand further these consequences this year.

Our focus for 2023/24

Our Strategy is designed to be sufficiently agile to deal with and meet new challenges and opportunities. The markets we regulate are dynamic. Going into the second year of our Strategy, and with finite resources, we will keep prioritising our work to respond to these challenges.

To support our growing remit and deliver our ambitious Strategy, we have been recruiting the people we need now and for the future.

Our headcount has grown from around 3,800 at the beginning of 2022 to nearly 4,500 at the end of March 2023.

This has included significant increases in resource in: our Authorisations Division to improve operational effectiveness and deliver a more rigorous gateway; and our Enforcement and Market Oversight Division to build capacity and resilience in our case and investigation teams and enable us to act faster against firms causing harm to consumers and/or markets.  We have also resourced changes in our perimeter. 

We expect to increase our headcount steadily in 2023 to meet a growing remit and to enable us to deliver key aspects of our Strategy, such as the Future Regulatory Framework and in the area of data analytics.

We committed in our Business Plan 2022/23 to develop our national presence. 

We opened our Leeds office in September 2022, with a specific focus on enhancing our digital and data capabilities. The Leeds office will provide capacity for over 200 colleagues based on hybrid working practices.

With over 175 colleagues now based out of our Edinburgh office, we are on track to double the number of colleagues in Scotland to over 200 as well as maintaining a presence in Cardiff and Belfast.

The scale of the FCA ambition to become a data-led regulator means that we are making significant progress across a number of data and digital programmes.  These include exploiting our investment in cloud technology, implementing new digital capabilities and designing new data solutions required by the front line of the business.

Our ambition this year is to complete a major upgrade to our core regulatory system and improve our intelligence capabilities through the automation of analytics tooling, helping us detect and respond to consumer harms faster.

We are making further investments in cyber security and operational resilience, to ensure our services are secure by design, improving technical stability and efficiency for our staff and regulated firms.

We will reduce firm burden further still by implementing additional data collections improvements through our Transforming Data Collections programme which has already resulted in a reduction in firm burden this year through an improved intuitive form for 20,000 consumer credit firms.

We work closely with a range of different partners.  These include consumer groups, trade associations, professional bodies, government departments, and other regulators in the UK and overseas. 

We also work with four independent statutory panels when developing our policies and other regulatory decisions. The panels represent the interests of consumers and practitioners, including smaller regulated firms and financial market participants. They play an important role in advising and challenging us and bring experience, support and expertise in identifying risks to the market and to consumers.  We also work with a panel on listing related issues and we expect this panel along with a cost benefit assessment panel to become statutory panels later in the year.

As proposed by the Treasury, financial promotions relating to certain cryptoassets are being brought within the scope of our regulation. The Treasury issued a consultation on 1 February 2023 on proposals for a broader future regulatory regime for cryptoassets. In preparation for this, we will be investing in additional skills to enable us to deliver on, and make changes to, the systems and procedures needed for the relevant firms, as well as the necessary changes to systems and procedures for the firms who fall within the scope of the Treasury proposals. As of the 3 April 2023, we have registered 41 cryptoasset firms under anti-money laundering rules. 

In 2023/24, following the Treasury’s proposed expansion of our regulatory perimeter to include deferred payment credit (exempt buy-now-pay-later, BNPL) products, we will design and begin to implement our approach, including consultation and rulemaking and our plans for authorisation, supervision and enforcement. We will also continue to act to address harm to consumers in advance of our regulation, eg around financial promotions.

The annual funding requirement ensures we have the right level of resources for people, systems and data improvements to deliver on our Strategy and commitments. 

We are working in an exceptionally challenging external environment while still delivering against, and in some parts accelerating, our challenging three-year Strategy and taking on significant new responsibilities.  

A material increase in funding in cash terms is needed to ensure we can continue to protect consumers from harm, ensure market integrity and foster innovation so our economy can grow. We recognise the rising costs many firms are facing and so we are setting our proposed increase in fees below inflation, including freezing minimum and flat rate fees to ease the pressure the smallest firms and freezing application fees. 

 Over the past year there have been unexpected external and geopolitical events that have required us to divert resources at short notice. Our resourcing model for the year ahead needs to ensure that we can be agile and flexible with our resources.

Additionally, we need to resource activity for the Future Regulatory Framework, cryptoassets and other scope changes, and our ongoing transformation. As we go into the second year of our Strategy, we will intensify focus on driving efficiency and effectiveness in delivering our outcomes.

For more details go to our budget .

We distribute recovery of our costs between fee-payers by putting them in fee-blocks. These group together firms with similar permissions. We allocate costs between fee-blocks to align them broadly with the costs of regulating those activities and each year we adjust the allocations to reflect additional work that we are undertaking with those groups of firms. Our Fees Consultation Paper sets out what fees we will be charging over the next financial year.

See our commitments and objectives in full (PDF)

We have prioritised our work for 2023/24 to ensure we direct our resources most effectively. While we will continue to deliver across all our commitments at a similar pace as Year 1, we have decided to invest even further in our most critical commitments over the coming year.

We have taken account of the impact of the challenges in the year ahead on the outcomes in our Strategy that we want financial services firms to deliver. And we have factored in the investment and progress we have already made in the first year of our Strategy. 

Where additional resources are available, we will focus on these four commitments:

• Preparing financial services for the future – working with the Treasury to implement the new regulatory framework so we can address emerging harms more efficiently
• Putting consumers’ needs first – to improve consumer protection and standards for all consumers and ensure our support for struggling consumers remains a priority
• Reducing and preventing financial crime – prioritising this will also help protect consumers to an extent and consumers in vulnerable circumstances specifically, as they may be more susceptible to fraud. This also supports our commitment Putting consumers' needs first
• Strengthening the UK's position in global wholesale markets – to help ensure that the UK continues to be seen as one of the leading global markets of choice and strengthen our ability to respond to market volatility

Implementing the outcomes of the Future Regulatory Framework review is a core part of our commitment to prepare financial services for the future. We will work with the Treasury and other regulators on the repeal of retained EU law and replace where appropriate, obligations currently found in that law with Handbook rules. We will adapt these rules so they better suit financial markets in the UK. This is a very significant programme of work, with demanding timetable both for us and market participants over the coming year. It will help ensure that we can continue to advance our operational objectives while encouraging the UK’s wider economic growth and international competitiveness in line with our secondary objective.

Scams and fraud continue to negatively impact our society. We will continue to invest in the technology we use to gain intelligence to disrupt those committing financial crime earlier, and increasingly prevent harm. We will boost our efforts to proactively identify those intent on committing financial crime trying to enter our perimeter, as well as on fraudsters operating outside our perimeter. We will build further covert capabilities into our systems to identify and disrupt fraudsters. We will also invest in raising standards in authorised firms to improve their abilities to detect and prevent financial crime. This includes a strengthened the gateway, more proactive assessments of regulated firms and more staff focused on investigating and prosecuting offenders. 

The Consumer Duty is a significant shift in our expectations of firms and is particularly important as consumers face squeezed incomes and the rising cost of living. We are bolstering our resources to ensure the Consumer Duty is embedded effectively within firms and central to their technology. Alongside the Consumer Duty, we are also planning to allocate additional staff dedicated to working with firms as they support consumers struggling with higher costs of living.

Strengthening the UK's position in global wholesale markets

We are operating in an environment of significantly elevated market risk globally. We are investing very significantly in our technology and data capabilities, including to address data gaps and ingest data quicker so we can oversee markets effectively. To further enhance the UK’s position in global wholesale markets, UK markets need to function effectively and adapt to the changing international context as well as welcome new technology and innovation. For example, this year we will complete upgrades to key systems and continue automating our analytic tools, helping us detect and respond to  harms faster. We will also focus on scaling up our systems, tools and applications, reducing costs. We will keep strengthening the security of our infrastructure, including in relation to cyber threats, and continue to make our systems more stable and efficient. We will reduce firm burden further by implementing more improvements to data collections. We are embarking on a series of significant regulatory reforms to support this. 

This Business Plan does not cover everything we do. The Regulatory Initiatives Grid from the Financial Services Regulatory Initiatives Forum is updated twice a year and gives details of our planned regulatory programme. We also undertake a significant amount of baseline work, authorising firms, and individuals; supporting consumers who contact us – by whatever means; supporting firms with their queries and overseeing them, including responding to incidents and issues as they arise.

We also update our Perimeter Report quarterly. This report helps to explain what we do and don’t regulate. It describes specific problems we see around our perimeter, explains the ways we are proactively intervening to prevent harm and pre-empting or responding to problems. It also identifies existing gaps in legislation, areas of potential harm and our powers to act against unregulated activities, for example BNPL, crypto and artificial intelligence (AI).

The next sections provide details of our planned work against our commitments, including work already started. We provide details of the outcomes we want to achieve. These outcomes were set over a three-year time horizon in line with our Strategy and so will not change materially in Year 2. Each commitment is linked to metrics to help measure progress and performance.

Focus 1: Reducing and preventing serious harm

We aim to protect consumers from fraud and mistreatment and our focus is on protecting consumers from the harm that authorised firms can cause. We do considerable work to reduce and prevent harm caused by unauthorised firms. In response to our Strategy, we’ve continued to increase scrutiny on firms wanting to offer services to UK customers. During FY2022/23, 23% of firms applying to operate here did not become authorised. 

We have issued over 1,800 warnings about potential scam firms during 2022, 400 more than the previous year, and our Consumer Hub has prevented just over £7m being lost to fraudsters.

We are increasingly improving our technologies to identify harm. For example, improving the quality of information we use in our decision-making, from the delivery of Single View supervision dashboards to intelligence interventions. 

This section explains the actions we are taking to deliver across our six commitments for reducing misconduct that can cause serious harm. 

Outcomes we want to achieve

• Consumers and market participants have confidence that financial services firms which fail to meet the Threshold Conditions and/or should otherwise not be regulated, are identified and cancelled quickly.
• Consumers and market participants trust that the FCA intervenes to stop harm to consumers and market integrity quickly.

How we will achieve the outcomes

• The redress system delivers timely and fair complaint resolution and compensation to consumers.
• Firms that create a redress burden are more likely to bear the associated cost themselves.
• Consumers understand the redress system and how to access it.
• The Claims Management Company (CMC) sector delivers fair value.

 How we will achieve the outcomes 

Outcomes we want to achieve  

• Firms meet their financial resource requirements so that they can conduct business, wind down and, where applicable, fail without causing significant harm to consumers and market participants. 
• Client assets and funds are appropriately held so that if the firm fails, they are returned as quickly, and as whole, as possible.
• Firms subject to financial or other stress which may lead to firm failure are quickly identified and the firm rectifies the situation, winds down solvently or enters insolvency in a way which minimises harm to consumers and market participants.

 Outcomes we want to achieve 

• Stronger oversight by principals to reduce harm caused through ARs.

How we will achieve the outcomes 

Financial crime remains a significant focus both for the FCA and nationally. We want consumers and market participants to have confidence that the financial services industry is safe. Over the past year we have improved our cross-organisational response to financial crime. We have built strong foundations for effectively tackling financial crime. Over the next year we will build upon these, increasingly using data-led approaches to act quickly to identify and close down weaknesses in the system and disrupt those seeking to cause harm.

However, our efforts to tackle financial crime will only be successful if the response is system-wide, including across public and private partners. Over the next year we will play a key role in driving the financial services sector’s contribution to driving down fraud and delivering the Economic Crime Plan 2. 

We will continue to work on slowing the growth in both Authorised Push Payment (APP) and investment fraud, a significant milestone given the scale of fraud in the UK. Over the longer term, as the national effort mobilises with the national economic crime strategy to tackle fraud, we aim to achieve a reduction in fraud.

Our work through this commitment has the dual benefit of both reducing and preventing financial crime and also achieving our commitment to enable consumers to help themselves. We are raising consumer awareness of scams and providing consumers with ways to check against our Register. This will help to reduce the volume of fraud (particularly investment fraud) pushed on consumers. We are also taking action where we identify those intent on committing financial crime.

Outcomes we want to achieve 

• Slow the growth in investment fraud victims and losses.
• Slow the growth in Authorised Push Payment (APP) fraud cases and losses.
• Reduction in financial crime by lowering the incidence of money laundering through the firms we supervise directly and improving the effectiveness of supervision by professional body supervisors.

Market abuse undermines the integrity of the UK financial system, eroding confidence and lowering participation, to everyone’s detriment. Firms are a vital first line of defence. They must have the right culture and safeguards in place to spot, report and reduce the risk of market abuse.

We want to continue to build resilience to market abuse across primary and secondary markets, ensure access to inside information is properly controlled and market disclosures are timely and accurate. Our aim is to have robust detection and investigation capability and deliver deterrents through a range of supervisory, civil and criminal sanctions.

• Increased confidence in the integrity of UK markets which maintains high levels of participation across the buy-side and sell-side.
• Timely and accurate disclosure of inside information. 
• Financial firms and issuers are more resilient to market abuse, having robust systems and controls, high-quality reporting practices and a strong anti-market abuse culture. 
• Criminal, civil and supervisory sanctions are brought to bear on wrongdoers to provide effective deterrents.

Focus 2: Setting and testing higher standards

We have made four commitments for improving our rules and standards. These focus on the impact firms’ actions have on consumers and markets.

This commitment includes key areas of work including the Consumer Duty, a core part of our work on the cost of living, financial inclusion and access to cash. The Consumer Duty sets a higher standard of care that firms must provide to consumers in retail financial markets. With firms focusing on delivering good consumer outcomes, we will all benefit from increased competition and innovation and we should see a reduced need for future regulatory and supervisory action.

Our work on financial inclusion is focused on addressing issues consumers face when accessing the products and services they need. We have also added an outcome to this commitment to reflect the importance of appropriate treatment of consumers struggling with debt due to cost of living pressures.  Other elements of our response to cost of living pressures are reflected in existing outcomes and addressed through a number of other business plan commitments, such as reducing and preventing financial crime.

• Consumers are sold products and services that are designed to meet their needs, characteristics and objectives.
• Consumers pay a price for products and services that represents fair value, and poor value products and services are removed from markets. 
• Consumers are equipped with the right information to make effective, timely and properly informed decisions about their products and services.
• Consumers receive good customer service. 
• Consumers have confidence in financial services markets.
• Firms innovate through the Consumer Duty, supporting the growth of the financial services industry and driving effective competition for customers.
• Appropriate access to financial services is maintained.
• Firms support consumers to sustainably manage their debts.

Digital services make it faster than ever to engage in financial services or undertake any financial services activity. Consumers need good information to make good decisions – particularly in a challenging economic environment. But this doesn’t always happen. Instead, they’re often targeted with adverts that are unclear, unfair, misleading or illegally communicated by unauthorised persons.

With increasing use of data and new technology, we’re getting faster at finding potential breaches and shutting down misleading promotions. We will continue to focus on making sure firms promote products and services that are suitable for consumers, stopping firms doing unauthorised business and warning consumers about unauthorised activities and scams.  

As our perimeter expands, we will continue our work on non-compliant promotions by authorised firms, as well as activity by unauthorised firms which can lead to mis-selling and financial loss. This will reduce the potential for financial loss from scams and of authorised firms mis-selling high-risk non-standard investments.

Our existing and new activities that support the delivery of enabling customer to help themselves also supports our commitment to reduce and prevent financial crime.

• Reduce the potential for consumer financial losses arising from mis-selling of products due to the issuing of non-compliant financial promotions by authorised entities.
• Reduce the potential for consumer financial losses and mis-selling of products due to the issuing of illegal financial promotions by unauthorised entities.
• Reduce the potential for financial loss from scams and the mis-selling of high-risk non-standard investments involving authorised firms.

• Trust and consumer protection from misleading marketing and disclosure around ESG-related products.
• High-quality climate and wider sustainability-related disclosures to support accurate market pricing, helping consumers and market participants choose sustainable investments and drive fair value.
• Active investor stewardship that positively influences companies’ sustainability strategies, supporting a market-led transition to a more sustainable future.

 How we will achieve the outcomes

Operational disruptions can prevent consumers accessing essential financial services, disrupt markets and threaten confidence in the sector. Firms continue to face a high, and growing, level of cyber threats and operational resilience risks, against a complex geopolitical backdrop. Firms should be investing in their resilience given the increasing scale and complexity of both current and future threats.

We’re scaling up our efforts to deal with firms who can’t meet our new standards on operational resilience, and making it clearer how they should report incidents to us. We are also developing new rules to address the systemic risk that critical third parties present to firms and markets.  

• Important business services that firms provide are resilient to operational disruption. 

Focus 3: Promoting competition and positive change

We want to use competition as a force for good. We will support UK growth and innovation that serves our society, underpinned by widely recognised and respected high standards.

We continue to be a world leader in innovation. For example, we have supported 133 crypto-related firms through our Innovation services, split across 57 in the Regulatory Sandbox and 76 in Innovation Pathways.  

Regarding authorised firms, we have enabled 300 newly authorised or high growth firms to receive greater oversight and support through our Early and high growth oversight function, helping raise standards and promote competition.

We have made three commitments to promote competition and positive change.  This section explains our actions to maintain our high standards to enable innovation and competition in consumers’ interests. 

Implementing the outcomes of the Future Regulatory Framework (FRF) Review is an important change programme for us. 

Together with the Treasury and the other regulatory authorities, we will take the opportunity to move to a model where independent regulators are responsible for firm-facing requirements operating within a framework set by Government and Parliament. We will use the new responsibilities in the Financial Services and Markets Bill to progress the orderly replacement of retained EU law with requirements in our Handbook, tailoring provisions as appropriate to better suit UK markets. 

In taking forward this work, we will support changes that advance our operational objectives and our new secondary international competitiveness and growth objective. This will help ensure that the UK maintains its position as a preeminent financial centre, and that our standards continue to support access to UK markets while supporting economic growth in the wider economy. This includes taking forward the outcomes from the Wholesale Markets Review (WMR), which amends various parts of the MiFID framework, and Lord Hill’s Listing Review to implement a new regime for admissions to trading and public offers.

As we gain new responsibilities from the FRF Review, it is important to be transparent and accountable for how we deliver these. We will work with Parliament in its scrutiny of our work and focus on embedding the enhanced accountability mechanisms and our new secondary objective in the way we work.

We are making an additional investment in this priority in 2023/24, which will be particularly focused on delivering this transfer exercise in line with the Government’s implementation plan announcement  in December 2022.

• This commitment supports all our top-line outcomes and creates confidence in financial markets.
• Ensuring orderly replacement of firm-facing requirements in legislation in our Handbook.

• The regulatory framework is clear, well-understood and trusted by all market participants. Market participants regard the regulatory framework as proportionate both in terms of speed and cost.  The framework supports market participants in determining fair value.
• Where outcomes are not being met, this is clearly communicated, and remediation is swiftly undertaken or enforced. 
• The UK is regarded by market participants as one of the top markets of choice, with innovation viewed as encouraged and supported and regulation viewed as appropriately evolving to address new opportunities and risks.
• Taken together, our interventions contribute toward sustainable growth in the UK economy.

The digitalisation of financial services is changing how consumers make decisions and markets operate. Technology in financial services is constantly evolving. In May 2022 our Financial Lives survey found that 88% of UK adults had used online or mobile banking for day-to-day banking activities in the previous 12 months and 11% had an active current account with a digital bank.

To be an effective regulator, we need to better understand the risks and opportunities to capture the considerable benefits to consumers and manage the significant harms. The emergence of Fin Techs and the expansion of Big Tech firms into financial services is also changing the landscape. For example, there are over seven million users of open banking in the UK. Using the transition into open finance, we can proactively shape these digital markets and drive economic growth through our innovation services and developing our regulatory approach to enable safe, inclusive and beneficial innovation for consumers. 

In this second year, we will build on our work partnering with other regulators and will focus on how to support consumers to make good decisions in a digital world.

• The development of digital markets and the use of new technologies in financial products and services leads to fair value for consumers.
• The consumer journey for digital financial products and services enables consumers to take decisions in their best interest.

Our annual budget reflects the cost of the resources we need to carry out our work in 2023/24. The key elements of our budget are:  

• the cost of our core operating activities (our Ongoing Regulatory Activity, ORA), the largest element of which is our people.  We increasingly manage resources in a flexible and agile approach to enable us to address issues as they arise eg Russia/Ukraine war, cost of living
• the total amount we charge the industry to fund our activities (our Annual Funding Requirement) 
• capital expenditure to develop our technology and information systems, and new regulatory and operational requirements  

We give additional detail in our annual fees rates consultation paper .

Our AFR for 2023/24 is £684.2m, an increase of 8.5%. Our AFR includes our ORA budget, Future Regulatory Framework, Transformation, our Consumer Harm Campaign, and the costs we need to recover for changes to our regulated activities ie scope change which includes increased responsibilities for the FCA. The actual fees we collect will reflect the AFR net of rebates from financial penalties collected (forecast at £50.3m). 

The ORA budget will help us target resources towards the commitments set out in this business plan and continue to accelerate delivery of our ambitious three-year strategy.  The budget comprises a below real terms increase with the base ORA budget increasing by 8.0% (£49.1m). This takes account of cost and demand pressures and ensures we can continue to protect consumers from harm, ensure market integrity and foster innovation. It also includes additional charges to reflect changes to responsibilities for Pre-Paid Funeral Plans (£1.0m), and a reduction in the employer rate of National Insurance (£3.1m). This gives a rebased ORA budget of £664.4m, representing an overall 7.6% increase on last year.

The Government is adapting the UK’s framework for financial services regulation, following the UK’s withdrawal from the EU. The Future Regulatory Framework (FRF) will transfer some rulemaking responsibilities to the FCA and strengthen accountability, scrutiny and transparency. Implementing the FRF reforms is a key part of our ‘Preparing financial services for the future’ strategic commitment and to support this programme we expect to invest £12.7m in 2023/24.

The Consumer Duty will set higher and clearer standards of consumer protection across financial services and require firms to act to deliver good outcomes for customers. We will invest £5.3m to ensure the Consumer Duty is embedded effectively.

