- By Region
Smaller UK banks, building societies and broker-dealers will be given more time to write “living wills” that will allow authorities to shut them down in a crisis, under guidance published on Thursday by the City watchdog.
The Financial Services Authority said that the six biggest UK banks as well as London arms of “global systemically important financial institutions” still face a June 30 deadline for submitting draft “recovery and resolution plans”, as the documents are formally known.
However, smaller UK groups will face individualised deadlines set by their supervisors, generally later in 2012.
The FSA also stopped short of issuing formal rules for living wills, largely because it is waiting for the European Commission to come out with its much-delayed directive that is supposed to cover resolution within the entire 27-nation bloc.
However, the UK watchdog, which has led the world on this issue, remains committed to pushing ahead. It said it will issue final rules in the autumn even if the EU has not finished.
“This is the UK taking continuing ownership of the topic by pushing forward implementation of an idea it originated and developed,” said Barney Reynolds, partner at Shearman & Sterling.
The guidance said the recovery portion of the two-part plans must lay out specific steps each group would take to right itself if it breeched UK liquidity and capital requirements. The resolution section will spell out intragroup funding arrangements and make clear how “critical economic functions” can be preserved while the rest of the group is shut down. The FSA, not the banks, will determine which functions are critical.
“The financial crisis laid bare a complete failure in banks globally to think seriously about how they could and would deal with the risk of major instability and even failure. The result has been that taxpayers around the world have had to foot the bill,” said Andrew Bailey, FSA director of banks and building societies.
“Major reforms have been taken forward both nationally and internationally to increase the strength and resilience of our banking sectors but we need to maintain the momentum,” he said.
The current guidance focuses on deposit-taking institutions and brokers with balance sheets bigger than £15bn. Investment managers will be subject to a different standard that requires them to have plans to get client money back to its owners. Branches of non-European banks will receive separate guidance at a later date.