Recovery and Resolution Plans – or Living Wills – are fundamental to ensuring the safety of the financial system. If a challenge arises and enhanced supervision, higher capital and liquidity reserves, stronger institutional risk management processes, and all other regulatory measures have proved inadequate to contain it, then management will need to have solid plans for "recovering" the business. Failing that, there must be a plan by which a regulator or resolution authority could implement to wind-up (or otherwise "resolve") the institution whilst minimising the need to call on public funds.
In a crisis, RRPs become the blueprint for saving, separating or safely winding down activities. For large, complex, multi-country institutions, these plans carry particular challenges. One key challenge is for home-country regulators to develop credible initial plans and strategies for resolution; and then in subsequent iterations, to respond to host country concerns about containing risks and improving resolvability. The implications of RRPs can be far-reaching, affecting the very structure, business model and ultimately the client strategies of firms.
PwC plays a key role advising institutions on how to get the most from the RRP development process. We can help with constructing effective recovery plans, designing early warning indicators and implementing specific strategies which improve resolvability, such as simplifying legal structures in a tax-efficient way, designing bail-in arrangements and operational service contracts which mitigate concerns about continuity of critical functions.