Our Transformation focus in 2023/24 will be ensuring that we continue strengthening our processes that lead to improved speed and efficiency of our actions. We will recover at a lower level than 2022/23 and previous years to fund integration of our key change initiatives across divisions as well as enhancements to our Enforcement processes.  

In 2020/21 we sought industry support to undertake a communications and information campaign to tackle areas where we see real risk of consumer harm, building on and supplementing our existing campaign, ScamSmart.  We see positive benefits for the entire market from these campaigns. We continue to recover the costs of our InvestSmart Campaign at the same level as 2022/23. 

In 2023/24 we will recover scope change costs for financial promotions, pre-paid funeral plans, Consumer Duty, cryptoasset Businesses and Pensions Dashboard. The scope change costs are aligned to where the FCA is required to extend the perimeter of its ongoing regulatory activities (ORA).

Our capital expenditure budget reflects the ongoing delivery of IT systems and infrastructure development and refresh. The increase in expenditure is driven by investment in external facing systems and internal technology platforms. Capital expenditure is largely funded through the ORA depreciation charge.

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PRA Business Plan: a focus on financial resilience

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In many ways the FCA's Regulatory Initiatives Grid has taken over from the annual FCA and PRA business plans as the "go to" for finding out what's in the regulators' diaries for the year to come. However even if you're up to date with the Grid , there's a few highlights worth noting from the PRA's business plan , published yesterday:

Financial Resilience

- Implementation of Basel 3.1 standards in the UK moves forward: the PRA will be reviewing the feedback from its consultation in the course of this year, and hints that the unpopular 1 January 2025 implementation date may be moved back - watch this space.

- Work on the "Strong and Simple" framework (a simplified capital framework for smaller, domestic banks) continues and feedback on PRA's proposal will follow this year as part of the Basel 3.1 implementation package. 

- Risk to the UK's financial stability is monitored by the PRA in many ways, including through a horizon-scanning programme which identifies emerging external risks, regulatory arbitrage, potentially dangerous practices, and which highlights features of the regulatory regime that are not yet delivering the desired results.

Stress testing

Stress testing continues to be an important tool:

- Results of the Annual Cyclical Scenario framework will be published in the summer. This scenario tested the resilience of the UK banking system to deep simultaneous recessions in the UK and global economies, large falls in asset prices and higher interest rates, and a separate stress of misconduct.

- Scenario testing to investigate the behaviours of banks and non-bank financial institutions following a severe but plausible stress to financial markets will be launched. This will be a test of market, and not individual firms, resilience. More detailed information on the exercise will be published in Q2.

- Increasing reliance on scenario analysis and a parallel increase in the sophistication of the modelling techniques used are acknowledged. A new supervisory statement on model risk management principles for banks will be published during 2023 to update expectations in this area. 

Operational resilience

- The PRA has conducted an initial assessment of firms’ implementation of its operational resilience policy and provided feedback of the results. 

- In the rest of 2023, the PRA will work closely with the FCA to assess firms’ progress, with a particular focus on their ability to deliver important business services within impact tolerances through severe but plausible scenarios within a reasonable time frame and by no later than March 2025.

Trading book controls

- Following the regulators' review of the Archegos default, the PRA will now review its own regulatory policies in light of these findings to assess whether its policy framework for trading book risk management, controls and culture is adequate, robust, and accessible, with the potential for more rules in this space.

Ring fencing

- The PRA is required to carry out a review of its ring-fencing rules every five years and the first of these reviews will be submitted to HMT by 31 December 2023.

- This will be a technical review, separate to the PRA's work on the Skeoch review.

Skilled persons reviews

- The PRA will continue with its programme of skilled person reviews of controls over data, governance, and systems for regulatory reporting in 2023, and expects firms to take steps to address the thematic findings set out in its communications on regulatory reporting.

Diversity and Inclusion

- Following the joint regulators discussion paper on D&I in the financial sector, there will be a consultation paper in 2023 with proposals on diversity and inclusion in regulated firms.

- The final policy is expected to be published in 2024.

Finally, if you missed the FCA's Business Plan in April, here's our  client note setting out its key themes.

Financial Regulation Legal Outlook 2024

Latest insights.

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PRA releases 2023/24 Business Plan Blog FSR and Corporate Crime Notes

The UK PRA released its Business Plan 2023/24 on 2 May 2023. The plan sets out the PRA’s planned activities grouped under four strategic priorities:

• maintaining and building on the safety and soundness of the banking and insurance sectors, and ensuring continued resilience;
• being at the forefront of identifying new and emerging risks, and developing international policy;
• supporting competitive and dynamic markets, alongside facilitating international competitiveness and growth, in the sectors the PRA regulates; and
• running an inclusive, efficient and modern regulator within the central bank.

The plan also includes an overview of the PRA’s budget for 2023/24. Overall, there are no surprises, the plan is very much a continuation from the previous year with perhaps an uptick around work towards the Future Regulatory Framework (FRF). The PRA’s publication follows on from the FCA releasing its Business Plan on 5 April; t highlights some areas of joint and/or coordinated working, for example, on transforming data collection, operational resilience and diversity and inclusion (D&I).

In this blog post, we look at some of the key activities the PRA plans for the year ahead.

2023/24 strategic priorities

The strategic priorities are slightly revised from 2022/23 .

‘Maintaining and building on the safety and soundness of the banking and insurance sectors, and ensuring continued resilience,’ has grown out of last year’s ‘Retain and build on the strength of the banking and insurance sectors delivered by the financial crisis reforms’. The inclusion of ‘continued resilience’ appears to reflect – at least in part – the PRA’s role in ensuring operational as well as financial resilience in the sector; it may also reverberate with recent developments in the global banking sector. The 2023/24 version could also be seen as more forward looking as it leaves behind the ‘financial crisis’. However, while the words may have changed, the lessons of 2007/08 are still very much front of mind for the PRA CEO Sam Woods as his remarks in the foreword to the plan convey:

There is no contradiction between robust standards and economic growth. The best thing we can do for the UK economy is make sure that banks and insurers are safe and sound: as we learnt in the financial crisis of 2008, economic growth based on excessive leverage and weak regulation is ultimately unsustainable and self-defeating .

In 2022/23, the PRA’s third strategic priority was to ‘support competitive and dynamic markets in the sectors [the PRA] regulates’. This has evolved to now include the facilitation of ‘international competitiveness and growth’, capturing the PRA’s new secondary objective as set out in the Financial Services and Markets Bill (FSM Bill) which is currently progressing through Parliament.

Delivering the 2023/24 strategic priorities

Below we list key activities which the PRA has planned as part of its delivery of each of the strategic priorities.

‘maintaining and building on the safety and soundness…’

The PRA has a number of themes under this objective which we set out below with a list of planned activities.

Financial Resilience – Banks

• The PRA will publish final rules and feedback on PRA Consultation Paper 16/22 ( CP16/22 ) issued in November 2022 which set out proposals that will require banks to significantly change how they calculate risk-weighted assets (RWAs), and on the proposed 1 January 2025 implementation date.
• It will continue to work on the development of the ‘strong and simple’ framework for smaller banks and building societies.
• In mid-March 2023, the PRA issued CP6/3 on the non-performing exposures capital deduction; responses are requested by 14 June 2023. A policy statement (PS) is expected in Q4 of 2023, with the changes coming into force on the following calendar day.
• Noting that HM Treasury (HMT) has prioritised securitisation regulation as an area of focus in the FRF process, the PRA will issue a joint consultation with the FCA in 2023/24.
• The PRA is also considering feedback on the application of the output floor to securitisation which it has received in response to CP16/22, and may consult further on this. (For more on the FRF, see our post here .)
• The Bank of England (BoE) and PRA expect to publish stress test results in the summer. The 2022/23 Annual Cyclical Scenario (ACS) presents banks with ‘deep simultaneous recessions in the UK and global economies, large falls in asset prices and higher interest rates, and a separate stress of misconduct’.
• The BoE and PRA will also run a system-wide exploratory scenario looking at the behaviours of banks and non-banks following a severe stress to financial markets; this test will look at drivers and consequences of behaviours.
• The PRA intends to published a Supervisory Statement (SS) on model risk management principles in 2023.
• It will increase focus on management’s understanding of complex models as the model risk management principles are embedded.
• The regulator will continue to work with firms, carrying forward from 2022 the focus on the ‘hybrid’ approach to mortgage modelling and on the IRB programme.
• The PRA will continue the programme of skilled persons (or ‘section 166’) reviews of data controls, governance and systems for regulatory reporting. (For more information, see the PRA’s Dear CEO letter of September 2021).

Financial Resilience – Insurers

• streamlining the rules for internal model approvals;
• widening the range of assets eligible for the matching adjustment (MA);
• reducing the risk margin (RM);
• enabling the application of voluntary add-ons to the fundamental spread (FS) applied to assets held in MA portfolios;
• setting out how senior managers should approach the required attestation on the adequacy of the FS and level of the resulting MA; and
• raising the threshold at which firms are required to enter the UK Solvency regime.
• The PRA will also consult on the second phase of changes to regulatory reporting requirements. It will publish a PS later in 2023 and a final taxonomy for firms to start work on implementation.
• The PRA will support HMT’s work to create the IRR.
• The PRA will work on designing a longer-term strategy for insurance stress testing.
• It will announce the timings for the next stress test in H2 of 2023.
• Noting HM Government’s (HMG’s) intention that the PRA be able to publish individual firm results of regular stress tests, the PRA will engage with firms in scope of the insurance stress tests on this aspect.
• The PRA highlights its focus on ‘the impact of the continued high level of reinsurance of longevity risk in new annuity business, and the emergence of the more complex “funded reinsurance” in the UK life market’. It will consider how reinsurance strategies comply with the Prudent Person Principle (PPP), and may issue policy proposals or guidance.
• The PRA will continue to focus on claims inflation, and will assess how firms have responded to its October 2022 letter setting out the findings of its thematic review. Of particular interest will be the impact which claims inflation has had on 2022 year-end claim and premium provisions, and firms’ processes for responding to the continuing impact of claims inflation.

Operational risk and resilience (including critical third party (CTP) policy and cyber stress testing)

• With the UK regulators’ operational resilience policies in force since March 2022, the PRA will focus on assessing firms’ progress to the 2025 compliance deadline. (For more information on the regime, see our post here .)
• The PRA will continue to monitor threats to firms’ resilience, including with regard to dependencies on third parties.
• The PRA will work with HMT on the development of the CTP regime which is set out in the FSM Bill. (For more information on the proposed UK regime, see our post here and for a comparison between the UK and EU proposals, see our post here .)
• It will also continue to focus on cyber threats, using CBEST and the cyber questionnaire (CQUEST) and engaging in various fora with industry and peers.

Governance and risk management (including remuneration reforms)

• The PRA highlights its joint consultation with the FCA on removing the bonus cap – CP15/22 – published at the end of 2022. A PS is expected in Q2 of 2023. (For more information, see our post here .)
• The PRA has also issued CP5/23 setting out proposals on making remuneration requirements more proportionate for smaller banks; the final policy will be issued in 2023.

Senior Managers and Certification Regime (SMCR) reforms

• The PRA highlights the publication of DP1/23 by the PRA and the FCA and of a call for evidence (CfE) by HMT on reform of the regime as part of the broader Edinburgh Reform package. (For more on the SMCR proposals, see our post here .)

Trading book controls

• In light of the Archegos default, the PRA engaged with other regulators on cross-jurisdictional reviews of firms’ risk management. The PRA comments that the regulatory response is being considered at the international level, and adds that it intends to start a regulatory review in 2023 to assess the policy framework for trading book risk management, culture and controls.

D&I in firms

• Commenting that it ‘considers diversity and inclusion in firms to be an important part of corporate culture, with a direct impact on the way a firm manages its risk’, the PRA will publish a joint CP with the FCA on D&I in regulated firms in 2023. A PS will follow in 2024.

‘being at the forefront of identifying new and emerging risks…’

The PRA’s themes under this priority largely reflect current hot topics in the industry.

Influencing international change

• The PRA will continue to engage with international standard setting bodies such as the Basel Committee on Banking Supervision (BCBS) and the International Association of Insurance Supervisors (IAIS).
• The PRA will continue to secure memoranda of understanding (MoUs) with other jurisdictions.

Digitalisation

• The PRA will continue to monitor firms’ use of new technology; it also highlights as a supervisory concern, the potential for capital and profit erosion in firms which are slower to adopt new technologies.
• The PRA will contribute to the BCBS’ work on the digitalisation of finance and the deep dive analysis on the supervisory implications of Banking as a Service ( BaaS ).

Artificial intelligence (AI) and machine learning

• The PRA refers to the 2022 survey and DP5/22 which will assist regulators with developing their responses to AI and machine learning. The PRA also notes other developments, including the engagement on AI between other UK regulators via the Digital Regulatory Cooperation Forum ( DRCF ).

Cryptoassets

• The PRA will continue to contribute to the BoE’s work on cryptoassets, including through the Cryptoassets Taskforce, and will continue to engage on bank-related developments in crypto markets.
• The PRA will start work on changes to its rules to implement the BCBS prudential standard on cryptoassets in 2023.

Climate change

• The PRA will maintain its expectation that firms take ‘a forward-looking, strategic, and ambitious approach to managing climate-related financial risks’.
• Through supervisory engagement, the PRA will assess firms’ ability to meet its expectations.

‘supporting competitive and dynamic markets…’

Under this priority, the PRA sets out a number of themes which link into its rulemaking.

Regulatory change – developing the PRA’s approach to rulemaking

• The PRA will consult in 2023 on proposals outlined in DP4/22, issued in September 2022. The CP will cover: the new secondary competitiveness and growth objective; international engagement; and a new user-friendly online rulebook.

Competitiveness

• The PRA will look at ways to provide firms with more predictability about changes.
• It will integrate the new competitiveness and growth objective into its internal processes.
• To help build its understanding of the links between prudential policy and competitiveness, the PRA will host an international conference in September.

Developing the PRA’s approach to rule making – rule review

• The PRA will consult on how it plans to approach the requirements set out in the FSM Bill that it keep its rules under review.

Repealing and replacing direct regulatory requirements in the PRA Rulebook

• The PRA is working with HMT on the transfer of a number of direct firm-facing rules into the PRA Rulebook, and expects to make ‘significant progress’ in 2023.

Strong and simple regime

• The PRA is developing a tailored regime for smaller, domestically-focused banks and building societies. To this end, it has already published a number of CPs and expects to progress work on the Strong and Simple framework in 2023/24.

Ease of entry and exit

• The PRA will continue to operate the new bank and new insurer start-up units. It will continue to use a ‘mobilisation stage’ for newly authorised banks, allowing them to operate with restrictions while they finalise their set ups, and will introduce a comparable regime for insurers as part of the Solvency II review.
• The PRA will work with applicants to apply the changes to the authorisation of insurance special purpose vehicles (ISPVs) and will embed the accelerated authorisation pathway for wholesale insurance market applicants with credible track records.
• The PRA will consult on: solvent exit planning for non-systemic banks and building societies; and on requiring insurers to prepare exit plans in H2 of 2023.

Ring-fencing regime

• While HMG is progressing with both near-term reforms and considering the longer-term benefits of the ring-fencing regime following the outcome of the independent review it commissioned, the PRA will undertake a technical review of the regime (as required by statute every five years) and report to HMT by 31 December 2023.

Cost benefit analysis (CBA) panel

• The FSM Bill will introduce a new statutory CBA Panel; this will require the PRA to collect more data to inform its policymaking. The PRA will set out a Statement of Policy (SoP) on panel members’ appointments, set up the panel, and then consult on the CBA framework.

Authorisation of EU branches: banks and insurers

• In 2023, the PRA will determine the applications of EU banks and insurance branches in the temporary permissions regime (TPR).

‘inclusive, efficient and modern regulator…’

This section focuses on operational matters for the PRA which nonetheless have implications for its regulated community.

Operational efficiency on regulatory transactions

• To enhance transparency, the PRA will publish quarterly reports of its performance metrics.
• The PRA says it will ‘return to a position of reliably determining applications’ under the Senior Managers Regime (SMR) within three months by mid-2023.

Diversity, equity and inclusion at the PRA

• The PRA is implementing the recommendations of the BoE Court’s review into ethnic diversity and inclusion (reported in July 2021).

Data and technology

• Work continues, with the FCA, on the transforming regulatory data collection programme, with work in 2023 to include redesigning how the PRA collects data on commercial real estate and designing incident, outsourcing and third party reporting (IOREP).
• ‘all supervisors have access to the data they need via a single customisable dashboard;
• the PRA has the data and tools it needs to rapidly identify and probe emerging issues, risk and policy questions; and
• the PRA only collects data that it needs from firms, thereby reducing unnecessary burdens on firms.’
• Complementing the transforming regulatory data collection programme, the PRA has launched a Banking Data Review (BDR) which looks at improving the data collection from banks.
• The PRA highlights that while technology and data are a key area of focus for 2023/24, ‘there is a risk that the PRA may be unable to deliver its intended technology capability to support these projects because of availability of technology resources given the congested change agenda across the [BoE]’.

International Monetary Fund (IMF) Financial Sector Assessment Programme

• The PRA will continue to work on addressing the recommendations made in the IMF Financial Sector Assessment completed in February 2022.

Supervisory approach

• The PRA will update its supervisory approach documents in 2023.

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• Solvency II Directive (2009/138/EU)

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The PRA sets out an ambitious agenda

The PRA published its 2022/23 Business Plan on 20 April 2022, setting out an ambitious agenda of regulatory and supervisory initiatives for the banking and insurance sectors. The PRA is planning significant changes to prudential requirements for banks and insurers, and will be looking to further embed its supervisory expectations in relation to areas such as firms’ management of operational and climate-change related risks. 

Download this Hot Topic to see a detailed analysis of the Business Plan and what it means for firms.

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Related content, uk authorities finalise operational resilience approach.

Summary of the Bank of England, PRA and FCA’s consultation papers on building operational resilience and impact tolerances for important business services.

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Guidance for Resolution Plan Submissions of Domestic Triennial Full Filers

A Notice by the Federal Reserve System and the Federal Deposit Insurance Corporation on 08/15/2024

This document has been published in the Federal Register . Use the PDF linked in the document sidebar for the official electronic format.

• Document Details Published Content - Document Details Agencies Federal Reserve System Federal Deposit Insurance Corporation Agency/Docket Number Docket No. OP-1816 Document Citation 89 FR 66388 Document Number 2024-18191 Document Type Notice Pages 66388-66412 (25 pages) Publication Date 08/15/2024 RIN 3064-ZA37 Published Content - Document Details
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• Document Dates Published Content - Document Dates Dates Text The final guidance is available on August 15, 2024. Published Content - Document Dates

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Supplementary information:, table of contents, i. introduction, a. background, recent developments, resolution plan strategy, b. connection to other rulemakings, long-term debt proposal, fdic idi resolution plan proposal, c. proposed guidance, ii. overview of comments, differentiating expectations based on size, complexity, and risk, resolution strategy and transition period, capital and liquidity, idi resolution analysis, derivatives and trading, connection to other rules, timing of next resolution plan, iii. final guidance, a. scope of application, b. transition period, d. liquidity, e. governance mechanisms, f. operational, g. legal entity rationalization and separability, h. insured depository institution resolution, strategies for resolving an idi, i. derivatives and trading activities, j. format and structure of plans; assumptions, k. additional comments, differentiating resolution plan guidance, comments about resolution planning and the proposal, comments outside the scope of proposal, iv. paperwork reduction act, v. text of the final guidance, ii. capital, iii. liquidity, iv. governance mechanisms, v. operational, vi. legal entity rationalization, vii. insured depository institution resolution, viii. format and structure of plans; assumptions, spoe & mpoe, format of plan, guidance regarding assumptions, ix. public section.

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Federal Reserve System

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Board of Governors of the Federal Reserve System (Board) and Federal Deposit Insurance Corporation (FDIC).

Final guidance.

The Board and the FDIC (together, the agencies) are adopting this final guidance for the 2025 and subsequent resolution plan submissions by certain domestic banking organizations. The final guidance is meant to assist these firms in developing their resolution plans, which are required to be submitted under the Dodd-Frank Wall Street Reform and Consumer Protection Act, as amended (the Dodd-Frank Act), and the jointly issued implementing regulation (the Rule). The scope of application of the final guidance is domestic triennial full filers (specified firms or firms), which are domestic Category II and III banking organizations. The final guidance describes the agencies' expectations, depending on the resolution strategy chosen by the firm, regarding a number of key vulnerabilities in plans for an orderly resolution under the U.S. Bankruptcy Code ( i.e., capital; liquidity; governance mechanisms; operational; legal entity rationalization; and insured depository institution (IDI) resolution, if applicable). The final guidance modifies and clarifies certain aspects of the proposed guidance based on the agencies' consideration of comments to the proposal, additional analysis, and further assessment of the business and risk profiles of the firms.

The final guidance is available on August 15, 2024.

Board: Catherine Tilford, Deputy Associate Director, (202) 452-5240, Elizabeth MacDonald, Assistant Director, (202) 475-6316, Tudor Rus, Manager, (202) 475-6359, Mason Laird, Senior Financial Institution Policy Analyst II, (202) 912-7907, Caroline Elkin, Senior Financial Institution Policy Analyst, (202) 263-4888, Division of Supervision and Regulation; or Jay Schwarz, Deputy Associate General Counsel, (202) 452-2970; Andrew Hartlage, Special Counsel, (202) 452-6483; Brian Kesten, Counsel, (202) 843-4079; or Sarah Podrygula, Senior Attorney, (202) 912-4658, Legal Division, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue NW, Washington, DC 20551. For users of TTY-TRS, please call 711 from any telephone, anywhere in the United States.

FDIC: Robert C. Connors, Senior Advisor, (202) 898-3834; Mark E. Haley, Chief, (917) 320-2911, Patrick R. Bittner, Senior Policy Specialist, (202) 898-6571, Division of Complex Financial Institution Supervision and Resolution; Celia Van Gorder, Assistant General Counsel (Acting), (202) 898-6749; Dena S. Kessler, Counsel, (202) 898-3833; Gregory J. Wach, Counsel, (202) 898-6972, Legal Division.

