Shearman & Sterling LLP | FinReg | Bank of England Confirms Approach to Valuation Capabilities of Firms to Support Resolvability
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  • Bank of England Confirms Approach to Valuation Capabilities of Firms to Support Resolvability
    Following its consultation in August 2017, which closed in November 2017, the Bank of England has published its Statement of Policy on its expectations on the minimum standard of valuation capabilities that firms should have in place to ensure that their valuations are sufficiently timely and robust to support the effective resolution of the firm. In the BoE's view, limitations to a firm's valuation capabilities may constitute an impediment to resolvability where those limitations would not reliably enable valuations that support the firm's intended resolution strategy.

    The BoE has made several changes to its proposed Statement of Policy following consultation responses. Briefly, these are: (i) extending the compliance deadline to January 1, 2021 and introducing a provision for firm-specific compliance dates to be set in certain cases; (ii) explicitly requiring operational documentation of how capabilities would be used in a resolution scenario; and (iii) including a provision whereby certain smaller and simpler firms may not need to have resolution valuation models in place.

    The Statement of Policy applies to all institutions from which the BoE expects to require resolution-specific valuations as a home or host resolution authority. This includes "MREL firms" that are notified by the BoE that their preferred resolution strategy involves the use of statutory stabilization powers in the U.K. and "Internal MREL firms" that are notified by the BoE that they are a material subsidiary of an overseas-based banking group for the purposes of setting internal MREL in the U.K. The Statement of Policy outlines the BoE's expectations on timeliness and robustness and sets out seven policy principles with which firms' valuation capabilities should comply. These relate to data and information, models, valuation methodologies, valuation assumptions, governance, documentation and assurance.

    The BoE states that non-compliance with the Statement of Policy may constitute a barrier to resolvability and may result in the BoE directing firms to improve their valuation capabilities to ensure resolvability.

    View the consultation response and Statement of Policy.

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