Clear, consistent criteria needed for college of supervisors to decide best recovery planning level.
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ESBG (European Savings and Retail Banking Group)
Rue Marie-Thérèse, 11 - B-1000 Brussels
ESBG Transparency Register ID: 8765978796-80
Thank you for the opportunity to comment on the EBA consultation on recommendations on the coverage of entities in a group recovery plan. We would like to share with you the following reflections that we hope will be taken into account by the EBA.
We note that, in its recommendations, the EBA emphasises the appropriate coverage of all group entities as a key element for the completeness of the group recovery plan, whereas many recovery plans seem to be drafted from the perspective of the parent institution, regardless of the level of (de)centralisation of the group. Additionally, the EBA has identified non-adequate information coverage of group entities as a threat to the overall recoverability of banking groups.
Despite welcoming the EBA's effort to provide guidance in that area, it seems that, as stated in paragraph 20 of the draft recommendation, the objective of the recommendation is 'a single, complete, integrated and fully consistent recovery plan for the group as a whole' without, as much as possible, requesting 'individual' plans of the group entities (e.g. paragraph 11). ESBG believes that this approach may contradict the primary legislation, as the BRRD explicitly foresees the possibility for a recovery plan on an individual basis for institutions that are part of a group (without imposing them though). Also such a 'single group recovery plan' might not be adequate in view of Recital 22 BRRD by providing a quick grasp of 'possible measures which could be taken by the management of the institution', if such institution - though part of a group - is subject to local supervision and has its own independent management arrangements.
Many of the ensuing detailed requirements spelt out for the coverage of different classes of entities seem to have in mind this 'single, complete, integrated and fully consistent recovery plan for the group as a whole' view. The possibility of an individual recovery plan is not acknowledged. However, where an individual recovery plan exists (e.g. following a request by the local competent authority), the most efficient way to achieve proper coverage is by having such a local recovery plan annexed to a group plan. This would allow efficient information sharing with the college of supervisors. The banking group itself has to ensure the consistency of the individual and group recovery plan. This is in its own interest but might nevertheless be challenged as part of the review and assessment by the competent authorities.
Conversely, the draft recommendation does not provide any guidance on the criteria for requesting individual plans. ESBG would welcome a transparent and consistent set of criteria upon which the college of supervisors could decide which level of recovery planning (i.e. group only or also local) is most suitable. Such criteria could incorporate a number of elements already present in the draft recommendations (relevance for critical functions or core business lines), but may also include management structures, the degree of operational interconnectedness of the respective institution within the group as well as the requirements set for the institution (solo capital and liquidity requirements).
The draft recommendations aim to clarify the requirements to an EU parent group recovery plan. This specification of the addressees – only EU parent group – could, in our view, be added to paragraphs 6 and 7 of the draft recommendations as follows:
'6. These recommendations apply to EU parent group recovery plans.'
7. These recommendations are addressed to competent authorities as defined in Article 4(2) (i) of Regulation (EU) No 1093/2010 and in particular to the consolidating supervisor and the competent authorities referred to in Articles 5 to 9 of Directive 2014/59/EU for the purposes of the EU parent group recovery planning.'
In view of the above, if an entity is group-relevant and contributing to a group recovery plan to a degree where also its management has to be involved in the elaboration and approval of the EU parent group recovery plan, this is a clear indication that for this entity an 'individual' (in most cases this means local sub-group level) recovery plan might be appropriate - provided that the banking group has mechanisms in place to ensure their consistency.
On the other hand, the stabilisation of the EU group level in case of financial distress might require measures subsequently executed by the parent using its rights as an owner. Local management might be involved only in execution, but decision-making would reside at group level.
The overall the inclusion of guidance on material branches is appreciated. However, branch-specific regulatory requirements might be limited, and consequently requirements of a recovery plan apply very differently to a branch than to a subsidiary with standalone management and under local supervision. As a consequence, the term 'any branch-specific information necessary as per Section 6' might be read as covering all elements of Section 6 and should be qualified for example by adding where 'they differ from the legal entity to which they belong to'.
Entity-specific recovery indicators in the group plan should be positively excluded when an individual recovery plan is drawn up.
Furthermore, where appropriate escalation procedures need to be considered at entity-specific level (as implied in paragraph 27), coupled with a greatly increased amount of indicators, the efficiency of the recovery warning system could be reduced. The risk is that by having all information in the recovery indicator system of a group plan, sight of the relevant information is lost. For entities that support (or even perform) core business lines and critical functions, and for which specific indicators, escalation procedures and possibly event options can and should be defined, the discussion should be if an individual recovery plan owned and understood by the entity's management is perhaps more appropriate. We agree with the recommendation that a group recovery plan should provide a sufficient amount of credible options that could restore the entity and/or group to viability, including the orderly divestment of an entity with a focus on how any critical functions provided by that entity will be preserved. However, we do not agree with the proposal that a group recovery plan should include an estimate of the possible impact that the implementation of each recovery option is expected to have, neither on the entity where the option is exercised, nor on all possibly affected group-relevant entities with a particular focus on the continuity of critical functions and other group interdependencies.
We regard the focus on how any critical functions provided by an entity which is orderly divested as sufficient since this particular recovery option has the strongest impact on potential critical functions provided by the respective entity.
In ESBG's view, the inclusion of the locally relevant entities in the group plan is needed only to the extent that it supports the understanding and assessment of the group plan, e.g. by making the impact on critical functions in the local economy visible. This doesn't require detailed inclusion of the entity as such.
The criteria stated for the assessment of whether an entity is relevant for the (local) economy might be used as well for determining if an individual recovery plan is appropriate.
Concerning the entity level, recovery triggers and indicators, please see our remarks in question 1.
We do not see a reason why entities, neither relevant for the group nor for the economy of any Member State, should be mentioned in the EU parent group level plan, unless such an entity is related to, for example, a specific recovery option or a critical shared service. Neither should financial stress of such a non-relevant entity have a notable impact on the EU parent group. The number of such legal entities for an EU parent institution in the SSM might reach a thousand or more.
ESBG agrees with the monitoring principles. However, as noted before, the guiding principle regarding the appropriateness of 'coverage' of individual entities in an EU parent group recovery plan should be the relevance of entity specifics for the effectiveness of that group recovery plan.
Considering our general comments, we propose deleting paragraph 50 and instead include a transparent and consistent set of criteria to determine whether individual recovery plans are appropriate.
Consequently, paragraph 11 should also be deleted, since there can be instances where an individual recovery plan is the most appropriate way to ensure entity-specific governance, indicators and options, which would be brought together in one document, owned and understood by the management of an entity identified as being relevant in the context of recovery planning.
ESBG brings together nearly 1000 savings and retail banks in 20 European countries that believe in a common identity for European policies. ESBG members represent one of the largest European retail banking networks, comprising one-third of the retail banking market in Europe, with 190 million customers, more than 60,000 outlets, total assets of €7.1 trillion, non-bank deposits of €3.5 trillion, and non-bank loans of €3.7 trillion. ESBG members come together to agree on and promote common positions on relevant regulatory or supervisory matters.
European Savings and Retail Banking Group – aisbl
Rue Marie-Thérèse, 11 ￭ B-1000 Brussels ￭ Tel: +32 2 211 11 11 ￭ Fax: +32 2 211 11 99
Published by ESBG. June 2017.