Section 165(d) of the Dodd-Frank Act  [ 1 ] and the Rule  [ 2 ] require certain financial institutions to report periodically to the Board and the FDIC their plans for rapid and orderly resolution under the U.S. Bankruptcy Code (the Bankruptcy Code) in the event of material financial distress or failure. The Rule divides covered companies into three groups of filers: (a) biennial filers, (b) triennial full filers, and (c) triennial reduced filers. [ 3 ] The terms “covered company” and “triennial full filer” have the meanings given in the Rule, as do other, similar terms used throughout this final guidance document.

Triennial full filers under the Rule are required to file a resolution plan every three years, alternating between full and targeted resolution plans. [ 4 ] The Rule requires each covered company's full resolution plan to include, among other things, a strategic analysis of the plan's components, a description of the range of specific actions the covered company proposes to take in resolution, and a description of the covered company's organizational structure, material entities, and interconnections and interdependencies. [ 5 ] Targeted resolution plans are required to include a subset of information contained in a full plan. [ 6 ] In addition, the Rule requires that all resolution plans consist of two parts: a confidential section that contains any confidential supervisory and proprietary information submitted to the agencies, and a section that the agencies make available to the public. [ 7 ] Public sections of resolution plans can be found on the agencies' websites. [ 8 ]

Implementation of the Rule has been an iterative process aimed at strengthening the resolution planning capabilities of financial institutions subject to the Rule. To assist the development of covered companies' resolution planning capabilities and plan submissions, the agencies have provided feedback on individual plan submissions, issued guidance to certain groups of covered companies, and issued answers to frequently asked questions. The agencies believe that guidance can help focus the efforts of similarly situated covered companies to improve their resolution capabilities and clarify the agencies' expectations for those filers' future progress in their resolution plans. To date, the agencies have issued guidance to (a) U.S. global systemically important banks (GSIBs), [ 9 ] ( print page 66389) which constitute the biennial filer group; and (b) certain large foreign banking organizations (FBOs) that are triennial full filers. [ 10 ] The agencies have not, however, thus far issued guidance to domestic triennial full filers and the additional FBOs that make up the remainder of the triennial full filers.

Several developments inform the final guidance:

• The agencies' consideration of comments to the proposed guidance (as defined below);
• The agencies' review of domestic triennial full filers' 2021 resolution plans and the issuance of individual letters communicating the agencies' feedback on those submitted plans;
• The agencies' recent experience with the resolutions of Silicon Valley Bank, Signature Bank, and First Republic Bank, and related stress experienced by a range of other financial institutions; and
• The agencies' analysis of the current risk profiles of the domestic triennial full filers.

The preamble to the 2019 revisions to the Rule indicated that the agencies would make any future resolution guidance available for comment, [ 11 ] and on August 29, 2023, the agencies invited comments on proposed guidance for the 2024 and subsequent resolution plan submissions by domestic triennial full fillers (proposed guidance or proposal). [ 12 ]

The Rule requires triennial full filers to submit their resolution plans on or before July 1 of each year in which a resolution plan is due. [ 13 ] At the time the agencies issued the proposed guidance, triennial full filers were required to submit their next resolution plans on or before July 1, 2024. In the proposal, the agencies requested comment about whether the agencies should provide more than six months for firms to take into consideration the expectations in the finalized guidance. Several comments discussed the timing of the next resolution plan submission and its relationship to the final guidance as well as other regulatory requirements. Most requested extensions, with several requesting at least a year and one stating six months would be adequate. Two commenters stated a maximum of six months from publication of the final guidance to the first submission would be adequate.

On January 17, 2024, the agencies announced an extension of the resolution plan submission deadline for the triennial full filers from July 1, 2024, to March 31, 2025. [ 14 ] At this time, the agencies are further extending the 2025 resolution plan submission deadline for all triennial full filers to October 1, 2025, to provide the firms with sufficient time to develop their full resolution plans in light of the final guidance. The agencies are also clarifying that all triennial full filers' subsequent resolution plan submission, a targeted resolution plan, is due on or before July 1, 2028, and that future resolution plan submissions will be due every three years after that, alternating between full and targeted resolution plans, pursuant to the Rule, [ 15 ] unless the agencies exercise their authority under the Rule to alter the submission date for future resolution plan submissions. [ 16 ]

U.S.-based covered companies subject to the Rule have adopted one of two resolution strategies: (1) a single point of entry (SPOE) strategy where only the top tier bank holding company enters resolution through a bankruptcy proceeding; or (2) a multiple point of entry (MPOE) strategy where the top tier bank holding company files for bankruptcy, the FDIC-insured bank subsidiary enters resolution pursuant to the Federal Deposit Insurance Act of 1950, as amended (the FDI Act), and where other entities enter the appropriate resolution regimes. The SPOE and MPOE resolution strategies that firms have chosen present different risks and entail different types of planning and development of capabilities; accordingly, the proposal contained content applicable to SPOE resolution strategies and separate content applicable to MPOE resolution strategies.

Commenters supported inclusion of expectations for both MPOE and SPOE resolution strategies, and supported firms' ability to choose either strategy. However, some commenters questioned whether the agencies were expecting or encouraging firms to adopt an SPOE resolution strategy and recommended that the agencies disclose publicly whether they prefer a particular resolution strategy, and engage in notice and comment rulemaking if they do. For firms that change resolution strategies, some commenters requested that the agencies provide a transition period and made statements about the preferred length of such a transition period, and one requested that the agencies not issue any findings regarding a firm's first resolution plan that adopts a different resolution strategy.

The agencies do not prescribe a specific resolution strategy for any firm. This guidance, similarly, does not suggest that any firm should change its resolution strategy, nor are the agencies identifying a preferred strategy for a specific firm or set of firms. The selection of a preferred strategy, including MPOE or SPOE as a preferred resolution strategy, should reflect the characteristics of the firm and its business operations and support the goal of the resolution plan to substantially mitigate serious adverse effects of the firm's failure on financial stability in the United States. Each firm remains free to choose the resolution strategy it believes would most effectively facilitate a rapid and orderly resolution.

The agencies are providing separate guidance for an SPOE resolution strategy and an MPOE resolution strategy in acknowledgment that firms are free to adopt the resolution strategy that best suits their operations and organizations. Further, the agencies note there may be resolution strategies other than SPOE and MPOE that could facilitate a rapid and orderly resolution. The specified firms should continue to submit resolution plans using the resolution strategies they believe would be most effective in achieving an orderly resolution of their firms. Regardless of strategy, a resolution plan should address the key vulnerabilities, support the underlying assumptions required to successfully execute the chosen resolution strategy, and demonstrate the adequacy of the capabilities necessary to execute the selected strategy.

Moreover, because the agencies do not prescribe resolution strategies, firms may voluntarily change their preferred strategy in the future. However, reflecting the voluntary nature of resolution strategy changes, the agencies do not anticipate providing a transition period during which a firm would be free from potential findings under the Rule while it effectuates a change in resolution strategy, whether from MPOE to SPOE, or to any other resolution strategy. A firm controls the timing of when it submits its first plan with a different strategy; accordingly, it can take the time it needs to put in place the ( print page 66390) resources and capabilities needed to submit a plan that satisfies the standard in section 165(d) of the Dodd-Frank Act and the Rule. The standard of review for a resolution plan submission of a firm that transitions to a new strategy is therefore the same as for any firm subject to the Rule. [ 17 ]

The agencies, as well as the Office of the Comptroller of the Currency (together with the agencies, the Federal banking agencies), issued in August 2023 a proposed rule for comment that would require certain large holding companies, U.S. intermediate holding companies of FBOs, and certain IDIs, to issue and maintain outstanding a minimum amount of long-term debt (LTD), among other proposed requirements. [ 18 ] The agencies have received comments on the LTD proposal, and will consider all comments received in context of the LTD rulemaking. The agencies requested comments on the proposed guidance that take the LTD proposal into consideration.

One commenter recommended that, for purposes of their resolution plans, firms should only assume their existing outstanding LTD and not the projected LTD that would be in place once the firm has achieved full compliance with the LTD proposal. Another commenter argued that the agencies should consider the interaction between the proposed guidance and LTD proposal, with a goal of having them work together to improve the resolvability of applicable banking organizations and avoid duplicative or contradictory requirements. The commenter also asserted that calibration of an IDI's internal LTD requirement could lead banking organizations using an MPOE resolution strategy to adopt an SPOE resolution strategy because of the costs of compliance with such internal LTD issuance. One commenter discussed whether the agencies should align the objectives of the LTD proposal and the resolution planning under the Rule.

The Federal banking agencies have not finalized the LTD rulemaking as of the issuance of this final guidance. The agencies recognize that LTD issued and maintained by a specified firm could affect the firm's strategic analysis of the funding, liquidity, and capital needs of, and resources available to, the covered company and its material entities. [ 19 ] However, the agencies believe that the finalization of a requirement to maintain a specified amount of LTD would not affect this guidance in any material way. Any final LTD rule will address the manner in which its requirements will be implemented. This final guidance is intended to convey the agencies' expectations regarding the content of resolution plan submissions, and not to contradict, modify, or accelerate a company's obligations under other laws or regulations. As provided in the final guidance, firms should develop their resolution plans in accordance with the current state of the applicable legal and policy frameworks. The agencies also recognize, however, that there may be phase-in periods during which rules become effective. Should the LTD rule be finalized in advance of October 1, 2025, the agencies will not expect firms to incorporate the requirements of the rule into their 2025 resolution plan submissions. This should provide firms covered by the LTD rule with reasonable time to consider any final LTD rule in a future resolution plan submission.

Further, and as noted above, the agencies are not recommending that any specified firm adopt any particular strategy in response to this guidance or the LTD proposal.

The agencies received three comments on the connection between the proposal and the IDI Rule. [ 20 ] The FDIC published proposed revisions to the IDI Rule on September 19, 2023, [ 21 ] and published final revisions on July 9, 2024. [ 22 ] Those commenters recommended coordinating aspects of the proposed guidance and the Proposed IDI Rule, including having consistent terms and concepts. One commenter requested that cross-referencing to section 165(d) resolution plans be permitted under the Proposed IDI Rule. Another comment questioned whether a more holistic approach would be possible to synchronize the requirements of section 165(d) planning and IDI Rule resolution planning. One commenter asserted that the MPOE guidance could cause confusion on the part of firms by conflating resolution strategies and the underlying purpose of the Rule and the IDI Rule.

The Rule requires a covered company to submit a resolution plan that would allow for the rapid and orderly resolution of the firm under the Bankruptcy Code in the event of material financial distress or failure. The final guidance clarifies the agencies' expectations regarding certain topics and provides direction as to how a covered company may demonstrate its compliance with its statutory obligation under section 165(d) of the Dodd-Frank Act to develop a resolution plan allowing for its rapid and orderly resolution. The IDI Rule serves a different purpose: the IDI Rule assists the FDIC in preparing to manage the resolution of a covered insured depository institution. While these two rules may be complementary, they are not the same. Additionally, whether to align the IDI Rule with the Rule or permit cross-referencing to section 165(d) resolution plans under the IDI Rule is outside the scope of this guidance.

On August 29, 2023, the agencies invited public comment on proposed guidance for how domestic triennial full filers' resolution plans could address key challenges in resolution, which was proposed to apply beginning with the specified firms' 2024 resolution plan submissions. [ 23 ] The proposal identified the banking organizations to which the guidance would apply and articulated several areas of guidance: capital; liquidity; governance mechanisms; operational; legal entity rationalization and separability; and IDI resolution, if applicable. The proposed guidance described the agencies' proposed expectations for each of these areas. Most substantive topics were bifurcated, with separate guidance for an SPOE resolution strategy and an MPOE resolution strategy. The proposed guidance concluded with information about the format and structure of a plan that applied equally to plans contemplating either an SPOE resolution strategy or an MPOE resolution strategy.

The proposed guidance for firms that adopt an SPOE resolution strategy was generally based on the 2019 U.S. GSIB Guidance, with certain modifications ( print page 66391) that reflected the specific characteristics of and potential risks posed by the failure of the specified firms. The proposed guidance for firms that adopt an MPOE resolution strategy incorporated certain aspects of the 2019 U.S. GSIB Guidance that the agencies believed are applicable to large banking organizations, with modifications appropriate to this strategy and institutions with the characteristics displayed by the specified firms. For MPOE firms, the proposed guidance also omitted aspects of the 2019 U.S. GSIB Guidance that would not be pertinent to MPOE resolution strategies. The agencies also proposed to clarify their expectations for specified firms that adopt an MPOE resolution strategy that includes the resolution of a material entity that is a U.S. IDI.

The agencies invited comments on all aspects of the proposed guidance. The agencies also specifically requested comments on a number of issues, including the interaction of resolution guidance with a final long-term debt rule, the amount of time between the publication of the final guidance and the firms' next resolution plans, the appropriateness of guidance on IDI resolution, and whether to issue derivatives and trading expectations.

The agencies received and reviewed eight comment letters on the proposed guidance. Commenters included various financial services trade associations, a law firm, two public interest groups, and certain individuals. In addition, the agencies met with representatives of a banking organization that would be a specified firm and a trade association that represents banking organizations that would be specified firms at their request to discuss issues relating to the proposed guidance. [ 24 ] This section provides an overview of the general themes raised by commenters. The comments received on the proposed guidance are further discussed below in the sections describing the final guidance (and, in some cases, previously in section I), including any changes that the agencies have made to the proposed guidance in response to comments.

One commenter contended that the proposed guidance did not sufficiently differentiate expectations among firms subject to resolution planning guidance. The commenter argued that section 165 of the Dodd-Frank Act requires the agencies to tailor application of prudential standards issued pursuant to that section, such as resolution planning guidance; contended that the proposal was too similar to the 2019 U.S. GSIB Guidance; and encouraged expectations in the final guidance to be further differentiated based on size, risk, and other factors.

Several commenters supported the proposal's inclusion of expectations for both MPOE and SPOE resolution strategies and the agencies' statement that firms have ability to choose their preferred strategy. However, as noted above, some commenters questioned whether the agencies were expecting or encouraging firms to adopt an SPOE resolution strategy and recommended that the agencies disclose publicly whether they prefer a particular resolution strategy. For firms that change resolution strategies, some commenters requested that the agencies provide a transition period during which the agencies would not make credibility findings in connection with a plan review.

The agencies received a number of comments on the capital and liquidity sections of the proposed guidance. Regarding the capital section of the proposed guidance, one commenter asserted that including expectations regarding the positioning of capital for firms with an SPOE resolution strategy is premature given that finalization of a proposal to modify the capital requirements for large banking organizations  [ 25 ] and the LTD proposal may impact firms' capital planning, contended that the proposal included expectations that are duplicative of existing capital requirements, and suggested removing the guidance on Resolution Capital Adequacy and Positioning (RCAP) from the final guidance. Regarding expectations for firms using an MPOE resolution strategy, one commenter agreed that additional expectations are not warranted, while another commenter argued for capital plans for each material entity and asked the agencies to align expectations for the MPOE capital guidance with SPOE capital guidance.

Regarding the liquidity section of the proposed guidance, one commenter argued that Resolution Liquidity Adequacy and Positioning (RLAP) expectations are not appropriate due to the comparatively simple legal entity structures and reduced risk profiles of these firms and claimed that RLAP is redundant with certain regulatory requirements. In addition, one commenter requested that the final guidance strengthen expectations for liquidity in resolution by including a procedure or protocol for liquidity related decisions, irrespective of resolution strategy.

The agencies received a number of comments on the proposed guidance related to the resolution of a subsidiary material entity U.S. IDI. Multiple commenters requested clarity on how the firm's plan should address the expectations regarding the FDIC's statutory least-cost requirement and questioned whether there is sufficient information available for firms to effectively evaluate whether a proposed resolution plan would satisfy the least-cost analysis expectations. These commenters also questioned whether the least-cost analysis would be of value to FDIC in an actual resolution and argued that the guidance should be aligned with the requirements of the IDI Rule. One stated sufficient time should be given for firms to conduct new analyses and seek additional guidance from the agencies and that aspects of this section of the proposal should not be finalized.

Another commenter argued that firms should not be expected to demonstrate that their preferred strategy would be consistent with the FDIC's statutory least-cost requirement. One commenter further suggested that the Proposed IDI Rule is a better forum to address how IDI subsidiaries can be resolved under the FDI Act.

Another commenter suggested that the agencies should require firms to develop resolution strategies involving bridge depository institutions (BDIs) and recommended that the guidance address the value of assets transferred to such a BDI, how the resolution plan would address the IDI's franchise value, and how the preferred resolution strategy would result in a least-costly resolution. ( print page 66392)

Some commenters supported including expectations for derivatives and trading activity in the final guidance, contending that derivatives activity for domestic triennial full filers may increase in the future and proposed applying such guidance to firms with net derivatives exceeding a given threshold. However, one commenter supported not including such expectations, stating it was appropriate to exclude such guidance because the specified firms have limited derivatives and trading portfolios, particularly relative to the U.S. G-SIB banking organizations covered by such guidance.

The agencies received a number of comments about the interaction of the proposed guidance with several other rulemaking initiatives by the Federal banking agencies. For example, some commenters recommended coordinating the FDIC's Proposed IDI Rule revisions with the resolution plan rule and final guidance for the specified firms. Two commenters suggested that the agencies consider the interaction between the proposed guidance and the LTD proposal to ensure the two proposals work together to improve the resolvability of applicable banking organizations and avoid duplicative or contradictory requirements. One commenter also expressed concern including certain expectations in the final guidance, such as those relating to capital, would be premature before finalizing the Capital proposal and LTD proposal, which impact firms' capital planning.

Several comments discussed the timing of the next resolution plan submission and its relationship to this final guidance. Some commenters recommended providing at least one year between issuing final guidance and the deadline for domestic triennial full filers' next resolution plan submissions. However, other commenters suggested that six months from publication of the final guidance to the first resolution plan submission would be adequate for firms to take into account the guidance.

After considering the comments, conducting additional analysis, and further assessing the business and risk profiles of domestic triennial full filers, the agencies are issuing final guidance that includes certain modifications and clarifications from the proposal. In particular, the capital, liquidity, governance mechanisms, operational, IDI resolution, separability, and assumptions sections of the final guidance reflect changes from the proposed guidance. In addition, as was noted in the proposal, [ 26 ] the final guidance consolidates all prior resolution planning guidance for the firms in one document. Further, as was noted in the proposal, [ 27 ] the final guidance is not intended to override the obligation of an individual firm to respond in its next resolution plan submission to pending items of individual feedback or any shortcomings or deficiencies jointly identified or determined by the agencies in that firm's prior resolution plan submissions. The guidance is drafted to reflect the current conditions in the industry and institutions as they exist today.

As discussed below, [ 28 ] several commenters asserted that the proposal did not adequately differentiate among covered companies based on their size, complexity, and risk to financial stability. The guidance, however, takes into account the size and complexity of firms, their resolution strategy, and whether they are based in the United States or in a foreign jurisdiction. In addition, the final guidance is not meant to limit firms' consideration of additional vulnerabilities or obstacles that might arise based on a firm's particular structure, operations, or resolution strategy.

The agencies also note that commenters described certain expectations that are set forth in the guidance as “requirements.” As the agencies indicated in the proposed guidance and are now reaffirming, the final guidance does not have the force and effect of law. Rather, the final guidance outlines the agencies' supervisory expectations regarding each subject area covered by the final guidance. [ 29 ] The final guidance includes language reflecting this position. [ 30 ]

Finally, the agencies made several minor, non-substantive changes from the proposal, including to align the wording of guidance directed at firms that adopt an SPOE resolution strategy and firms that adopt an MPOE resolution strategy.

The agencies proposed applying the guidance to all domestic triennial full filers and invited comment on all aspects of the proposed scope of the guidance. The agencies received no comments concerning the scope of the guidance's application and are finalizing this section of the guidance as proposed.

The proposed guidance did not describe how the guidance would be applied to domestic banking organizations that become covered by its scope, but it did request comment on all aspects of the proposed scope of application. To provide certainty to domestic banking organizations, the final guidance states that when a domestic banking organization becomes a specified firm, the final guidance will apply to the firm's next resolution plan submission with a submission date that is at least 12 months after the time the firm becomes a specified firm. [ 31 ] If a specified firm ceases to be a domestic triennial full filer, it will no longer be considered a specified firm, and the guidance will no longer be applicable to that firm as of the date the firm ceases to be a domestic triennial full filer.

For specified firms with an SPOE resolution strategy, the agencies proposed capital expectations substantially similar to those in the 2019 U.S. GSIB Guidance. The ability to provide sufficient capital to material entities without disruption from creditors is essential to an SPOE resolution strategy's objective of ensuring that material entities can continue to operate as the firm is resolved. The proposal described expectations concerning the appropriate positioning of capital and other loss-absorbing instruments ( e.g., debt that a parent holding company may choose to forgive or convert to equity) among the material entities within the firm (RCAP). The proposal also described expectations regarding a methodology for periodically estimating the amount of capital that may be needed to support each material entity after the bankruptcy filing (resolution capital execution need, or RCEN).

The agencies received several comments on the capital section of the proposed guidance. One commenter asserted that including expectations in this guidance regarding the positioning of capital is premature given that finalization of the Capital proposal and the LTD proposal may impact firms' capital planning. The commenter argued ( print page 66393) that existing capital requirements are sufficient for the size and complexity of the firms subject to this guidance without RCAP expectations, which, the commenter asserted, would add more complexity to the resolution planning process.

After reviewing these comments, the agencies are finalizing this section of the guidance generally as proposed, but with one clarification. Proposed guidance related to the methodology for periodically estimating the amount of capital that may be needed to support material entities in bankruptcy (RCEN) could have been construed as establishing a mandatory minimum capital requirement. As the agencies have discussed elsewhere, resolution plan guidance is not binding and does not establish legal requirements. [ 32 ] The final guidance clarifies the kind of information the agencies expect a firm to provide if that firm's resolution strategy includes recapitalizing material entities but does not establish requirements for firms.

