The Bank, in collaboration with Perbadanan Insurans Deposit Malaysia (PIDM), has established a policy framework to implement recovery and resolution planning (RRP) for financial institutions in Malaysia, in line with the Financial Stability Board’s Key Attributes of Effective Resolution Regimes for Financial Institutions (“Key Attributes”). The RRP framework seeks to put in place an effective and efficient process to enhance supervisability, recoverability and resolvability of financial institutions, by incorporating essential elements of Key Attribute 11 of the Key Attributes into the domestic regulatory, supervisory and resolution regimes.
The RRP framework aims to—
(a) facilitate the preparation and maintenance of robust recovery plans by financial institutions which serve as a strategic planning tool that—
(i) integrates with the risk appetite framework1 and reinforces risk management functions; and
(ii) strengthens incentives to establish private-sector arrangements to recover from a wide range of stress events;
(b) enhance capacity and preparedness of supervisory authorities to—
(i) facilitate ex ante changes to financial institutions’ business structure and operations to improve group-wide supervisability and recoverability;
(ii) support the smooth execution of recovery plans;
(iii) inform calibration of timely intervention and resolution actions should recovery options be inadequate to address viability threats; and
(iv) support effective supervisory cooperation and crisis management arrangements with host and home authorities;
(c) strengthen capacity and preparedness of resolution authorities2 to improve resolvability of financial institutions and operationalise feasible and credible resolution plans that—
(i) preserve continuity of critical functions to support the financial intermediation process, orderly market conditions and maintain public confidence in the financial system;
(ii) promote resolution strategies that minimise risks of loss to public funds and costs to the financial system, destruction of franchise value and moral hazard; and
(iii) provide for procedural/legal clarity to ensure orderly resolution in home and host jurisdictions.
This policy document sets out key principles, requirements and supervisory expectations on the development and maintenance of recovery plans. A recovery plan is an overarching “playbook” that is developed, maintained, and when necessary, executed by a financial institution to manage severe stress events that threaten to undermine the financial institution’s viability. As part of recovery planning, financial institutions are to identify and plan for the execution of a suite of recovery options to restore long-term viability under a range of idiosyncratic and system-wide stress events. It should not take into account the possibility of policy intervention by authorities, or access to any exceptional financial support from public funds.
The Bank expects recovery planning to be an iterative and evolving process, with financial institutions reviewing their recovery plan on an ongoing basis. To supplement this, the Bank will continuously engage with financial institutions to clarify the Bank’s expectations on recovery planning as part of ongoing supervision.
In the extreme event that a financial institution has no reasonable prospect for recovery (i.e. the institution is likely to become non-viable and implementation of recovery options is not feasible or has proven to be ineffective), a resolution plan would be deployed by the resolution authority to ensure that the financial institution is resolved in an orderly manner, i.e. a manner that mitigates the impact on financial stability and minimises losses to public funds. Resolution planning seeks to facilitate the effective use of available resolution powers by enabling resolution authorities to identify in advance a feasible and credible resolution strategy for each financial institution and an operational plan for its implementation.
To achieve this, the information and assessment contained in the recovery plans will serve as an important starting point for resolution authorities3 to—
(a) determine a preferred resolution strategy that is tailored to the specificities of each financial institution; and
(b) conduct a resolvability assessment.
This document belongs to Bank Negara Malaysia (BNM). Full access to the original source is available here: https://www.bnm.gov.my/banking-islamic-banking
