GIBRALTAR RESOLUTION AND COMPENSATION UNIT Gibraltar Resolution Planning

GIBRALTAR RESOLUTION AND COMPENSATION UNIT Gibraltar Resolution Planning Framework Industry Dialogue Workshop: Content of Resolution Plans 28 February 2018 1

Today’s Content • Bank Resolution Revisited • Quick recap on Gibraltar's Bank Resolution Structure • Steps for resolution planning • Content of Resolution Plans • Industry Dialogue Workshops • Information for Resolution Plans • Burden Shifting in Bank Resolution • MREL Calculation • Summary/Next Steps • Questions/Comments 28 February 2018 2

Bank Resolution Revisited • In 2014 Bank Resolution legislation was adopted in Gibraltar whereby establishing rules for handling crises within credit institutions and certain investment firms, thus creating a special procedures for reconstruction and winding up of such firms, called ‘resolution’. • The RCU is responsible for preparing Gibraltar BRR firms for resolution in the event of an institution failing or likely to fail. A resolution plan mainly describes how the failure of a firm will be managed to minimise its impact on the financial system, the economy, and if applicable, the continued operation of critical services. • Where firms are considered not to be systemically important, these plans will assume liquidation for the firm. Where a liquidation is expected to have significant adverse on financial markets, other institutions, financing conditions or the economy as a whole the institution is expected to be resolved (ie stabilised and restructured accordingly). 28 February 2018 3

Gibraltar's Bank Resolution Structure The FSRCC/RCU are operationally separate from the GFSC 28 February 2018 4

Resolution Planning and Actions Resolution Plan Prepared by RCU with a full set of measures to wind down a failing bank without the knock on effect on the local economy & taxpayer FSRCC Plan Anticipates Resolution Based on exiting plan FSRCC decides upon resolution scheme Bank Falls into trouble 28 February 2018 Existing Recovery Plan is used Recovery fails Bank determined failing or likely to fail Bank enters resolution (or enters liquidation) Bank reorganised 5

Steps for Resolution Planning: RCU Analyse the bank's critical functions Assess whether bank can be wound up under normal insolvency proceeding Review / Update Resolution Plan Phases to be delivered via Industry Dialogue Workshops Determine preferred resolution strategy for bank Address impediments and determine MREL Assess resolvability of bank and identify impediments 28 February 2018 6

Content of Resolution Plans Info from firm required 28 February 2018 Executive Summary Conclusion of Resolvability Assessment Strategic Business Analysis Information and Communication Plan Preferred Resolution Strategy Financial and Operational Continuity Opinion of Institution Info from firm required 7

Industry Dialogue Workshops • Content of Resolution Plans: 3 rd November • Introduction to MREL and MREL setting: 6 th December • Data liquidity template: February 21 st 2018 • Simplified Obligations: February 28 th 2018 • Critical FunctionsShared Services: March 21 st 2018 28 February 2018 8

Information for Resolution Plans • Relevant, accurate and updated information on institutions is crucial in order for resolution authorities to draw up resolution plans and substantiate their resolvability assessment and resolution strategy • Draft Implementing Technical Standards (ITS) have recently been developed by the EBA on the information which institutions must provide to resolution authorities for the purpose of drawing up and implementing resolution plans • Under Simplified Obligations, resolution plans do not need to be extensive or updated as often as full plans. As a result, the information requirements imposed on firms concerned should reflect this and can help provide a more proportional regulatory approach and reduce unnecessary burden for firms. • No final decisions have been made on whether SO will apply to identified firms. This will come in time following an assessment of the potential SO firms. 28 February 2018 9

Burden Shifting in Bank Resolution • An overarching objective of a Bank Resolution regime is to shift the burden of bank rescues from taxpayers to bank creditors. RA’s are now given the power to allocate losses to shareholders and creditors through the "bail in" tool. Shareholders and creditors must therefore absorb losses in a Bank resolution scenario. • As of today, upon resolution, a failing institution may or may not hold a sufficient amount of bailinable liabilities. To tackle this issue, the BRRD provides that institutions shall meet at all times a minimum requirement for own funds and eligible liabilities (MREL), to be determined by the RA. • The MREL constitutes an anchor point for the resolution frameworks, as it determines the credibility of the bail-in regime. As bailing-in some liabilities may be legally difficult or potentially disruptive for the real economy, the BRRD provides also for a list of liabilities which must not be bailed-in, in particular covered deposits and secured liabilities. 28 February 2018 10

Calculation of MREL • MREL is to be calculated on the basis of two key components: • the loss absorption amount (LAA), based on the capital requirements of the current balance sheet, including regulatory capital requirements, the combined buffer requirements, and additional pillar 2 requirements (bank specific) set by the supervisor. The RA can also adjust this based on a risk assessment of the entity (through SREP); • the recapitalisation amount (RCA), which aims at covering the capital requirements of the failing institution post-resolution, taking into account potential divestments and other resolution actions under the preferred resolution strategy (the RA may be set to nil if it considers it can be put into liquidation), as well as the need to maintain sufficient market confidence; 28 February 2018 11

Summary/Next Steps • Simplified obligations entail that certain exemptions can be made from the requirements regarding the content and updating frequency of Resolution Plans. • An assessment is now required on the classification of a number of Gibraltar based firms on their potential inclusion as SO firms. • The RCU consider that by complying with the general rule of proportionality with smaller (SO categorised) firms reduced information requirements will be in place for the purposes of resolution planning. On a case by case basis however the RCU may need to request further information directly from these firms. 28 February 2018 12

Questions 28 February 2018 Comments 13