RCAP expectations are important for firms to ensure the appropriate positioning of capital and other loss-absorbing instruments among the material entities within the firm and to effectively execute a SPOE resolution strategy. Finalizing RCAP expectations is not premature in light of outstanding proposals such as the LTD rulemaking and other pending rules because the RCAP expectations can be achieved with or without the LTD contemplated in the LTD proposal. The Federal banking agencies have not finalized the LTD proposal as of the issuance of this final guidance, and comments on that proposed rule are currently under consideration. Specifically, the final guidance does not rely on or presume the finalization of pending rules and instead states, consistent with the proposal, that a resolution plan should be based on the current state of the applicable legal and policy frameworks. [ 33 ] The guidance is intended to assist firms in developing their resolution plans, which are required to be submitted pursuant to the Dodd-Frank Act and the Rule. While other capital and resolution-related rules may establish minimum standards applicable to firms submitting resolution plans, this guidance is designed to facilitate a firm's own analysis of its expected needs in resolution across that firm's material entities.

Additionally, the stress experienced by and the failure of several large banking organizations in March 2023 highlighted the fast-moving nature of stress events, as several banking organizations entered resolution proceedings rapidly. These events also highlighted the potential for the failure of a large regional banking organization to affect financial stability. Successful execution of an SPOE resolution strategy—including the need to ensure that individual material entities have adequate capital to maintain operations as the firm is resolved—is unlikely to be successful under a short time frame without advance planning. Appropriate positioning of capital and other loss-absorbing instruments among the firm's material entities is an important element of this advanced planning to reduce uncertainty and enable timely recapitalization consistent with an SPOE resolution strategy. Accordingly, the agencies are finalizing guidance that includes RCAP expectations for firms that adopt an SPOE strategy.

For firms that adopt an MPOE resolution strategy, the agencies did not propose further expectations concerning capital and asked a question about whether capital-related expectations should be applied. In response, one commenter agreed with the proposal that additional expectations are not warranted for firms using an MPOE resolution strategy, arguing that such expectations would serve no purpose. However, another commenter contended that it is not prudent to assume that material entities within a holding company structure can be wound down in an orderly manner and that, at a minimum, capital plans are needed for each material entity to preserve its value during the transition period between a firm's failure and when it can be sold or closed in an orderly way. The commenter asked the agencies to reconsider expectations for firms that adopt an MPOE resolution strategy and align them with expectations for firms that adopt an SPOE resolution strategy.

The agencies have determined that additional capital expectations for firms selecting an MPOE resolution strategy are not necessary at this time. Under an MPOE resolution strategy, most material entities do not continue as going concerns upon the firm's entry into resolution proceedings and are likely to have already depleted existing capital. Accordingly, the agencies are finalizing this section as proposed.

For firms that adopt an SPOE resolution strategy, the agencies proposed liquidity expectations substantially similar to those in the 2019 U.S. GSIB Guidance. A firm's ability to reliably estimate and meet its liquidity needs prior to, and in, resolution is important to the execution of a firm's resolution strategy because it enables the firm to respond quickly to demands from stakeholders and counterparties, including regulatory authorities in other jurisdictions and financial market utilities. Maintaining sufficient and appropriately positioned liquidity also allows subsidiaries to continue to operate while the firm is being resolved in accordance with the firm's preferred resolution strategy. For firms that adopt an MPOE resolution strategy, the agencies proposed that a firm should have the liquidity capabilities necessary to execute its preferred resolution strategy, and its plan should include analysis and projections of a range of liquidity needs during resolution.

The agencies received several comments on the liquidity section of the proposed guidance. One commenter supported including RLAP expectations in the final guidance for firms that adopt an SPOE resolution strategy, while another commenter requested that the agencies remove RLAP from the final guidance. The second commenter argued that RLAP expectations are not appropriate due to the comparatively simple legal entity structures and reduced risk profiles of the firms subject to the proposed guidance. The commenter also claimed that RLAP would be redundant to certain regulatory requirements, such as the Liquidity Coverage Ratio (LCR) and Internal Liquidity Stress Testing (ILST).

Another commenter requested that, irrespective of resolution strategy, the guidance strengthen expectations for liquidity in resolution by including a procedure or protocol for liquidity related decisions. The commenter argued that the guidance should affirm the importance of overcoming barriers to moving liquidity across material legal entities and clarify which types of transfers of liquidity are permissible for material entities in resolution.

After reviewing these comments, the agencies are finalizing this section of the guidance largely as proposed, with one clarifying edit concerning forecasting maximum operating liquidity and peak funding needs. The final guidance clarifies that these forecasts should ensure that material entities can operate through resolution, as compared to the proposed guidance that provided that the forecasts should ensure that material entities can operate after the firm files for bankruptcy.

RLAP expectations are not addressed by ILST and other regulatory requirements. Maintaining sufficient ( print page 66394) and appropriately positioned liquidity is critical to executing an SPOE resolution strategy, regardless of the size and complexity of the banking organization. The LCR and ILST requirements that commenters referenced serve a different purpose—to promote resilience of firms' funding profiles—and are not focused on resolution planning.

Finally, the agencies are not establishing expectations regarding procedures or protocols for liquidity-related decisions and the types of transfers of liquidity that are permissible for material entities in resolution for firms that adopt a MPOE resolution strategy. The Rule already includes requirements for firms to include detailed descriptions of funding and liquidity needs and resources of material entities, and to identify interconnections and interdependencies related to liquidity arrangements. [ 34 ] Beyond the assumptions specified in the final guidance related to liquidity, additional details of how each firm provisions liquidity in the lead up to and during resolution are not needed at this time. Furthermore, firms should follow procedures and protocols that are aligned with their larger liquidity management frameworks to facilitate their preferred resolution strategies.

The agencies proposed governance mechanisms expectations for domestic firms that use an SPOE resolution strategy. These firms would have been expected to develop an adequate governance structure with triggers that identify the onset, continuation, and increase of financial stress to ensure that there is sufficient time to prepare for resolution-related actions. The agencies did not propose governance mechanisms expectations for domestic firms contemplating an MPOE resolution strategy, as entry of certain types of material entities into resolution would be determined by criteria prescribed in statute or dependent to some extent on actions taken by regulatory authorities in implementing a statute. The agencies requested comment on whether to apply additional governance mechanisms expectations to domestic firms contemplating an MPOE resolution strategy. Some commenters called for the agencies to apply similar governance mechanisms expectations regardless of a firm's preferred resolution strategy, arguing that many aspects of resolution planning are the same or similar for MPOE and SPOE resolution strategies.

One commenter also encouraged the agencies to adopt expectations that firms articulate their internal legal strategy, processes for making key decisions, and roles and responsibilities leading up to and after a material entity of a firm using an MPOE resolution strategy enters bankruptcy. Another commenter claimed that governance mechanisms are needed for domestic MPOE filers to preserve the value of each material entity during the transition period between failure and orderly resolution. However, another commenter argued that final guidance should not include governance mechanisms expectations for domestic MPOE filers as such expectations would not meaningfully improve resolvability.

After review and consideration of these comments, the agencies are finalizing this section of the guidance largely as proposed, with one clarification applicable only to firms that adopt an SPOE strategy. The proposed guidance provided that a firm can reproduce a legal analysis that was submitted in a prior plan submission, and that the firm should build upon the analysis. The final guidance clarifies that the agencies expect that a firm that relies upon a previously submitted analysis ensure it remains accurate and up to date. While there is a general obligation for firms to submit plans that contain accurate information, the agencies are providing this clarification due to the agencies' experience that certain legal matters in some resolution plan submissions have been outdated.

Regarding firms that adopt an MPOE strategy, the agencies are finalizing this section of the guidance as proposed. Under an MPOE resolution strategy, certain material entities' entry into resolution is typically determined by or dependent on the actions of supervisory and resolution authorities. Adopting expectations for triggers, playbooks, pre-bankruptcy support, internal legal strategy, processes for making key decisions, and roles and responsibilities for domestic triennial full filers adopting an MPOE resolution strategy, with their present operations, activities, and structures, would not meaningfully improve the resolvability of the specified firms. Accordingly, the final guidance does not contain governance mechanisms expectations for those firms.

For firms that adopt an SPOE resolution strategy, the agencies proposed aspects of the operational expectations of the 2019 U.S. GSIB Guidance and SR letter 14-1, [ 35 ] with modifications based on the specific characteristics and complexities of the specified firms. Like the 2019 U.S. GSIB Guidance, the proposal contained expectations on managing, identifying, and valuing collateral; management information systems (MIS); and shared and outsourced services. For firms that adopt an MPOE resolution strategy, the agencies proposed operational expectations based on SR letter 14-1 and the 2019 U.S. GSIB Guidance that are limited to those most relevant to an MPOE resolution strategy. As noted in the proposal, development and maintenance of operational capabilities is important to support and enable execution of a firm's preferred resolution strategy, including providing for the continuation of identified critical operations and preventing or mitigating adverse effects on U.S. financial stability.

The agencies received two comments on the proposed guidance. One comment argued that the proposed guidance's expectation that MPOE firms remediate vendor arrangements to support continuity of shared and outsourced services is overbroad. The commenter asserted that this expectation is inappropriate for MPOE firms that mostly receive external services through their IDIs because termination of such vendor contracts due to ipso facto clauses would be stayed by the FDI Act, [ 36 ] and as many firms include resolution-resilient terms in vendor contracts when those contracts undergo periodic review and renewal. The commenter recommended that the Agencies specify that this expectation would apply only to contracts not covered by the FDI Act stay. Another commenter contended that firms with limited payment, clearing, and settlement (PCS) activities, such as firms without identified critical operations related to those activities, should not have to develop the same capabilities as firms with more complex PCS activities.

After review and consideration of these comments, the agencies are finalizing this area of the guidance with three clarifications applicable only to firms that adopt an SPOE strategy, and one modification applicable to firms with either preferred resolution strategy. First, the proposed guidance for firms that adopt an SPOE strategy stated that a firm should maintain a fully ( print page 66395) actionable implementation plan to ensure the continuity of shared services that support identified critical operations or core business lines. Implied in the concept of supporting identified critical operations or core business lines is the notion that a firm would need to be able to execute its resolution strategy. Accordingly, the final guidance for firms that adopt an SPOE strategy explicitly states that a firm's implementation plan to ensure continuity of shared services should include those services that are material to the execution of the firm's resolution strategy.

Second, the proposed guidance for firms that adopt an SPOE strategy stated that a firm should demonstrate capabilities for continued access to PCS services essential to an orderly resolution through a framework to support such access and the provided elements of such a framework. The agencies note that prior instances of resolution plan guidance contained certain limitations on similar PCS framework expectations, [ 37 ] and the final guidance adopts that language to clarify the scope of said expectations.

Third, the proposed PCS guidance for firms that adopt an SPOE strategy contained several references to “various currencies.” The agencies note that in the finalization of the 2020 FBO Guidance, the agencies revised similar language in response to a comment requesting that certain aspects of that guidance be made consistent with international expectations. [ 38 ] The final guidance is adopting the language from the 2020 FBO Guidance for that same reason.

Additionally, the agencies recognize that firms anticipate relying on external parties for the execution of some aspects of the resolution strategy, and the proposal included and the final guidance maintains the expectation that a firm identify and support the continuity of outsourced services that support critical operations or are material to the execution of the preferred resolution strategy. Such outsourced services that firms may rely on could be employing outside bankruptcy counsel and consultants to help prepare documents needed to file for bankruptcy, and to represent the firm during the course of the bankruptcy proceedings. The agencies expect that covered companies engage in advance planning to help facilitate their ability to complete all filings, motions, supporting declarations and other documents to prepare for and file an orderly resolution in bankruptcy. In recognition of this expectation, the final guidance states that—regardless of strategy—those professionals' services could be material to the execution of a firm's preferred resolution strategy and, if so, should be accounted for in the firm's resolution plan. Accordingly, the agencies expect that firms should prepare during business-as-usual to ensure they can complete and file all documents needed to initiate their preferred resolution strategy.

The other aspects of this section of the guidance are being finalized as proposed. The comment addressing contract remediation correctly observes that the FDI Act permits the FDIC as receiver of a failed IDI to enforce contracts with that IDI notwithstanding any provisions in the contract permitting termination due to insolvency or appointment of the receiver. However, it is advantageous for contracts that support identified critical operations or that are material to the execution of the resolution strategy to not purport to permit termination. Counterparties may not be aware of the receiver's authority under the FDI Act to enforce such agreements, potentially requiring the receiver to seek authority from a court to compel the counterparty's performance, which could lead to interruption of identified critical operations and capabilities needed to execute the resolution strategy. Further, counterparties located overseas may not recognize the authority afforded the receiver to compel the performance of contracts. The agencies recognize that contract remediation is an ongoing process and encourage firms to make such changes proactively.

Regarding PCS activities, as discussed elsewhere, [ 39 ] the Agencies note that the level of detail provided in a firm's plan should be both consistent and commensurate with the firm's risk and activities.

For domestic banking organizations that adopt an SPOE resolution strategy, the agencies proposed adopting legal entity rationalization (LER) and separability expectations from the 2019 U.S. GSIB Guidance. The LER expectations explained that a firm's legal structure should support the firm's preferred resolution strategy, including by: facilitating the recapitalization and liquidity support of material entities; facilitating the sale, transfer, or wind-down of certain discrete operations; adequately protecting the subsidiary IDIs from risks arising from the activities of any nonbank subsidiaries of the firm; and minimizing complexity that could impede an orderly resolution. The separability expectations outlined that a firm should identify discrete operations that could be sold or transferred in resolution, with the objective of providing optionality in resolution, including via a detailed separability analysis that addresses divestiture options, execution plans, and impact assessments.

For domestic banking organizations using an MPOE resolution strategy, the agencies proposed LER and separability expectations that are reduced as compared to those contained in the 2019 U.S. GSIB Guidance. The LER expectations clarified that the firm should consider various factors and describe in its plan how the legal entity structure aligns core business lines and any identified critical operations with the firm's material entities, as well as any cases where a material entity IDI relies on an affiliate that is not the IDI's subsidiary during resolution. The separability expectations explained that a firm should include options for the sale, transfer, or disposal of significant assets, portfolios, legal entities, or business lines in resolution and provide supporting analysis, including an execution plan, identification of any impediments and mitigants, a financial impact assessment, and an identified critical operation impact assessment.

The agencies received one comment on the LER and separability guidance for domestic banking organizations. The commenter contended that separability analysis is inappropriate for businesses and legal entities that would be wound down in resolution, as it may not be feasible to sell or otherwise transfer such businesses, and that separability analysis would not enhance resolvability. The commenter further claimed that many elements of the separability analysis may not be appropriate for firms that are not active in the investment banking space or lack large mergers and acquisitions teams.

After consideration of the comment received, the agencies are issuing legal entity rationalization guidance for both SPOE and MPOE firms. LER criteria enhance an orderly resolution by promoting in business-as-usual a corporate structure that supports a firm's preferred resolution strategy. The agencies are retaining these expectations, in part, to encourage firms to consider resolution implications of changes to corporate structure, including from future growth or mergers and acquisitions. For firms with SPOE ( print page 66396) resolution strategies, the agencies continue to encourage the firms to develop and apply LER criteria to facilitate the sale, transfer, or wind-down of certain discrete operations within a timeframe that would meaningfully increase the likelihood of orderly resolution. The agencies continue to encourage firms using MPOE resolution strategies to consider potential sales, transfers, and wind-downs during resolution as they maintain their legal entity structures.

However, the separability section of guidance is not needed at this time for the specified firms due to their current corporate structures and other separability-related expectations. Most of the specified firms have three or fewer material entities, with the overwhelming majority of their assets concentrated in their IDIs. In addition, the Rule requires firms to address the feasibility and impact of sales or divestitures and the final LER guidance contains separability-related expectations. The agencies may consider the need for firm-specific separability expectations in the future for specified firms that substantially increase their non-bank activities or change in a way such that separability becomes critical to their resolvability.

Finally, the agencies moved the description of their expectation on governance processes from the proposed separability section to the LER section of the final guidance text.

In the proposal, the agencies provided clarifying expectations as to how a firm adopting an MPOE resolution strategy with a material entity IDI should explain how the IDI can be resolved under the FDI Act in a manner that is consistent with the overall objectives of the resolution plan. In particular, the proposed expectations for IDI resolution were designed to support the resolution plans' effectiveness in substantially mitigating the risk that the failure of the specified firm would have serious adverse effects on financial stability in the United States, while also adhering to the legal requirements of the FDI Act without relying on the assumption that the systemic risk exception will be invoked in connection with the resolution of the firm. For example, the agencies proposed clarifying that if a firm adopting an MPOE resolution strategy selects an IDI resolution strategy other than a payout liquidation, the firm's plan should provide information supporting the feasibility of the firm's selected strategy, although such a feasibility analysis need not consist of a full FDI Act least-cost requirement analysis. The agencies proposed that a firm could instead provide a more limited analysis. The proposal noted that the same expectations would not be applicable to firms adopting an SPOE resolution strategy because the U.S. IDI subsidiaries of such firms would not be expected to enter resolution.

The agencies received a number of comments on the proposed guidance related to the resolution of a subsidiary material entity U.S. IDI. Some commenters requested additional clarity on how the firm's plan should address the expectation that the plan include an analysis of how the resolution strategy could potentially meet the FDIC's statutory least-cost requirement. One commenter suggested that the agencies should require firms to develop resolution strategies involving BDIs. This commenter recommended that the guidance address how firms could describe and quantify the value of the firm's assets transferred to such a BDI, and that the agencies should provide guidance so that firms would address how the resolution plan would incorporate the value of the IDI's assets and liabilities, including its franchise value, and how the preferred resolution strategy would result in a least-costly resolution. The commenter also recommended that firms and regulators reach agreement on certain assumptions regarding valuations.

Another commenter argued that firms adopting an MPOE strategy should not be expected to demonstrate that their preferred strategy would be consistent with the FDIC's statutory least-cost requirement. This commenter stated that efforts to conduct a hypothetical least-cost requirement analysis, or a proxy for that analysis, would be of no or minimal value to the FDIC in an actual resolution event. The commenter claimed that it would not be possible to conduct a least-cost test requirement analysis in a resolution plan submission in the absence of actual bids from actual buyers. Instead, the commenter recommended that the guidance provide expectations for how firms selecting an MPOE strategy could demonstrate their valuation capabilities. The commenter also suggested that because a least-cost requirement analysis is not a component of the Proposed IDI Rule, it also should not be a component of the guidance. This commenter requested sufficient time to address any finalized guidance that provides expectations for including least-cost requirement analysis.

Several commenters suggested that the Proposed IDI Rule is a better forum to address how the IDI subsidiary of a specified firm selecting an MPOE strategy can be resolved under the FDI Act in a manner that is consistent with the FDI Act. A commenter also suggested that the agencies' expectations for resolution plan submissions under the Rule should align with the requirements of the FDIC's IDI Rule plan submissions.

When an IDI fails and the FDIC is appointed receiver, the FDIC generally must use the resolution option for the failed IDI that is least costly to the DIF of all possible methods (the least-cost requirement). [ 40 ] A resolution plan that contemplates the separate resolution of a U.S. IDI that is a material entity and the appointment of the FDIC as receiver for that IDI should explain how the resolution could be achieved in a manner that adheres to applicable law, including the FDI Act, and that would achieve the overall objectives of the resolution plan. Prior resolution plans that have addressed the resolution of the IDIs in MPOE strategies have sometimes included resolution mechanics that are not consistent with the FDI Act, including inappropriate assumptions that uninsured deposits could automatically be transferred to a BDI.

Separate and distinct from the Rule, the FDIC has a regulation, the IDI Rule, requiring certain IDIs (covered IDIs or CIDIs) to submit to the FDIC resolution plans providing information about how the CIDI can be resolved under the FDI Act. Contemporaneous with publication of the proposed guidance, the FDIC published in the Federal Register the Proposed IDI Rule, a proposed rulemaking to amend and restate the IDI Rule, which has since been finalized and was published in the Federal Register on July 9, 2024.

The IDI Rule and the Rule each have different goals, and, accordingly, the expected content of the respective resolution plans is different. The purpose of the IDI Rule is to ensure that ( print page 66397) the FDIC has access to the information it needs to resolve a CIDI efficiently in the event of its failure, including an understanding of the CIDI's ability to produce the information the FDIC would need to conduct a least-cost determination under a wide range of circumstances.

The Rule serves a different purpose. The Rule requires a covered company to submit a resolution plan that would allow rapid and orderly resolution of the firm under the Bankruptcy Code in the event of material financial distress or failure. The regional bank failures in March 2023 demonstrated that banking organizations of size and complexity similar to that of the specified firms—or even smaller and less complex banking organizations—can be disruptive to U.S. financial stability. In the case of Silicon Valley Bank and Signature Bank, uninsured depositors would have faced the potential for significant losses had the least costly approach to resolution, a payout liquidation, been adopted. The potential for contagion from the deposit runs at the firms that failed, as well as related potential for risks to the economy and financial stability, led the Secretary of the Treasury, in consultation with the President and after a written recommendation from the FDIC's Board of Directors and the Board, to invoke the systemic risk exception to enable the FDIC to resolve these institutions in a way that would avoid or mitigate serious adverse effects on economic conditions or financial stability. Though a specified firm would be conducting its analysis without input in the form of actual bids from potential buyers, the agencies expect firms to use available information to estimate the value of its franchise for purposes of conducting the limited least-cost analysis articulated in the guidance.

If a firm's resolution plan under the Rule that includes an MPOE strategy calls for resolving an IDI using a strategy other than payout liquidation, the plan should explain how the requirements of the FDI Act could be met without depending upon extraordinary government support. Even though this analysis is not binding in an actual resolution scenario, an analysis showing that the firm's preferred resolution strategy could satisfy requirements of the FDI Act could help the firm demonstrate that the resolution plan's preferred strategy could be executed in a manner consistent with applicable law. If a resolution plan does not provide such an explanation, it may be appropriate to conclude that the strategy would not satisfy the FDI Act's relevant provisions, such as the least-cost requirement, which could represent a weakness in the plan. As a general matter, the agencies followed this practice in reviewing previous full resolution plan submissions.

Guidance. In response to commenters, the agencies are providing additional detail to help address commenters' questions related to the FDI Act's least-cost requirement and how it relates to the expectations in this final guidance. The final guidance does not express a change in the agencies' expectations. Instead, the final guidance provides more detail on approaches a firm can use to explain how the resolution of its IDI subsidiary can be achieved in a manner that substantially mitigates the risk that the firm's failure would have serious adverse effects on U.S. financial stability while also complying with the statutory and regulatory requirements governing IDI resolution. The final guidance lists a number of different common strategies for resolving an IDI and describes the kind of information that a firm could provide to explain how a resolution using one of the example strategies could be consistent with the least-cost requirement. The final guidance also provides information about calculating the value of an IDI's assets and its franchise value. Finally, the final guidance explicitly notes that the agencies are not expecting a firm to provide a complete least-cost analysis.

Purchase and Assumption Transaction. The FDIC typically seeks to resolve a failed IDI by identifying, before the IDI's failure, one or more potential acquirers so that as many of the IDI's assets and deposit liabilities as possible can be sold to and assumed by the acquirer(s) instead of remaining in the receivership created on the failure date. [ 41 ] This transaction form, termed a purchase and assumption or P&A transaction, has often been the resolution approach that is least costly to the DIF, and is usually considered the easiest for the FDIC to execute and the least disruptive to the depositors of the failed IDI—particularly in the case of transactions involving the assumption of all the failed IDI's deposits by the assuming institution (an all-deposit transaction).

The limited size and operational complexity present in most small-bank failures have been significant factors in allowing the FDIC to execute P&A transactions with a single acquirer on numerous occasions. Resolving an IDI via a P&A transaction over the closing weekend, however, has not always been available to the FDIC, particularly in failures involving large IDIs. P&A transactions require lead time to identify potential buyers and allow due diligence on, and an auction of, the failing IDI's assets and banking business, also termed its franchise. The acquiring banks must also have sufficient excess capital to absorb the failed IDI's assets and deposit franchise, sufficient expertise to manage business integration, and the ability to comply with several legal requirements. Larger failed banks can pose significant, and potentially systemic, challenges in resolutions that make a P&A transaction less viable. These challenges include: a more limited pool of potential acquirers as a failed IDI increases in size; operational complexities that require lengthy advance planning on the part of the IDI and the FDIC; the development of certain expertise; potential market concentration and antitrust considerations; and potentially the need to maintain the continuity of activities conducted in whole or in part in the IDI that are critical to U.S. financial stability.

Alternative Resolution Strategies. If no P&A transaction that meets the least-cost requirement can be accomplished at the time an IDI fails, the FDIC must pursue an alternative resolution strategy. The primary alternative resolution strategies for a failed IDI are (1) a payout liquidation, or (2) utilization of a BDI.

Payout Liquidation. The FDIC conducts payout liquidations by paying insured deposits in cash or transferring the insured deposits to an existing institution or a new institution organized by the FDIC to assume the insured deposits (generally, a Deposit Insurance National Bank or DINB). In payout liquidations, the FDIC as receiver retains substantially all of the failed IDI's assets for later sale, and the franchise value of the failed IDI is lost. A payout liquidation is often the most costly and disruptive resolution strategy because of this destruction of franchise value and the FDIC's direct payment of insured deposits.

Bridge Depository Institution. If the FDIC determines that temporarily continuing the operations of the failed IDI is less costly than a payout liquidation, the FDIC may organize a BDI to purchase certain assets and assume certain liabilities of the failed IDI. [ 42 ] Generally, a BDI would continue ( print page 66398) the failed bank's operations according to business plans and budgets approved by the FDIC and carried out by FDIC-selected BDI leadership. In addition to providing depositors continued access to deposits and banking services, the BDI would conduct any necessary restructuring required to rationalize the failed IDI's operations and maximize value to be achieved in an eventual sale. Subject to the least-cost requirement, the initial structure of the BDI may be based upon an all-deposit transaction, a transaction in which the BDI assumes only the insured deposits, or a transaction in which the BDI assumes all insured deposits and a portion of the uninsured deposits. Once a BDI is established, the FDIC seeks to stabilize the institution while simultaneously planning for the eventual exit and termination of the BDI. In exiting and terminating a BDI, the FDIC may merge or consolidate the BDI with another depository institution, issue and sell a majority of the capital stock in the BDI, or effect the assumption of the deposits or acquisition of the assets of the BDI. [ 43 ] While utilizing a BDI can avoid the negative effects of a payout liquidation, such as destruction of franchise value, many of the same factors that challenge the feasibility of a traditional P&A transaction also complicate planning for the termination of a BDI through a sale of the whole entity or its constituent parts.

Though one commenter suggested that the guidance should require firms to develop resolution strategies involving BDIs, the agencies do not maintain an expectation that firms will develop resolution strategies involving BDIs. The expectations provided in this guidance are also intended to be helpful to firms that have chosen to involve a BDI in their resolution strategy.

Least-Cost Analysis for Resolution Plans. The final guidance does not include an expectation that firms provide in their resolution plans a complete least-cost analysis. Such an analysis would, for example, include a comparison of the preferred strategy for resolving an IDI that is a material entity against every other possible resolution method. While a firm may choose to provide a complete least-cost analysis, this guidance discusses expectations regarding a limited least-cost analysis that would explain how the firm's preferred strategy is not more costly than a payout liquidation and, if applicable, an insured-only BDI.

One commenter suggested that the agencies should provide guidance for how firms should address the valuation of an IDI's assets and liabilities, including its franchise value. In this final guidance, the agencies are providing additional explanation for how firms can develop and support the valuation of the IDI's assets and liabilities in an IDI resolution. This guidance includes a description of how firms can assess the franchise value of a firm's business.

Example. The following example should be read in conjunction with section VIII of the guidance text, Insured Depository Institution Resolution. This example is only intended to provide firms with an illustration of the types of considerations and calculations that could be included in a firm's analysis explaining how its preferred strategy would be less costly than a payout liquidation and, if applicable, an insured-only BDI. This example is not intended to serve as a template for firms or to provide guidelines for reasonable valuations of a firm's assets or liabilities. The valuations described in this example are intended to be illustrative and are not guidance about the likely values of a firm's assets and liabilities in an individual resolution plan or in resolution.

Bank A has $500 billion in total assets, consisting of $250 billion loans; $75 billion cash and equivalents; $125 billion in investment securities; and other assets totaling $50 billion. The bank's initial funding structure consists of $400 billion in deposits; $25 billion in various unsecured payables and debt; $25 billion in secured funding; and $50 billion in capital instruments. For this example, the bank assumes it would encounter idiosyncratic events at a time when severely adverse economic conditions are present, and this combination of events would cause the bank to be closed by the chartering authority and the FDIC appointed as receiver. The illustrative tables below reflect values as of the appointment of the FDIC as receiver.

The initial events combine to cause immediate losses of $25 billion recognized as direct operating charges and $15 billion through write-downs/provision expense for the loan portfolio, and $60 billion of deposit runoff occurs.

• For purposes of conducting the analysis, the firm's management assumes that additional value diminution is present in the loan portfolio. Accordingly, after thoroughly analyzing the quality of its loan portfolio and determining the potential for additional credit losses, as well as considering the market value of the loan portfolio based upon the type of loans it holds in comparison with comparable sales transactions, and after further considering sensitivity testing, management supports an estimate near $175 billion for the loan portfolio.
• In developing its Resolution Plan, the firm's management further supports that $40 billion of additional deposit runoff would occur in addition to the initial $60 billion. At the time of failure, Bank A's remaining $300 billion of deposits are 60 percent insured and 40 percent uninsured. The ratio of insured deposits to uninsured deposits is used to calculate the pro rata recovery of depositors and the losses imposed on the DIF as a result. [ 44 ]
• The deposit runoff is assumed to be met by using $50 billion of cash and selling $50 billion of investment securities. The remaining $75 billion investment portfolio is entirely invested in short-term U.S. Treasury securities with an estimated value of $70 billion.
• The other assets are implicated in the initial idiosyncratic loss. These other assets include fixed assets, foreclosed property, intellectual property, and miscellaneous items with a market value of $25 billion.
• As shown in table 1, the Plan provides an analysis of the payout liquidation strategy. This strategy includes an expected loss to the DIF of $18 billion. ( print page 66399)

• However, the Plan also asserts and supports that the payout liquidation approach fails to reflect the franchise value of the combined deposit and loan relationships stemming from considerations such as the low administrative costs associated with servicing large deposits, the elimination of significant customer acquisition costs, the stable fee income stream associated with the accounts due to barriers to entry for certain products, and the importance and value of integrating the loan and deposit products.
• The Plan calculates, and provides the analysis supporting the calculation, that the economic benefit of packaging these benefits together in an all-deposit BDI is $20 billion, which is reflected as a bid premium to liquidation pricing in table 2.
• The result is that the all-deposit BDI is less costly to the DIF than liquidation because of the inclusion of the bid premium.

The agencies requested comment on whether to provide derivatives and trading activities guidance for specified firms that adopt an SPOE or MPOE resolution strategy. Some commenters argued that no derivatives and trading guidance is needed for domestic triennial full filers because they have limited derivatives and trading portfolios, particularly relative to the U.S. GSIB banking organizations covered by such guidance. These commenters also noted that not all of these biennial filers, which are Category I firms, are subject to this type of guidance. Other commenters supported providing such guidance to domestic triennial full filers, despite observing that these firms engage in less activity than the biennial filers. One commenter cautioned that derivatives activities for domestic triennial full filers may increase in the future and proposed the inclusion of an orderly-wind-down analysis for firms with net derivatives exceeding a given threshold. Another commenter recommended that the guidance include expectations for: roles and responsibilities in derivatives unwind, plan reporting regarding derivatives exposures, plan risk assessments in cross-border activity, barriers to swift unwind of derivatives activities booked outside the United States, and capabilities to generate detailed derivative reports. This commenter also argued that firms should specify plans to wind-down between affiliates and external ( print page 66400) counterparties, as well as describe potential sale of some trading positions.

After reviewing the comments and considering the scope of derivatives and trading activities of domestic Category I, II, and III banking organizations, [ 47 ] the agencies determined that the banking organizations that would be specified firms have limited derivatives and trading operations compared to the subset of biennial filers that are the subject of derivatives and trading guidance. The agencies also note that the Rule includes certain requirements regarding derivatives and trading activities with which all covered companies—including domestic triennial full filers—must comply, as well as the overall requirement to provide a strategic analysis describing the covered company's plan for orderly resolution. [ 48 ] The agencies believe that for this set of covered companies, given their current activities, the topic of derivatives and trading activities is sufficiently addressed by the Rule. The agencies are therefore finalizing the guidance without including expectations on derivatives and trading activity for the specified firms.

The agencies also recognize that derivatives activity or risk for domestic triennial full filers may change in the future. The agencies may consider the need for firm-specific derivatives and trading expectations in the future for specified firms that substantially increase their derivatives and trading activities or change in a way such that having a strategy to wind-down their derivatives portfolios is critical to their resolvability.

This section of the proposal described the agencies' preferred presentation regarding the format, assumptions, and structure of resolution plans. Under the proposal, plans would have been expected to contain an executive summary, a narrative of the firm's resolution strategy, relevant technical appendices, and a public section as detailed in the Rule. The proposed format, structure, and assumptions were generally similar to those in the 2019 U.S. GSIB Guidance, except that the proposed guidance reflected the expectations that (a) a firm should support any assumptions that it will have access to the Discount Window and/or other borrowings during the period immediately prior to entering bankruptcy and clarified expectations around such assumptions, and (b) a firm should not assume the use of the systemic risk exception to the least-cost test in the event of a failure of an IDI requiring resolution under the FDI Act. In addition, for firms that adopt an MPOE resolution strategy, the proposal included the expectation that a plan should demonstrate and describe how the failure event(s) results in material financial distress, including consideration of the likelihood of the diminution the firm's liquidity and capital levels prior to bankruptcy. The proposal also included several questions about assumptions and whether to include answers to frequently asked questions.

The agencies received one comment in response to a question posed regarding assumptions related to lending facilities, including the Discount Window. The commenter supported the proposed assumptions guidance regarding these facilities and recommended that the agencies consider providing additional guidance on assumptions related to the amount, timing, and limitations of liquidity that might become available from these sources. However, the additional guidance requested by the commenter is unnecessary, and the agencies are finalizing this section of the guidance as proposed with one clarification. Specifically, the proposed guidance regarding the relevant assumptions already includes references to timing and limitations of liquidity commensurate with the activities of firms subject to the guidance.

As a clarification, the agencies have added a reference to Federal Home Loan Banks (FHLBs) as a type of borrowing for which firms should provide support in their resolution plans if they assume access during the period immediately prior to entering bankruptcy. The agencies' experiences in 2023 showed that many IDIs depend heavily on FHLB funding in times of stress and, accordingly, the agencies expect firms to be prepared to support any assumptions around such reliance for resolution planning purposes.

The final guidance also includes an expectation contained in the 2019 U.S. GSIB Guidance and the 2020 FBO Guidance regarding the parameters of economic forecasting in a resolution plan submission. Those guidance documents stated that a resolution plan should assume the Dodd-Frank Act Stress Test (DFAST) severely adverse scenario for the first quarter of the calendar year in which a resolution plan is submitted is the domestic and international economic environment at the time of the firm's failure and throughout the resolution process. [ 49 ] While this assumption is similar to a provision in the Rule, [ 50 ] the agencies believe it is important to provide guidance to firms about the timing of the required assumption in the Rule. The Board provides DFAST scenario information to the specified firms through the Board's public website. [ 51 ]

The agencies also received a comment recommending that more of firms' resolution plans be disclosed publicly to promote market discipline and specifically asking that the public portion of resolution plans describe potential acquirers of operations in the event of resolution. The Rule establishes at a high-level the required content of the public section of a resolution plan, [ 52 ] and this final guidance clarifies the agencies' expectations with respect to that section. The agencies are mindful that the public disclosure of resolution plans, which may contain private commercial information, has both benefits and drawbacks, and the agencies believe that, at the moment, the Rule—revisions to which are outside the scope of this guidance—and the final guidance appropriately balance transparency with confidentiality.

The agencies are otherwise finalizing this section of the guidance as proposed. [ 53 ] The agencies did not receive any comments in response to the proposal's request for comments about answers to frequently asked questions, and the agencies have not included those prior answers to frequently asked questions because these prior answers were requested by and prepared for a different set of firms.

The agencies received several general comments about whether the expectations in the proposal were suitably modified from expectations ( print page 66401) included in past resolution plan guidance and whether the proposal appropriately distinguished between different types of triennial full filers. Several commenters contended that the proposed guidance did not sufficiently differentiate expectations among firms subject to resolution planning guidance. One commenter argued that section 165 of the Dodd-Frank Act requires the agencies to differentiate the content of the resolution planning guidance; the proposal was too similar to the 2019 U.S. GSIB Guidance; and expectations for the specified firms should be further differentiated based on size, risk, and other factors. Another commenter argued that the proposed guidance favors the MPOE resolution strategy by including fewer expectations for firms that adopt that strategy and recommended that final guidance for firms adopting an MPOE resolution strategy should be more aligned with guidance for resolution plan filers with an SPOE resolution strategy.

While the differentiation requirement in section 165 of the Dodd-Frank Act does not apply to this non-binding resolution plan guidance, the guidance differentiates among covered companies, taking into consideration their size, complexity, and other risk-related factors; their resolution strategy, whether SPOE or MPOE; and whether they are domestic or foreign-based.

The thresholds and risk-based indicators that form the basis of the risk-based category framework used by the Rule are designed to take into account an individual firm's particular activities and organizational footprint that may present significant challenges to an orderly resolution. [ 54 ] The Rule, using those categories, defines triennial full filers as one cohort because the failure of a Category II or III banking organization could pose a threat to U.S. financial stability. Banking organizations in these two categories often have similar characteristics, such as organizational structures, and similar resolution strategies that benefit from similar resolution guidance. Accordingly, the agencies believe the guidance is equally appropriate for domestic Category II and III banking organizations. In addition, as discussed above, the regional bank failures in March 2023 demonstrated that the failure of banking organizations with $100 billion to $250 billion in total consolidated assets can be disruptive to U.S. financial stability. For these reasons, providing the guidance to domestic triennial full filers in that asset range is appropriate to prevent or mitigate risks to the financial stability of the United States.

Guidance for specified firms that adopt an SPOE resolution strategy is differentiated relative to guidance for Category I banking organizations ( i.e., the 2019 U.S. GSIB Guidance), notably with the absence of derivatives and trading expectations, which are applicable to most of the U.S. GSIBs, and other operational guidance as well as reduced separability expectations. Other aspects of the SPOE guidance are appropriately similar to the 2019 U.S. GSIB Guidance because the successful execution of an SPOE resolution strategy benefits from the capabilities discussed in the guidance. The guidance for firms that adopt an MPOE resolution strategy includes substantially simpler expectations, relative to SPOE guidance and the 2019 U.S. GSIB Guidance, in the areas of capital, liquidity, governance mechanisms, operational, legal entity rationalization and separability, derivatives and trading expectations, and PCS. Having simpler expectations relative to SPOE guidance does not necessarily mean a firm adopting an MPOE strategy will encounter fewer challenges developing its resolution plan; regardless of the strategy chosen, the firm is responsible for providing adequate information and analysis to demonstrate its plan will facilitate an orderly resolution. Each firm remains free to choose the resolution strategy it believes would most effectively facilitate an orderly resolution, and the agencies are not suggesting that any firm change its resolution strategy, nor do the agencies identify a preferred strategy for a specific firm or set of firms. [ 55 ]

Finally, resolution plan guidance for Category II and III banking organizations is adapted to whether a covered company is based in the United States or in a foreign jurisdiction, with dedicated guidance documents for each type of firm. The Rule differentiates between banking organizations based on home jurisdiction, [ 56 ] and whether a banking organization is based in the United States can significantly impact its resolution strategy, resolution capabilities, and resolution planning. Accordingly, expectations for domestic and foreign-based triennial full filers are differentiated in the areas of capital, liquidity, governance mechanisms, shared services, separability, branches, and group-wide resolution plans.

The agencies received several general comments about resolution planning guidance. The agencies have considered these commenters' input but have made no modifications to the final guidance.

One commenter expressed support for the proposed guidance, in part, because it reaffirms that bankruptcy is the preferred resolution strategy and would improve the quality of resolution plan submissions through enhanced information and assumptions, better enabling the resolution of a specified firm in an orderly manner. Another commenter praised the agencies' proposal for providing needed clarity and transparency on expectations for specified firms' resolution plans, and for making several improvements that will improve specified firms' resolution plans.

Another commenter recommended that the agencies adopt the content of the guidance in the form of a legally binding and enforceable rule, in part due to the size and scope of specified firms, the importance of resolution planning, and the financial stability implications involved. This commenter also suggested that the large bank failures in 2023 demonstrated the need for improvement in banking organizations' resolution planning and the agencies' process for assessing these plans.

Resolution planning is important to U.S. financial stability; however, the agencies have not made changes to the guidance in response to these comments. The Rule, which is legally enforceable, identifies the specific topics that must be addressed in resolution plans. In contrast, resolution plan guidance outlines the agencies' supervisory expectations and priorities and articulates the agencies' general views regarding appropriate resolution planning practices for the specified firms. The final guidance provides examples of resolution plan content and capabilities that the agencies generally consider consistent with effective resolution planning. This approach is consistent with resolution planning guidance provided to other covered companies in the past, including guidance for Category I banking organizations and certain foreign Category II banking organizations.

A commenter argued that the agencies should allow for an iterative process for domestic triennial full filers to develop their strategies and capabilities, similar to the gradual maturation of Category I ( print page 66402) banking organizations' resolution plans. This commenter also argued the agencies should provide more than one year for firms to incorporate the final guidance into their next resolution plan submissions and that the guidance should not be the basis for a deficiency.

By statute and under the Rule, each resolution plan filer must submit a plan for orderly resolution under the Bankruptcy Code, and the agencies must assess the credibility of each plan. Each firm remains free to choose the resolution strategy it believes would most effectively facilitate an orderly resolution and the agencies are not suggesting that any firm change its resolution strategy, nor do the agencies identify a preferred strategy for a specific firm or set of firms. The standard of review for a resolution plan submission of a firm that transitions to a new strategy is the same as for any firm subject to the Rule. The agencies stated in the preamble to the 2019 revisions to the Rule that they would endeavor to finalize guidance a year in advance of the next applicable resolution plan submission date, and the agencies are extending the next resolution plan submission deadline for these firms to provide at least one year advanced notice of general guidance. [ 57 ] The agencies also reaffirm that the guidance does not have the force and effect of law, and the agencies do not take enforcement actions or issue findings based on resolution planning guidance.

The agencies received several comments outside the scope of the proposed guidance. One commenter urged the agencies to shorten the length between resolution plan submissions under the Rule, from three to two years, and evaluate key aspects of plans annually. This commenter also recommended the agencies create an independent committee to advise the agencies on resolution planning matters as well as require large banking organizations to hold more capital generally. Another commenter argued that any LTD requirements should reflect a banking organization's preferred resolution strategy and not push a banking organization to adopt a particular strategy while another commenter recommended finalizing the LTD proposal as proposed. A commenter also encouraged the FDIC to provide banking organizations at least one year to comply with any final IDI Rule. Another commenter also recommended that the agencies promote resolvability by requiring large corporations to hold term deposits at the specified firms. In addition, another commenter suggested including in the final guidance expectations related to green financing. The agencies have not made any changes to the guidance to address these comments.

Certain provisions of the final guidance contain “collections of information” within the meaning of the Paperwork Reduction Act (PRA) of 1995 ( 44 U.S.C. 3501-3521 ). In accordance with the requirements of the PRA, the agencies may not conduct or sponsor, and the respondent is not required to respond to, an information collection unless it displays a currently valid Office of Management and Budget (OMB) control number. The agencies have requested and OMB has assigned to the agencies the respective control numbers shown. The information collections contained in the final guidance have been submitted to OMB for review and approval by the FDIC under section 3507(d) of the PRA ( 44 U.S.C. 3507(d) ) and section 1320.11 of OMB's implementing regulations ( 5 CFR part 1320 ). The Board reviewed the final guidance under the authority delegated to the Board by OMB and has approved these collections of information.

The agencies did not receive any comments related to the PRA.

The agencies have a continuing interest in the public's opinions of information collections. At any time, commenters may submit comments regarding the burden estimate, or any other aspect of this collection of information, including suggestions for reducing the burden, to the addresses listed in the ADDRESSES caption in the proposed guidance notice. All comments will become a matter of public record. Written comments and recommendations for these information collections also should be sent within 30 days of publication of this document to www.reginfo.gov/​public/​do/​PRAMain . Find this particular information collection by selecting “Currently under 30-day Review—Open for Public Comments” or by using the search function.

Collection title: Board: Reporting Requirements Associated with Regulation QQ.

FDIC: Reporting Requirements Associated with Resolution Planning.

OMB control number: Board 7100-0346; FDIC 3064-0210.

Frequency: Triennial, Biennial, and on occasion.

Respondents: Bank holding companies (including any foreign bank or company that is, or is treated as, a bank holding company under section 8(a) of the International Banking Act of 1978 and meets the relevant total consolidated assets threshold) with total consolidated assets of $250 billion or more, a bank holding companies with $100 billion or more in total consolidated assets with certain characteristics, and nonbank financial firms designated by the Financial Stability Oversight Council for supervision by the Board.

Current actions: The final guidance modifies certain provisions of the proposed guidance. For domestic firms, the final guidance eliminates expectations related to separability, reducing the average burden hours per response by 3,000 for domestic firms using an SPOE strategy and 975 for domestic firms using an MPOE strategy. The final guidance also clarifies expectations around operational shared services for firms using an SPOE resolution strategy and around the IDI Resolution Plan/Least Cost Test for all firms. Regarding operational shared services, the guidance clarifies that a firm's implementation plan to ensure continuity of shared services should include those that are material to the execution of the resolution strategy, such as reliance on outside bankruptcy counsel and consultants. Regarding the FDI Act's least-cost requirement and how it relates to expectations around IDI resolution, the agencies provided additional detail on how firms can develop and support the valuation of an IDI's assets and liabilities in an IDI resolution. The agencies do not anticipate these clarifications impacting the burden estimates.

Historically, the Board and the FDIC have split the respondents for purposes of PRA clearances. As such, the agencies will split the change in burden as well. As a result of this split and the final revisions, there is a proposed net increase in the overall estimated burden hours of 14,922 hours for the Board and 14,304 hours for the FDIC. Therefore, the total Board estimated burden for its entire information collection would be 216,129 hours and the total FDIC estimated burden would be 210,844 hours.

The following table presents only the change in the estimated burden hours, as amended by the final guidance, broken out by agency. The table does not include a discussion of the remaining estimated burden hours, ( print page 66403) which remain unchanged. [ 58 ] As shown in the table, the triennial full filers' resolution plan submissions would be estimated more granularly according to SPOE and MPOE resolution strategies.

Section 165(d) of the Dodd-Frank Wall Street Reform and Consumer Protection Act ( 12 U.S.C. 5365(d) ) requires certain financial companies to report periodically to the Board of Governors of the Federal Reserve System (the Board) and the Federal Deposit Insurance Corporation (the FDIC) (together, the agencies) their plans for rapid and orderly resolution in the event of material financial distress or failure. On November 1, 2011, the agencies promulgated a joint rule implementing the provisions of Section 165(d). [ 1 ] Subsequently, in November 2019, the agencies finalized amendments to the joint rule addressing amendments to the Dodd-Frank Act made by the Economic Growth, Regulatory Relief, and Consumer Protection Act and improving certain aspects of the joint rule based on the agencies' experience implementing the joint rule since its adoption. [ 2 ] Financial companies meeting criteria set out in the Rule must file a resolution plan (Plan) according to the schedule specified in the Rule.

This document is intended to provide guidance to certain domestic financial companies required to submit Plans to assist their further development of a Plan for their 2025 and subsequent Plan submissions. Specifically, the guidance applies to any domestic covered company that is a triennial full filer under the Rule  [ 3 ] because it is subject to Category II or III standards in accordance with the Board's tailoring rule (specified firms or firms). [ 4 ] The Plan for a specified firm would address the subsidiaries and operations that are domiciled in the United States as well as the foreign subsidiaries, offices, and operations of the covered company.

The document does not have the force and effect of law. [ 5 ] Rather, it describes the agencies' expectations and priorities regarding the specified firms' Plans and the agencies' general views regarding specific areas where additional detail should be provided and where certain capabilities or optionality should be ( print page 66404) developed and maintained to demonstrate that each firm has considered fully, and is able to mitigate, obstacles to the successful implementation of their resolution strategy.

When a domestic banking organization first becomes a specified firm, [ 6 ] this document will apply to the firm's next resolution plan submission that is due at least 12 months after the date the firm becomes a specified firm. If a specified firm ceases to be subject to Category II or III standards, it will no longer be a specified firm, and this document would no longer apply to that firm.

In general, this document is organized around a number of key challenges in resolution (capital; liquidity; governance mechanisms; operational; legal entity rationalization; and insured depository institution resolution (IDI), if applicable) that apply across resolution plans, depending on their strategy. Additional challenges or obstacles may arise based on a firm's particular structure, operations, or resolution strategy. Each firm is expected to satisfactorily address these vulnerabilities in its Plan. In addition, each topic of this guidance is separated into expectations for a specified firm that adopts a single point of entry (SPOE) resolution strategy for its Plan and expectations for a specified firm that adopts a multiple point of entry (MPOE) resolution strategy for its Plan.

Under the Rule, the agencies will review a Plan to determine if it satisfactorily addresses key potential challenges, including those specified below. If the agencies jointly decide that an aspect of a Plan presents a weakness that individually or in conjunction with other aspects could undermine the feasibility of the Plan, the agencies may determine jointly that the Plan is not credible or would not facilitate an orderly resolution under the U.S. Bankruptcy Code. The agencies may not take enforcement actions or issue findings based on this guidance.

The firm should have the capital capabilities necessary to execute its resolution strategy, including the modeling and estimation process described below.

Resolution Capital Adequacy and Positioning (RCAP). In order to help ensure that a firm's material entities  [ 7 ] could operate while the parent company is in bankruptcy, the firm should have an adequate amount of loss-absorbing capacity to recapitalize those material entities. Thus, a firm should have outstanding a minimum amount of loss-absorbing capacity, including long-term debt, to help ensure that the firm has adequate capacity to meet that need at a consolidated level (external LAC). [ 8 ]

A firm's external LAC should be complemented by appropriate positioning of loss-absorbing capacity within the firm ( i.e., internal LAC), consistent with any applicable rules requiring prepositioned resources at IDIs in the form of long-term debt. After adhering to any requirements related to prepositioning long-term debt at IDIs, the positioning of a firm's remaining resources should balance the certainty associated with pre-positioning resources directly at material entities with the flexibility provided by holding recapitalization resources at the parent (contributable resources) to meet unanticipated losses at material entities. That balance should take account of both pre-positioning at material entities and holding resources at the parent, and the obstacles associated with each. With respect to material entities that are not U.S. IDIs subject to pre-positioned long-term debt requirements, the firm should not rely exclusively on either full pre-positioning or parent contributable resources to recapitalize such entities. The Plan should describe the positioning of resources within the firm, along with analysis supporting such positioning.

Finally, to the extent that pre-positioned resources at a material entity are in the form of intercompany debt and there are one or more entities between that material entity and the parent, the firm should structure the instruments so as to ensure that the material entity can be recapitalized.

Resolution Capital Execution Need (RCEN). To the extent necessitated by the firm's resolution strategy, material entities need to be recapitalized to a level that allows them to operate or be wound down in an orderly manner following the parent company's bankruptcy filing. The firm should have a methodology for periodically estimating the amount of capital that may be needed to support each material entity after the bankruptcy filing (RCEN). The firm's positioning of resources should be able to support the RCEN estimates. In addition, the RCEN estimates should be incorporated into the firm's governance framework to ensure that the parent company files for bankruptcy at a time that enables execution of the preferred strategy.

The firm's RCEN methodology should use conservative forecasts for losses and risk-weighted assets and incorporate estimates of potential additional capital needs through the resolution period, [ 9 ] consistent with the firm's resolution strategy. The RCEN methodology should be calibrated such that recapitalized material entities will have sufficient capital to maintain market confidence as required under the preferred resolution strategy. Capital levels should meet or exceed all applicable regulatory capital requirements for “well-capitalized” status and meet estimated additional capital needs throughout resolution. Material entities that are not subject to capital requirements may be considered sufficiently recapitalized when they have achieved capital levels typically required to obtain an investment-grade credit rating or, if the entity is not rated, an equivalent level of financial soundness. Finally, the methodology should be independently reviewed, consistent with the firm's corporate governance processes and controls for the use of models and methodologies.

The firm should have the liquidity capabilities necessary to execute its preferred resolution strategy. For resolution purposes, these capabilities should include having an appropriate model and process for estimating and maintaining sufficient liquidity at or readily available to material entities and a methodology for estimating the liquidity needed to successfully execute the resolution strategy, as described below.

Resolution Liquidity Adequacy and Positioning (RLAP). With respect to RLAP, the firm should be able to measure the stand-alone liquidity position of each material entity (including material entities that are non-U.S. branches)— i.e., the high-quality liquid assets (HQLA) at the material ( print page 66405) entity less net outflows to third parties and affiliates—and ensure that liquidity is readily available to meet any deficits. The RLAP model should cover a period of at least 30 days and reflect the idiosyncratic liquidity profile and risk of the firm. The model should balance the reduction in frictions associated with holding liquidity directly at material entities with the flexibility provided by holding HQLA at the parent available to meet unanticipated outflows at material entities. Thus, the firm should not rely exclusively on either full pre-positioning or an expected contribution of liquid resources from the parent. The model  [ 10 ] should ensure that the parent holding company holds sufficient HQLA (inclusive of its deposits at the U.S. branch of the lead bank subsidiary) to cover the sum of all stand-alone material entity net liquidity deficits. The stand-alone net liquidity position of each material entity (HQLA less net outflows) should be measured using the firm's internal liquidity stress test assumptions and should treat inter-affiliate exposures in the same manner as third-party exposures. For example, an overnight unsecured exposure to an affiliate should be assumed to mature. Finally, the firm should not assume that a net liquidity surplus at one material entity could be moved to meet net liquidity deficits at other material entities or to augment parent resources.

Additionally, the RLAP methodology should take into account: (A) the daily contractual mismatches between inflows and outflows; (B) the daily flows from movement of cash and collateral for all inter-affiliate transactions; and (C) the daily stressed liquidity flows and trapped liquidity as a result of actions taken by clients, counterparties, key financial market utilities (FMUs), and foreign supervisors, among others.

Resolution Liquidity Execution Need (RLEN). The firm should have a methodology for estimating the liquidity needed after the parent's bankruptcy filing to stabilize the surviving material entities and to allow those entities to operate post-filing. The RLEN estimate should be incorporated into the firm's governance framework to ensure that the firm files for bankruptcy in a timely way, i.e., prior to the firm's HQLA falling below the RLEN estimate.

The firm's RLEN methodology should:

(A) Estimate the minimum operating liquidity (MOL) needed at each material entity to ensure those entities could continue to operate post-parent's bankruptcy filing and/or to support a wind-down strategy;

(B) Provide daily cash flow forecasts by material entity to support estimation of peak funding needs to stabilize each entity under resolution;

(C) Provide a comprehensive breakout of all inter-affiliate transactions and arrangements that could impact the MOL or peak funding needs estimates; and

(D) Estimate the minimum amount of liquidity required at each material entity to meet the MOL and peak needs noted above, which would inform the firm's board(s) of directors of when they need to take resolution-related actions.

The MOL estimates should capture material entities' intraday liquidity requirements, operating expenses, working capital needs, and inter-affiliate funding frictions to ensure that material entities could operate without disruption during the resolution. The peak funding needs estimates should be projected for each material entity and cover the length of time the firm expects it would take to stabilize that material entity. Inter-affiliate funding frictions should be taken into account in the estimation process.

The firm's forecasts of MOL and peak funding needs should ensure that material entities could operate through resolution consistent with regulatory requirements, market expectations, and the firm's post-failure strategy. These forecasts should inform the RLEN estimate, i.e., the minimum amount of HQLA required to facilitate the execution of the firm's strategy. The RLEN estimate should be tied to the firm's governance mechanisms and be incorporated into the playbooks as discussed below to assist the board of directors in taking timely resolution-related actions.

The firm should have the liquidity capabilities necessary to execute its preferred resolution strategy. A Plan with an MPOE resolution strategy should include analysis and projections of a range of liquidity needs during resolution, including intraday; reflect likely failure and resolution scenarios; and consider the guidance on assumptions provided in Section VIII, Format and Structure of Plans; Assumptions.

Playbooks and Triggers. A firm should identify the governance mechanisms that would ensure execution of required board actions at the appropriate time (as anticipated under the firm's preferred strategy) and include pre-action triggers and existing agreements for such actions. Governance playbooks should detail the board and senior management actions necessary to facilitate the firm's preferred strategy and to mitigate vulnerabilities, and should incorporate the triggers identified below. The governance playbooks should also include a discussion of:

(A) The firm's proposed communications strategy, both internal and external;  [ 11 ]

(B) The boards of directors' fiduciary responsibilities and how planned actions would be consistent with such responsibilities applicable at the time actions are expected to be taken;

(C) Potential conflicts of interest, including interlocking boards of directors; and

(D) Any employee retention policy. All responsible parties and timeframes for action should be identified. Governance playbooks should be updated periodically for all entities whose boards of directors would need to act in advance of the commencement of resolution proceedings under the firm's preferred strategy.

The firm should demonstrate that key actions will be taken at the appropriate time in order to mitigate financial, operational, legal, and regulatory vulnerabilities. To ensure that these actions will occur, the firm should establish clearly identified triggers linked to specific actions for:

(A) The escalation of information to senior management and the board(s) to potentially take the corresponding actions at each stage of distress leading eventually to the decision to file for bankruptcy;

(B) Successful recapitalization of subsidiaries prior to the parent's filing for bankruptcy and funding of such entities during the parent company's bankruptcy to the extent the preferred strategy relies on such actions or support; and ( print page 66406)

(C) The timely execution of a bankruptcy filing and related pre-filing actions. [ 12 ]

These triggers should be based, at a minimum, on capital, liquidity, and market metrics, and should incorporate the firm's methodologies for forecasting the liquidity and capital needed to operate as required by the preferred strategy following a parent company's bankruptcy filing. Additionally, the triggers and related actions should be specific.

Triggers linked to firm actions as contemplated by the firm's preferred strategy should identify when and under what conditions the firm, including the parent company and its material entities, would transition from business-as-usual (BAU) conditions to a stress period and from a stress period to the recapitalization/resolution periods. Corresponding escalation procedures, actions, and timeframes should be constructed so that breach of the triggers will allow prerequisite actions to be completed. For example, breach of the triggers needs to occur early enough to ensure that resources are available and can be downstreamed, if anticipated by the firm's strategy, and with adequate time for the preparation of the bankruptcy petition and first-day motions, necessary stakeholder communications, and requisite board actions. Triggers identifying the onset of stress and recapitalization/resolution periods, and the associated escalation procedures and actions, should be discussed directly in the governance playbooks.

Pre-Bankruptcy Parent Support. The Plan should include a detailed legal analysis of the potential state law and bankruptcy law challenges and mitigants to planned provision of capital and liquidity to the subsidiaries prior to the parent's bankruptcy filing (Support). Specifically, the analysis should identify potential legal obstacles and explain how the firm would seek to ensure that Support would be provided as planned. Legal obstacles include claims of fraudulent transfer, preference, breach of fiduciary duty, and any other applicable legal theory identified by the firm. The analysis also should include related claims that may prevent or delay an effective recapitalization, such as equitable claims to enjoin the transfer ( e.g., imposition of a constructive trust by the court). The analysis should apply the actions contemplated in the Plan regarding each element of the claim, the anticipated timing for commencement and resolution of the claims, and the extent to which adjudication of such claim could affect execution of the firm's preferred resolution strategy.

The analysis should include mitigants to the potential challenges to the planned Support. The Plan should identify the mitigant(s) to such challenges that the firm considers most effective. In identifying appropriate mitigants, the firm should consider the effectiveness of a contractually binding mechanism (CBM), pre-positioning of financial resources in material entities, and the creation of an intermediate holding company. Moreover, if the Plan includes a CBM, the firm should consider whether it is appropriate that the CBM should have the following:

(A) Clearly defined triggers;

(B) Triggers that are synchronized to the firm's liquidity and capital methodologies;

(C) Perfected security interests in specified collateral sufficient to fully secure all Support obligations on a continuous basis (including mechanisms for adjusting the amount of collateral as the value of obligations under the agreement or collateral assets fluctuates); and

(D) Liquidated damages provisions or other features designed to make the CBM more enforceable.

The firm also should consider related actions or agreements that may enhance the effectiveness of a CBM. A copy of any agreement and documents referenced therein ( e.g., evidence of security interest perfection) should be included in the Plan.

The governance playbooks included in the Plan should incorporate any developments from the firm's analysis of potential legal challenges regarding the Support, including any Support approach(es) the firm has implemented. If the firm analyzed and addressed an issue noted in this section in a prior plan submission, the Plan may reproduce that analysis and arguments and should build upon it to at least the extent described above, including ensuring that, as with all other aspects of the Plan, it remains accurate and up to date. In preparing the analysis of these issues, firms may consult with law firms and other experts on these matters. The agencies do not object to appropriate collaboration between firms, including through trade organizations and with the academic community, to develop analysis of common legal challenges and available mitigants.

Payment, Clearing, and Settlement Activities Framework. Maintaining continuity of payment, clearing, and settlement (PCS) services is critical for the orderly resolution of firms that are either users or providers, [ 13 ] or both, of PCS services. A firm should demonstrate capabilities for continued access to PCS services essential to an orderly resolution through a framework to support such access by:

• Identifying clients, [ 14 ] FMUs, and agent banks as key from the firm's perspective for the firm's material entities, identified critical operations, and core business lines, using both quantitative (volume and value)  [ 15 ] and qualitative criteria;
• Mapping material entities, identified critical operations, core business lines, and key clients to both key FMUs and key agent banks; and
• Developing a playbook for each key FMU and key agent bank essential to an orderly resolution under its preferred resolution strategy that reflects the firm's role(s) as a user and/or provider of PCS services.

The framework should address direct relationships ( e.g., a firm's direct membership in an FMU, a firm's provision of clients with PCS services through its own operations, or a firm's contractual relationship with an agent bank) and indirect relationships ( e.g., a firm's provision of clients with access to the relevant FMU or agent bank through the firm's membership in or relationship with that FMU or agent bank).

Playbooks for Continued Access to PCS Services. The firm is expected to provide a playbook for each key FMU and key agent bank that addresses ( print page 66407) considerations that would assist the firm and its key clients in maintaining continued access to PCS services in the period leading up to and including the firm's resolution. Each playbook should provide analysis of the financial and operational impact to the firm's material entities and key clients due to adverse actions that may be taken by a key FMU or a key agent bank and contingency actions that may be taken by the firm. Each playbook also should discuss any possible alternative arrangements that would allow continued access to PCS services for the firm's material entities, identified critical operations and core business lines, and key clients, while the firm is in resolution. The firm is not expected to incorporate a scenario in which it loses key FMU or key agent bank access into its preferred resolution strategy or its RLEN and RCEN estimates. The firm should continue to engage with key FMUs, key agent banks, and key clients, and playbooks should reflect any feedback received during such ongoing outreach.

Content Related to Users of PCS Services. Individual key FMU and key agent bank playbooks should include:

• Description of the firm's relationship as a user with the key FMU or key agent bank and the identification and mapping of PCS services to material entities, identified critical operations, and core business lines that use those PCS services;
• Discussion of the potential range of adverse actions that may be taken by that key FMU or key agent bank when the firm is in resolution, [ 16 ] the operational and financial impact of such actions on each material entity, and contingency arrangements that may be initiated by the firm in response to potential adverse actions by the key FMU or key agent bank; and
• Discussion of PCS-related liquidity sources and uses in BAU, in stress, and in the resolution period, presented by currency type (with U.S. dollar equivalent) and by material entity.

○ PCS Liquidity Sources: These may include the amounts of intraday extensions of credit, liquidity buffer, inflows from FMU participants, and key client prefunded amounts in BAU, in stress, and in the resolution period. The playbook also should describe intraday credit arrangements ( e.g., facilities of the key FMU, key agent bank, or a central bank) and any similar custodial arrangements that allow ready access to a firm's funds for PCS-related key FMU and key agent bank obligations (including margin requirements) in all currencies relevant to the firm's participation, including placements of firm liquidity at central banks, key FMUs, and key agent banks.

○ PCS Liquidity Uses: These may include firm and key client margin and prefunding and intraday extensions of credit, including incremental amounts required during resolution.

○ Intraday Liquidity Inflows and Outflows: The playbook should describe the firm's ability to control intraday liquidity inflows and outflows and to identify and prioritize time-specific payments. The playbook also should describe any account features that might restrict the firm's ready access to its liquidity sources.

Content Related to Providers of PCS Services. [ 17 ] Individual key FMU and key agent bank playbooks should include:

• Identification and mapping of PCS services to the material entities, identified critical operations, and core business lines that provide those PCS services, and a description of the scale and the way in which each provides PCS services;
• Identification and mapping of PCS services to key clients to whom the firm provides such PCS services and any related credit or liquidity offered in connection with such services;
• Discussion of the potential range of firm contingency arrangements available to minimize disruption to the provision of PCS services to its key clients, including the viability of transferring key client activity and any related assets, as well as any alternative arrangements that would allow the firm's key clients continued access to PCS services if the firm could no longer provide such access ( e.g., due to the firm's loss of key FMU or key agent bank access), and the financial and operational impacts of such arrangements from the firm's perspective;
• Descriptions of the range of contingency actions that the firm may take concerning its provision of intraday credit to key clients, including analysis quantifying the potential liquidity the firm could generate by taking such actions in stress and in the resolution period, such as: (i) requiring key clients to designate or appropriately pre-position liquidity, including through prefunding of settlement activity, for PCS-related key FMU and key agent bank obligations at specific material entities of the firm ( e.g., direct members of key FMUs) or any similar custodial arrangements that allow ready access to key clients' funds for such obligations in all relevant currencies of key clients of the firm's operations; (ii) delaying or restricting key client PCS activity; and (iii) restricting, imposing conditions upon ( e.g., requiring collateral), or eliminating the provision of intraday credit or liquidity to key clients; and
• Descriptions of how the firm will communicate to its key clients the potential impacts of implementation of any identified contingency arrangements or alternatives, including a description of the firm's methodology for determining whether any additional communication should be provided to some or all key clients ( e.g., due to the key client's BAU usage of that access and/or related intraday credit or liquidity), and the expected timing and form of such communication.

Capabilities. The firm is expected to have and describe capabilities to understand, for each material entity, the obligations and exposures associated with PCS activities, including contractual obligations and commitments. The firm should be able to:

• Track the following items by: (i) material entity; and (ii) with respect to customers, counterparties, and agents and service providers, location and jurisdiction:

○ PCS activities, with each activity mapped to the relevant material entities, identified critical operations, and core business lines;  [ 18 ]

○ Customers and counterparties for PCS activities, including values and volumes of various transaction types, as well as used and unused capacity for all lines of credit;  [ 19 ]

○ Exposures to and volumes transacted with FMUs, nostro agents, and custodians; and  [ 20 ]

○ Services provided and service level agreements, as applicable, for other current agents and service providers (internal and external). [ 21 ]

• Assess the potential effects of adverse actions by FMUs, nostro agents, custodians, and other agents and service providers, including suspension or termination of membership or services, on the firm's operations and customers ( print page 66408) and counterparties of those operations;  [ 22 ]
• Develop contingency arrangements in the event of such adverse actions;  [ 23 ] and
• Quantify the liquidity needs and operational capacity required to meet all PCS obligations, including any change in demand for and sources of liquidity needed to meet such obligations.

Managing, Identifying, and Valuing Collateral. The firm is expected to have and describe its capabilities to manage, identify, and value the collateral that it receives from and posts to external parties and affiliates. Specifically, the firm should:

• Be able to query and provide aggregate statistics for all qualified financial contracts concerning cross-default clauses, downgrade triggers, and other key collateral-related contract terms—not just those terms that may be impacted in an adverse economic environment—across contract types, business lines, legal entities, and jurisdictions;
• Be able to track both collateral sources ( i.e., counterparties that have pledged collateral) and uses ( i.e., counterparties to whom collateral has been pledged) at the CUSIP level on at least a t+1 basis;
• Have robust risk measurements for cross-entity and cross-contract netting, including consideration of where collateral is held and pledged;
• Be able to identify CUSIP and asset class level information on collateral pledged to specific central counterparties by legal entity on at least a t+1 basis;
• Be able to track and report on inter-branch collateral pledged and received on at least a t+1 basis and have clear policies explaining the rationale for such inter-branch pledges, including any regulatory considerations; and
• Have a comprehensive collateral management policy that outlines how the firm as a whole approaches collateral and serves as a single source for governance. [ 24 ]

Management Information Systems. The firm should have the management information systems (MIS) capabilities to readily produce data on a legal entity basis and have controls to ensure data integrity and reliability. The firm also should perform a detailed analysis of the specific types of financial and risk data that would be required to execute the preferred resolution strategy and how frequently the firm would need to produce the information, with the appropriate level of granularity. The firm should have the capabilities to produce the following types of information, as applicable, in a timely manner and describe these capabilities in the Plan:

• Financial statements for each material entity (at least monthly);
• External and inter-affiliate credit exposures, both on- and off-balance sheet, by type of exposure, counterparty, maturity, and gross payable and receivable;
• Gross and net risk positions with internal and external counterparties;
• Guarantees, cross holdings, financial commitments and other transactions between material entities;
• Data to facilitate third-party valuation of assets and businesses, including risk metrics;
• Key third-party contracts, including the provider, provider's location, service(s) provided, legal entities that are a party to or a beneficiary of the contract, and key contractual rights (for example, termination and change in control clauses);
• Legal agreement information, including parties to the agreement and key terms and interdependencies (for example, change in control, collateralization, governing law, termination events, guarantees, and cross-default provisions);
• Service level agreements between affiliates, including the service(s) provided, the legal entity providing the service, legal entities receiving the service, and any termination/transferability provisions;
• Licenses and memberships to all exchanges and value transfer networks, including FMUs;
• Key management and support personnel, including dual-hatted employees, and any associated retention agreements;
• Agreements and other legal documents related to property, including facilities, technology systems, software, and intellectual property rights. The information should include ownership, physical location, where the property is managed and names of legal entities and lines of business that the property supports; and
• Updated legal records for domestic and foreign entities, including entity type and purpose (for example, holding company, bank, broker dealer, and service entity), jurisdiction(s), ownership, and regulator(s).

Shared and Outsourced Services. The firm should maintain a fully actionable implementation plan to ensure the continuity of shared services that support identified critical operations or core business lines, or are material to the execution of the resolution strategy, and robust arrangements to support the continuity of shared and outsourced services, including, without limitation, appropriate plans to retain key personnel relevant to the execution of the firm's strategy. For example, specified firms should evaluate internal and external dependencies and develop documented strategies and contingency arrangements for the continuity or replacement of the shared and outsourced services that are necessary to maintain identified critical operations or core business lines, or are material to the execution of the resolution strategy. Examples may include personnel, facilities, systems, data warehouses, intellectual property, and counsel and consultants involved in the preparation for and filing of bankruptcy. Specified firms also should maintain current cost estimates for implementing such strategies and contingency arrangements.

The firm should (A) maintain an identification of all shared services that support identified critical operations or core business lines, or are material to the execution of the resolution strategy;  [ 25 ] (B) maintain a mapping of how/where these services support its core business lines and identified critical operations; (C) incorporate such mapping into legal entity rationalization criteria and implementation efforts; and (D) mitigate identified continuity risks through establishment of service-level agreements (SLAs) for all shared services that support identified critical operations or core business lines, or are material to the execution of the resolution strategy.

SLAs should fully describe the services provided, reflect pricing considerations on an arm's-length basis where appropriate, and incorporate appropriate terms and conditions to (A) prevent automatic termination upon certain resolution-related events and (B) achieve continued provision of such services during resolution. The firm should also store SLAs in a central repository or repositories in a searchable format, develop and document contingency strategies and arrangements for replacement of critical shared services, and complete re-alignment or restructuring of activities within its corporate structure. In addition, the firm should ensure the financial resilience of internal shared service providers by maintaining working capital for six months (or through the period of ( print page 66409) stabilization as required in the firm's preferred strategy) in such entities sufficient to cover contract costs, consistent with the preferred resolution strategy.

The firm should identify all critical service providers and outsourced services that support identified critical operations or core business lines, or are material to the execution of the resolution strategy, and identify any that could not be promptly substituted. The firm should (A) evaluate the agreements governing these services to determine whether there are any that could be terminated upon commencement of any resolution despite continued performance, and (B) update contracts to incorporate appropriate terms and conditions to prevent automatic termination upon commencement of any resolution proceeding and facilitate continued provision of such services. Relying on entities projected to survive during resolution to avoid contract termination is insufficient to ensure continuity. In the Plan, the firm should document the amendment of any such agreements governing these services.

Qualified Financial Contracts. The Plan should reflect how the early termination of qualified financial contracts triggered by the parent company's bankruptcy filing could impact the resolution of the firm's operations, including potential termination of any contracts that are not subject to statutory, contractual or regulatory stays of direct default or cross-default rights. A Plan should explain and support the firm's strategy for addressing the potential disruptive effects in resolution of early termination provisions and cross-default rights in existing qualified financial contracts at both the parent company and material entity subsidiaries. This discussion should address, to the extent relevant for the firm, qualified financial contracts that include limitations of standard contractual direct default and cross default rights by agreement of the parties.

Payment, Clearing, and Settlement Activities Capabilities. The firm is expected to have and describe capabilities to understand, for each material entity, the obligations and exposures associated with PCS activities, including contractual obligations and commitments. For example, firms should be able to:

• As users of PCS services:

○ Track the following items by: (i) material entity; and (ii) with respect to customers, counterparties, and agents and service providers, location and jurisdiction:

PCS activities, with each activity mapped to the relevant material entities, identified critical operations, and core business lines;

Customers and counterparties for PCS activities, including values and volumes of various transaction types, as well as used and unused capacity for all lines of credit;

Exposures to and volumes transacted with FMUs, nostro agents, and custodians; and

Services provided and service level agreements, as applicable, for other current agents and service providers (internal and external).

○ Assess the potential effects of adverse actions by FMUs, nostro agents, custodians, and other agents and service providers, including suspension or termination of membership or services, on the firm's operations and customers and counterparties of those operations;

○ Develop contingency arrangements in the event of such adverse actions; and

○ Quantify the liquidity needs and operational capacity required to meet all PCS obligations, including intraday requirements.

• As providers of PCS services:

○ Identify their PCS clients and the services they provide to these clients, including volumes and values of transactions;

○ Quantify and explain time-sensitive payments; and

○ Quantify and explain intraday credit provided.

Managing, Identifying and Valuing Collateral. The firm is expected to have and describe its capabilities to manage, identify and value the collateral that it receives from and posts to external parties and affiliates, including tracking collateral received, pledged, and available at the CUSIP level and measuring exposures.

Management Information Systems. The firm should have the management information systems (MIS) capabilities to readily produce data on a legal entity basis and have controls to ensure data integrity and reliability. The firm also should perform a detailed analysis of the specific types of financial and risk data that would be required to execute the preferred resolution strategy. The firm should have the capabilities to produce the following types of information, as applicable, in a timely manner and describe these capabilities in the Plan:

Shared and Outsourced Services. The firm should maintain robust arrangements to support the continuity of shared and outsourced services that support any identified critical operations or are material to the execution of the resolution strategy, including appropriate plans to retain key personnel relevant to the execution of the firm's strategy. For example, specified firms should evaluate internal and external dependencies and develop documented strategies and contingency arrangements for the continuity or replacement of the shared and outsourced services that are necessary to maintain identified critical operations ( print page 66410) or are material to the execution of the resolution strategy. Examples may include personnel, facilities, systems, data warehouses, intellectual property, and counsel and consultants involved in the preparation for and filing of bankruptcy. Specified firms also should maintain current cost estimates for implementing such strategies and contingency arrangements.

The firm should: (A) maintain an identification of all shared services that support identified critical operations or are material to the execution of the resolution strategy; and (B) mitigate identified continuity risks through establishment of SLAs for all shared services supporting identified critical operations or are material to the execution of the resolution strategy. SLAs should fully describe the services provided and incorporate appropriate terms and conditions to: (A) prevent automatic termination upon certain resolution-related events; and (B) achieve continued provision of such services during resolution.

The firm should identify all critical service providers and outsourced services that support identified critical operations or are material to the execution of the resolution strategy. Any of these services that cannot be promptly substituted should be identified in a firm's Plan. The firm should: (A) evaluate the agreements governing these services to determine whether there are any that could be terminated upon commencement of any resolution despite continued performance; and (B) update contracts to incorporate appropriate terms and conditions to prevent automatic termination upon commencement of any resolution proceeding and facilitate continued provision of such services. Relying on entities projected to survive during resolution to avoid contract termination is insufficient to ensure continuity. In the Plan, the firm should document the amendment of any such agreements governing these services.

Legal Entity Rationalization Criteria (LER Criteria). A firm should develop and implement legal entity rationalization criteria that support the firm's preferred resolution strategy and minimize risk to U.S. financial stability in the event of the firm's resolution. LER Criteria should consider the best alignment of legal entities and business lines to improve the firm's resolvability under different market conditions. LER Criteria should govern the firm's corporate structure and arrangements between legal entities in a way that facilitates the firm's resolvability as its activities, technology, business models, or geographic footprint change over time. Specifically, application of the criteria should:

(A) Facilitate the recapitalization and liquidity support of material entities, as required by the firm's resolution strategy. Such criteria should include clean lines of ownership, minimal use of multiple intermediate holding companies, and clean funding pathways between the parent and material operating entities;

(B) Facilitate the sale, transfer, or wind-down of certain discrete operations within a timeframe that would meaningfully increase the likelihood of an orderly resolution of the firm, including provisions for the continuity of associated services and mitigation of financial, operational, and legal challenges to separation and disposition;

(C) Adequately protect the subsidiary IDIs from risks arising from the activities of any nonbank subsidiaries of the firm (other than those that are subsidiaries of an IDI); and

(D) Minimize complexity that could impede an orderly resolution and minimize redundant and dormant entities.

These criteria should be built into the firm's ongoing process for creating, maintaining, and optimizing its structure and operations on a continuous basis.

Finally, the Plan should include a description of the firm's legal entity rationalization governance process.

Legal Entity Structure. A firm should maintain a legal entity structure that supports the firm's preferred resolution strategy and minimizes risk to U.S. financial stability in the event of the firm's failure. The firm should consider factors such as business activities; banking group structures and booking models and practices; and potential sales, transfers, or wind-downs during resolution. The Plan should describe how the firm's legal entity structure aligns core business lines and any identified critical operations with the firm's material entities to support the firm's resolution strategy. To the extent a material entity IDI relies upon an affiliate that is not the IDI's subsidiary during resolution, including for the provision of shared services, the firm should discuss its rationale for the legal entity structure and associated resolution risks and potential mitigants.

The firm's corporate structure and arrangements among legal entities should be considered and maintained in a way that facilitates the firm's resolvability as its activities, technology, business models, or geographic footprint change over time.

Least-cost requirement analysis. If the Plan includes a strategy that contemplates the separate resolution of a U.S. IDI that is a material entity, the Plan should explain how the resolution could be achieved in a manner that is consistent with the overall objective of the Plan to substantially mitigate the risk that the failure of the specified firm would have serious adverse effects on financial stability in the United States while also complying with the statutory and regulatory requirements governing IDI resolution.

This explanation does not include an expectation that firms provide a complete least-cost analysis. A complete least-cost analysis would, for example, include a comparison of the preferred strategy for resolving an IDI that is a material entity against every other possible resolution method available for that IDI.

To explain how a firm's preferred strategy could potentially enable the FDIC to resolve the failed bank in a manner consistent with the FDIC's statutory least-cost requirement, the firm could instead compare the estimated costs to the DIF of the firm's preferred resolution strategy to a payout liquidation and, for strategies involving a BDI, explain how the inclusion or exclusion of uninsured deposits within the BDI would impact the estimated overall costs to the DIF.

Firms should address the following matters as applicable to their strategy:

• Payout Liquidation: If the Plan envisions a payout liquidation for the IDI, with or without use of a Deposit Insurance National Bank or a paying agent, the Plan should explain how the deposit payout and asset liquidation process would be executed in a manner that substantially mitigates the risk of serious adverse effects on U.S. financial stability.
• P&A Transaction: If the Plan assumes a weekend P&A strategy, the plan should first demonstrate the ready availability of this option under severely adverse economic scenario, assuming that markets are functioning and competitors are in a position to take on business. The Plan may demonstrate a weekend P&A strategy is available by discussing evidence of several potential buyers supported by information ( print page 66411) indicating that these potential buyers could reasonably be expected to have sufficient financial resources to complete the transaction in a severely adverse scenario and the expertise to incorporate the business of the failed bank. The plan should also address how such a merger can be completed with these potential acquirers considering any applicable approvals that would be required for the proposed transaction. Additionally, a P&A strategy should explain how it either (1) results in no loss to the DIF or (2) despite its resulting in a loss to the DIF, the loss is less than would be incurred through a payout liquidation.
• All-Deposit BDI: If the Plan contemplates a strategy involving an all-deposit BDI, the Plan should include an analysis that shows that the incremental estimated cost to the DIF of transferring all uninsured deposits to the BDI is offset by the preservation of franchise value and other benefits connected to the uninsured deposits (such as the franchise value derived from retaining full banking relationships).
• BDI with Partial Uninsured Deposit Transfers: A Plan may demonstrate the feasibility of a strategy involving a BDI that assumes (1) all insured deposits or (2) only a portion of uninsured deposits ( e.g. an advance dividend to uninsured depositors for a portion of their deposit claim) by showing that the incremental estimated cost to the DIF of transferring the portion of uninsured deposits to the BDI is offset by the preservation of franchise value connected to those uninsured deposits (such as the franchise value derived from retaining full banking relationships).

In all cases, the Plan should discuss how the implementation of the Plan's resolution strategy, including the impact on any depositors whose accounts are not transferred in whole or in part to a BDI, would not be likely to create the risk of serious adverse effects on U.S. financial stability.

Valuation. Regardless of the strategy chosen, the Plan should demonstrate reasonable and well-supported assumptions that support the valuation of the failed IDI's assets and business franchise under the firm's preferred strategy that are drawn from comparable transactions or other inputs observable in the marketplace. A firm's franchise value is generally understood to be the value of the bank as an operating company relative to the value of the firm's individual assets minus its liabilities. In assessing the franchise value of the firm's business, the Plan could provide support through relevant inputs such as the revenue generated by the account relationships; the efficiencies in administrative costs associated with servicing large deposits/large relationships; the elimination of barriers to entry or the reduction in customer acquisition costs; growth history and prospects for the products or business activity; market trading or sales multiples; or any other factors the firm believes appropriate. Asset values should be representative of the bank's asset mix under the appropriate economic conditions and of sufficient distress as to result in failure.

Exit from BDI. A Plan should include a discussion of the eventual exit from the BDI. A Plan could support the feasibility of an exit strategy by, for example, describing an actionable process, based on historical precedent or otherwise supportable projections, that winds down certain businesses, includes the sale of assets and the transfer of deposits to one or multiple acquirers, or culminates in a capital markets transaction, such as an initial public offering or a private placement of securities.

Executive Summary. The Plan should contain an executive summary consistent with the Rule, which must include, among other things, a concise description of the key elements of the firm's strategy for an orderly resolution. In addition, the executive summary should include a discussion of the firm's assessment of any impediments to the firm's resolution strategy and its execution, as well as the steps it has taken to address any identified impediments.

Narrative. The Plan should include a strategic analysis consistent with the Rule. This analysis should take the form of a concise narrative that enhances the readability and understanding of the firm's discussion of its strategy for an orderly resolution in bankruptcy or other applicable insolvency regimes (Narrative).

Appendices. The Plan should contain a sufficient level of detail and analysis to substantiate and support the strategy described in the Narrative. Such detail and analysis should be included in appendices that are distinct from and clearly referenced in the related parts of the Narrative (Appendices).

Public Section. The Plan must be divided into a public section and a confidential section consistent with the requirements of the Rule.

Other Informational Requirements. The Plan must comply with all other informational requirements of the Rule. The firm may incorporate by reference previously submitted information as provided in the Rule.

1. The Plan should be based on the current state of the applicable legal and policy frameworks. Pending legislation or regulatory actions may be discussed as additional considerations.

2. The firm must submit a Plan that does not rely on the provision of extraordinary support by the United States or any other government to the firm or its subsidiaries to prevent the failure of the firm. [ 26 ] The firm should not submit a Plan that assumes the use of the systemic risk exception to the least-cost test in the event of a failure of an IDI requiring resolution under the FDI Act.

3. The firm should not assume that it will be able to sell identified critical operations or core business lines, or that unsecured funding will be available immediately prior to filing for bankruptcy.

4. The Plan should assume the Dodd-Frank Act Stress Test (DFAST) severely adverse scenario for the first quarter of the calendar year in which the Plan is submitted is the domestic and international economic environment at the time of the firm's failure and throughout the resolution process.

5. The resolution strategy may be based on an idiosyncratic event or action, including a series of compounding events. The firm should justify use of that assumption, consistent with the conditions of the economic scenario.

6. Within the context of the applicable idiosyncratic scenario, markets are functioning and competitors are in a position to take on business. If a firm's Plan assumes the sale of assets, the firm should take into account all issues surrounding its ability to sell in market conditions present in the applicable economic condition at the time of sale ( i.e., the firm should take into consideration the size and scale of its operations as well as issues of separation and transfer.).

7. For a firm that adopts an MPOE resolution strategy, the Plan should demonstrate and describe how the failure event(s) results in material financial distress. [ 27 ] In particular, the Plan should consider the likelihood that there would be a diminution of the firm's liquidity buffer in the stress ( print page 66412) period prior to filing for bankruptcy from high unexpected outflows of deposits and increased liquidity requirements from counterparties. Though the immediate failure event may be liquidity-related and associated with a lack of market confidence in the financial condition of the covered company or its material legal entity subsidiaries prior to the final recognition of losses, the demonstration and description of material financial distress may also include depletion of capital. Therefore, the Plan should also consider the likelihood of the depletion of capital.

8. The firm should not assume any waivers of section 23A or 23B of the Federal Reserve Act in connection with the actions proposed to be taken prior to or in resolution.

9. The Plan should support any assumptions that the firm will have access to the Discount Window and/or other borrowings during the period immediately prior to entering bankruptcy. To the extent the firm assumes use of the Discount Window, Federal Home Loan Banks, and/or other borrowings, the Plan should support that assumption with a discussion of the operational testing conducted to facilitate access in a stress environment, placement of collateral, and the amount of funding accessible to the firm. The firm may assume that its depository institutions will have access to the Discount Window only for a few days after the point of failure to facilitate orderly resolution. However, the firm should not assume its subsidiary depository institutions will have access to the Discount Window while critically undercapitalized, in FDIC receivership, or operating as a bridge bank, nor should it assume any lending from a Federal Reserve credit facility to a non-bank affiliate.

Financial Statements and Projections. The Plan should include the actual balance sheet for each material entity and the consolidating balance sheet adjustments between material entities as well as pro forma balance sheets for each material entity at the point of failure and at key junctures in the execution of the resolution strategy. It should also include statements of projected sources and uses of funds for the interim periods. The pro forma financial statements and accompanying notes in the Plan should clearly evidence the failure trigger event; the Plan's assumptions; and any transactions that are critical to the execution of the Plan's preferred strategy, such as recapitalizations, the creation of new legal entities, transfers of assets, and asset sales and unwinds.

Material Entities. Material entities should encompass those entities, including foreign offices and branches, which are significant to the maintenance of an identified critical operation or core business line. If the abrupt disruption or cessation of a core business line might have systemic consequences to U.S. financial stability, the entities essential to the continuation of such core business line should be considered for material entity designation. Material entities should include the following types of entities:

1. Any U.S.-based or non-U.S. affiliates, including any branches, that are significant to the activities of an identified critical operation.

2. Subsidiaries or foreign offices whose provision or support of global treasury operations, funding, or liquidity activities (inclusive of intercompany transactions) is significant to the activities of an identified critical operation.

3. Subsidiaries or foreign offices that provide material operational support in resolution (key personnel, information technology, data centers, real estate or other shared services) to the activities of an identified critical operation.

4. Subsidiaries or foreign offices that are engaged in derivatives booking activity that is significant to the activities of an identified critical operation, including those that conduct either the internal hedge side or the client-facing side of a transaction.

5. Subsidiaries or foreign offices engaged in asset custody or asset management that are significant to the activities of an identified critical operation.

6. Subsidiaries or foreign offices holding licenses or memberships in clearinghouses, exchanges, or other FMUs that are significant to the activities of an identified critical operation.

For each material entity (including a branch), the Plan should enumerate, on a jurisdiction-by-jurisdiction basis, the specific mandatory and discretionary actions or forbearances that regulatory and resolution authorities would take during resolution, including any regulatory filings and notifications that would be required as part of the preferred strategy, and explain how the Plan addresses the actions and forbearances. The Plan should describe the consequences for the covered company's resolution strategy if specific actions in a non-U.S. jurisdiction were not taken, delayed, or forgone, as relevant.

The purpose of the public section is to inform the public's understanding of the firm's resolution strategy and how it works.

The public section should discuss the steps that the firm is taking to improve resolvability under the U.S. Bankruptcy Code. The public section should provide background information on each material entity and should be enhanced by including the firm's rationale for designating material entities. The public section should also discuss, at a high level, the firm's intra-group financial and operational interconnectedness (including the types of guarantees or support obligations in place that could impact the execution of the firm's strategy).

The discussion of strategy in the public section should broadly explain how the firm has addressed any deficiencies, shortcomings, and other key vulnerabilities that the agencies have identified in prior plan submissions. For each material entity, it should be clear how the strategy provides for continuity, transfer, or orderly wind-down of the entity and its operations. There should also be a description of the resulting organization upon completion of the resolution process.

The public section may note that the Plan is not binding on a bankruptcy court or other resolution authority and that the proposed failure scenario and associated assumptions are hypothetical and do not necessarily reflect an event or events to which the firm is or may become subject.

By order of the Board of Governors of the Federal Reserve System.

Ann E. Misback,

Secretary of the Board.

Federal Deposit Insurance Corporation.

By order of the Board of Directors.

Dated at Washington, DC, on August 9, 2024.

James P. Sheesley,

Assistant Executive Secretary.

1.   12 U.S.C. 5365(d) .

2.   12 CFR parts 243 and 381 .

3.   12 CFR 243.4 and 381.4 .

4.   12 CFR 243.4(b) and 381.4(b) .

5.   12 CFR 243.5 and 381.5 .

6.   12 CFR 243.6(b) and 381.6(b) .

7.   12 CFR 243.11(c) and 381.11(c) .

8.  The public sections of resolution plans submitted to the agencies are available at www.federalreserve.gov/​supervisionreg/​resolution-plans.htm and www.fdic.gov/​regulations/​reform/​resplans/​ .

9.  Guidance for section 165(d) Resolution Plan Submissions by Domestic Covered Companies applicable to the Eight Largest, Complex U.S. Banking Organizations, 84 FR 1438 (Feb. 4, 2019) (2019 U.S. GSIB Guidance).

10.  Guidance for Resolution Plan Submissions of Certain Foreign-Based Covered Companies, 85 FR 83557 (Dec. 22, 2020) (2020 FBO Guidance).

11.  Resolution Plans Required, 84 FR 59194 , 59204 (Nov. 1, 2019) (2019 Federal Register Rule Publication).

12.   https://www.federalreserve.gov/​newsevents/​pressreleases/​bcreg20230829b.htm ; https://www.fdic.gov/​news/​press-releases/​2023/​pr23067.html . See also Guidance for Resolution Plan Submissions of Domestic Triennial Full Filers, 88 FR 64626 (Sept. 19, 2023).

13.   12 CFR 243.4(b)(3) and 381.4(b)(3) .

14.   https://www.federalreserve.gov/​newsevents/​pressreleases/​bcreg20240117a.htm ; https://www.fdic.gov/​news/​press-releases/​2024/​pr24002.html .

15.   12 CFR 243.4(b) and 381.4(b) .

16.   12 CFR 243.4(d)(2) and 381.4(d)(2) .

17.   See 12 CFR 243.8 and 381.8 .

18.   https://www.federalreserve.gov/​newsevents/​pressreleases/​bcreg20230829a.htm ; https://www.fdic.gov/​news/​press-releases/​2023/​pr23065.html . See also Long-Term Debt Requirements for Large Bank Holding Companies, Certain Intermediate Holding Companies of Foreign Banking Organizations, and Large Insured Depository Institutions, 88 FR 64524 (Sept. 19, 2023) (LTD proposal).

19.   See 12 CFR 243.5(c)(1)(iii) and 381.5(c)(1)(iii) .

20.   12 CFR 360.10 (IDI Rule).

21.  Resolution Plans Required for Insured Depository Institutions With $100 Billion or More in Total Assets; Informational Filings Required for Insured Depository Institutions With at Least $50 Billion But Less Than $100 Billion in Total Assets, 88 FR 64579 (Sept. 19, 2023) (Proposed IDI Rule).

22.  Resolutions Plans Required for Insured Depository Institutions with $100 Billion or More in Total Assets; Informational Filings Required for Insured Depository Institutions With at Least $50 Billion but Less Than $100 Billion in Total Assets, 89 FR 56620 (July 9, 2024).

23.   Supra note 12.

24.  Summaries of those meetings and copies of the comments can be found on each agency's website. https://www.federalreserve.gov/​apps/​foia/​ViewComments.aspx?​doc_​id=​OP-1816&​doc_​ver=​1;​ https://www.fdic.gov/​resources/​regulations/​federal-register-publications/​2023/​2023-guidance-resolution-plan-submissions-domestic-triennial-3064-za37.html .

25.  Regulatory Capital Rule: Large Banking Organizations and Banking Organizations With Significant Trading Activity, 88 FR 64028 (Sept. 18, 2023) (Capital proposal).

26.   See proposed guidance at 88 FR 64628 .

27.   See id.

28.   See infra section III.K of this document.

29.   See 12 CFR 262.7 and appendix A to 12 CFR part 262; 12 CFR part 302 .

30.   See infra section V.I of this document.

31.  The plan type for that next submission remains as specified by the Rule, i.e., a full or targeted resolution plan. See 12 CFR 243.4 and 381.4 .

32.   See supra section III of this document.

33.   See infra section V.VIII of this document.

34.   12 CFR 243.5(c)(1)(iii) and (g) and 381.5(c)(1)(iii) and (g) .

35.  SR letter 14-1, “Principles and Practices for Recovery and Resolution Preparedness” (Jan. 24, 2014), available at: https://www.federalreserve.gov/​supervisionreg/​srletters/​sr1401.htm .

36.   See 12 U.S.C. 1821(e)(13) .

37.  2020 FBO Guidance at 85 FR 83572-73 .

38.   See 2020 FBO Guidance at 85 FR 83566 .

39.   See infra section III.K of this document.

40.   See 12 U.S.C. 1823(c)(4)(A) . A deposit payout and liquidation of the failed IDI's assets (payout liquidation) is the general baseline the FDIC uses in a least-cost requirement determination. See 12 U.S.C. 1823(c)(4)(D) . An exception to this requirement exists when a determination is made by the Secretary of the Treasury, in consultation with the President and after a written recommendation from two-thirds of the FDIC's Board of Directors and two-thirds of the Board, that complying with the least-cost requirement would have serious adverse effects on economic conditions or financial stability and implementing another resolution option would avoid or mitigate such adverse effects. See 12 U.S.C. 1823(c)(4)(G) . A specified firm should not assume the use of this systemic risk exception to the least-cost requirement in its resolution plan.

41.   See generally https://www.fdic.gov/​resources/​resolutions/​bank-failures/​ for background about the resolution of IDIs by the FDIC.

42.  Before a BDI may be chartered, the chartering conditions set forth in 12 U.S.C. 1821(n)(2) must also be satisfied. For purposes of this guidance, if the Plan provides appropriate analysis concerning the feasibility of the BDI strategy, there is no expectation that the resolution plan also demonstrate separately that the conditions for chartering the BDI have been satisfied.

43.   12 U.S.C. 1821(n)(10) .

44.   See infra note 45.

45.  Calculation: (1) $295 billion asset value less secured claim of $25 billion = $270 billion available to depositors and junior claims; (2) $270 billion available spread pro-rata across $300 billion depositor class; 60 percent insured deposits and 40 percent uninsured deposits; (3) $270 billion × .6 = $162 billion paid to insured depositors; $270 billion × .4 = $108 billion paid to uninsured depositors.

46.  Calculation: (1) $315 billion asset value less secured claim of $25 billion = $290 billion available to depositors and junior claims; (2) $290 billion available spread pro-rata across $300 billion depositor class; 60 percent insured deposits and 40 percent uninsured deposits; (3) $290 billion × .6 = $174 billion paid to insured depositors; $290 billion × .4 = $116 billion paid to uninsured depositors.

47.   See FR Y-15 Systemic Risk Report, 2nd quarter 2023 data. Publicly available at the National Information Center, https://www.ffiec.gov/​NPW . See also Quarterly Report on Bank Trading and Derivatives Activities—Third Quarter 2023. Publicly available at https://www.occ.gov/​publications-and-resources/​publications/​quarterly-report-on-bank-trading-and-derivatives-activities/​index-quarterly-report-on-bank-trading-and-derivatives-activities.html .

48.   See 12 CFR 243.2 and 381.2 ; 12 CFR 243.5(c) and (e)(6)-(7) , and 381.5(c) and (e)(6)-(7) .

49.  2019 U.S. GSIB Guidance at 84 FR 1459 ; 2020 FBO Guidance at 85 FR 83578 .

50.   12 CFR 243.4(h)(1) and 381.4(h)(1) .

51.   https://www.federalreserve.gov/​publications/​dodd-frank-act-stress-test-publications.htm .

52.   12 CFR 243.11(c) and 381.11(c) .

53.  The agencies also are clarifying one expectation in the Financial Statements and Projections subsection of the Format and Structure of Plans; Assumptions section of the guidance that could be construed to impose a requirement on the specified firms.

54.   See 2019 Federal Register Rule Publication at 84 FR 59197-201 .

55.  See infra section I.A, Resolution Plan Strategy, of this document for further discussion about why the agencies are differentiating expectations depending on whether a firm adopts an SPOE or MPOE resolution strategy.

56.   See 12 CFR 243.5(a) and 381.5(a) .

57.   See 2019 Federal Register Publication at 84 FR 59204 .

58.  In addition to the revisions to the estimations for triennial full filers, the agencies have revised the estimation for biennial filers from 40,115 hours per response to 39,550 hours per response to align with burden estimation methodology with what was used for triennial full filers under the final guidance. Specifically, the agencies removed a component for a biennial filer's analysis of its critical operations as part of its submission of targeted and full resolution plans, because this critical operations analysis is integrated in the preparation of such plans.

1.  Resolution Plans Required, 76 FR 67323 (Nov. 1, 2011).

2.  Resolution Plans Required, 84 FR 59194 (Nov. 1, 2019). The amendments became effective December 31, 2019. The “Rule” means the joint rule as amended in 2019. Terms not defined herein have the meanings set forth in the Rule.

3.   See 12 CFR 243.4(b)(1) and 381.4(b)(1) .

4.  Prudential Standards for Large Bank Holding Companies, Savings and Loan Holding Companies, and Foreign Banking Organizations, 84 FR 59032 (Nov. 1, 2019).

5.   See 12 CFR 262.7 and appendix A to 12 CFR part 262; 12 CFR part 302 .

6.   See 12 CFR 252.5(c)-(d) .

7.  The terms “material entities,” “identified critical operations,” and “core business lines” have the same meaning as in the Rule.

8.  Total Loss-Absorbing Capacity, Long-Term Debt, and Clean Holding Company Requirements for Systemically Important U.S. Bank Holding Companies and Intermediate Holding Companies of Systemically Important Foreign Banking Organizations, 82 FR 8266 (Jan. 24, 2017); Long-Term Debt Requirements for Large Bank Holding Companies, Certain Intermediate Holding Companies of Foreign Banking Organizations, and Large Insured Depository Institutions, 88 FR 64524 (Sept. 19, 2023).

9.  The resolution period begins immediately after the parent company bankruptcy filing and extends through the completion of the preferred resolution strategy.

10.  “Model” refers to the set of calculations estimating the net liquidity surplus/deficit at each legal entity and for the firm in aggregate based on assumptions regarding available liquidity, e.g., HQLA and third-party and interaffiliate net outflows.

11.  External communications include those with U.S. and foreign authorities and other external stakeholders, such as large depositors and shareholders.

12.  Key pre-filing actions include the preparation of any emergency motion required to be decided on the first day of the firm's bankruptcy.

13.  A firm is a user of PCS services if it accesses PCS services through an agent bank or it uses the services of a financial market utility (FMU) through its membership in that FMU or through an agent bank. A firm is a provider of PCS services if it provides PCS services to clients as an agent bank or it provides clients with access to an FMU or agent bank through the firm's membership in or relationship with that service provider. A firm is also a provider if it provides clients with PCS services through the firm's own operations ( e.g., payment services or custody services).

14.  For purposes of this section, a client is an individual or entity, including affiliates of the firm, to whom the firm provides PCS services and any related credit or liquidity offered in connection with those services.

15.  In identifying entities as key, examples of quantitative criteria may include: for a client, transaction volume/value, market value of exposures, assets under custody, usage of PCS services, and any extension of related intraday credit or liquidity; for an FMU, the aggregate volumes and values of all transactions processed through such FMU; and for an agent bank, assets under custody, the value of cash and securities settled, and extensions of intraday credit.

16.  Examples of potential adverse actions may include increased collateral and margin requirements and enhanced reporting and monitoring.

17.  Where a firm is a provider of PCS services through the firm's own operations, the firm is expected to produce a playbook for the material entities that provide those services, addressing each of the items described under “Content Related to Providers of PCS Services,” which include contingency arrangements to permit the firm's key clients to maintain continued access to PCS services.

18.   12 CFR 243.5(e)(12) and 381.5(e)(12) .

19.   Id.

20.   12 CFR 252.34(h) .

21.   12 CFR 243.5(f)(l)(i) and 381.5(f)(1)(i) .

22.   12 CFR 252.34(f) .

23.   Id.

24.  The policy may reference subsidiary or related policies already in place, as implementation may differ based on business line or other factors.

25.  This should be interpreted to include data access and intellectual property rights.

26.   12 CFR 243.4(h)(2) and 381.4(h)(2) .

27.  See Section 11(c)(5) of the FDI Act, codified at 11 U.S.C. 1821(c)(5) , which details grounds for appointing the FDIC as conservator or receiver of an IDI.

[ FR Doc. 2024-18191 Filed 8-14-24; 8:45 am]

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Prudential Regulation Authority Business Plan 2020/21

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• PRA annual reports and business plans

Our 2020/21 Business Plan sets out the workplan for each of our strategic goals to support the delivery of the PRA’s strategy, together with an overview of the PRA’s budget for the period 1 March 2020 – 28 February 2021. It also details some of our highest-level actions to mitigate the impact of Covid-19 on the firms we regulate, and on the UK economy.

The PRA’s strategy

Our strategy for 2020/21 will be delivered through our strategic goals, extracts of which are below. For the full detail of our workplan against each strategic goal, see pages 7-18 in the Business Plan . 

Robust prudential standards and supervision

Have in place robust prudential standards and hold regulated firms, and those who run them, accountable for meeting these standards

Read more on robust prudential standards and supervision

We maintain our commitment to effective supervision and robust prudential standards. Following the UK’s withdrawal from the EU on 31 January 2020, we will continue our work to ensure that we have an effective regulatory and supervisory framework at the end of the transition period. In 2020/21 we will focus on maintaining robust prudential standards and support the Financial Policy Committee’s (FPC) commitment to uphold the same level of resilience, to ensure continuity in the supply of vital financial services to the real economy throughout the cycle.

• Read our workplan for robust prudential standards and supervision

Adapt to market changes and horizon scanning

Continue to adapt to changes in the markets in which we are involved and pre-empt and mitigate risks to our objectives

Read more on adapt to market changes and horizon scanning

We will seek to maintain the dynamic resilience of the regulatory framework by: scanning the horizon for emerging and evolving risks; evaluating the functioning of the framework for unintended consequences; and, where appropriate, intervening to make adjustments in response to these while ensuring that we do not weaken the level of resilience we have built so far. We will continue to work closely with firms and other regulatory authorities to identify aspects of regulation which may lead to unintended outcomes, and will gather intelligence from across the Bank on how firms are responding to regulation.

• Read our workplan for adapt to market changes and horizon scanning

Financial resilience

Ensure that firms are adequately capitalised, and have sufficient liquidity, for the risks they are running or planning to take

Read more on financial resilience

In the coming year, we will assess the adequacy of capital and liquidity resources of firms in the banking sector through a range of measures. We will continue to assess credit risk and asset quality, and to consider the level and drivers of risk-weighted assets. Technical risk reviews including firm’s internal models, liquidity and capital assessments and scrutiny of regulatory returns and other data will remain core parts of our work to ensure that firms are adequately capitalised and have sufficient liquidity.

• Read our workplan for financial resilience

Operational resilience

Develop our supervision of operational resilience in order to mitigate the risk of disruption to the provision of important business services

Read more on operational resilience

Operational disruption can impact financial stability, threaten the viability of individual firms and Financial Market Intermediaries (FMIs), or cause harm to consumers, policyholders and other parts of the financial system. Therefore operational resilience continues to be a strategic priority for us and other areas of the Bank, as well as the Financial Conduct Authority (FCA).

• Read our workplan for operational resilience

Recovery and resolution

Ensure that banks and insurers have credible plans in place to enable them to recover from stress events, and that firms work to remove barriers to their resolvability to support the management of failure – proportionate to the firm’s size and systemic importance – in an orderly manner

Read more on recovery and resolution

We will continue to progress the work to end ‘too big to fail’, supporting the Bank of England as the resolution authority. Recovery and resolution are core components of the regulatory reform agenda and help ensure that no firm is ‘too big to fail’ without disrupting financial stability. As part of our supervisory approach, we recognise that firms can face periods of financial stress. To ensure an efficient, competitive banking system that supports growth, firms should be allowed to fail; this means accepting that we do not operate a zero-failure regime. 

Competition

Facilitate effective competition by actively considering the proportionality of our approach as it contributes to the safety and soundness of the UK financial system

Read more on competition

Our secondary competition objective states that ‘when discharging its general functions in a way that advances its objectives, the PRA must so far as is reasonably possible act in a way which, as a secondary objective, facilitates effective competition in the markets for services provided by PRA-authorised persons in carrying on regulated activities’.

EU withdrawal

Deliver a smooth transition to a sustainable and resilient UK financial regulatory framework following the UK’s exit from the European Union

Read more on EU withdrawal

On 31 January 2020 the UK formally withdrew from the EU and agreed to a transition period until December 2020, to allow both sides to adapt to the new situation. Until the end of the transition period, UK firms can continue to operate in the EU, and EU firms will continue to operate in the UK under the European Economic Area (EEA) passporting regime.

Efficiency and effectiveness

Operate effectively and efficiently by ensuring that resources are allocated to work that best advances our strategy and reduces the greatest risks to the delivery of our statutory objectives, and by providing an inclusive working environment in which all staff can perform to their potential

Read more on efficiency and effectiveness

Despite the impacts of Covid-19, we are committed to continuing to improve the way we work. As a follow-up to the PRA strategy 2019/20, in February 2020 we started a review of our strategy and Target Operating Model. In 2020 we will strive to maintain the level of financial resilience of the banking and insurance sectors to be at least as high as it is today, and work closely with those sectors to support their resilience while measures to prevent the spread of Coronavirus affect their business. We will also endeavour to maintain a risk-aware, post-crisis culture in the firms we regulate, whilst embracing new technologies to improve our efficiency and effectiveness as a regulator and delivering greater benefits to financial services firms and the real economy.

Related publications

Alongside the PRA Business Plan we also published CP4/20 ‘Regulated fees and levies: Rates proposals 2020/21’  which explains how we propose to fund our budget.

Later this year we will also publish the PRA Annual Report 2019/20, which will demonstrate how we progressed on activities set out in last year’s Business Plan . Previous editions of our business plans and annual reports are available on our dedicated webpage . Please note that prior to 2018, our business plans were published within each year’s Annual Report and Accounts.

You may find it helpful to subscribe to email notifications , which also include our PRA Regulatory Digest that highlights key regulatory news and publications delivered each month.

Other prudential regulation releases

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