Recovery Planning Regulation
C 4/2023 Effective from 29/12/2023Introduction
The purpose of the recovery plan is to prepare a Financial Institution to be more resilient to periods of severe financial stress and guide it to stabilize itself and restore its financial position and overall viability.
The recovery plan is an important crisis preparedness and management resource. It must be designed with a view to its implementation in distressed situations and must not be treated as a compliance exercise.
This Regulation is issued pursuant to the powers vested in the Central Bank under the provisions of the Decretal Federal Law No. (14) of 2018 Regarding the Central Bank & Organisation of Financial Institutions and Activities, as amended and Federal Law No. (6) of 2007 Concerning Organizing of Insurance Operations, as amended.
Scope of Application
This regulation applies to Financial Institutions, which includes the following for the purpose of this regulation:
1) Banks.
2) Insurance Companies.
3) Branches of foreign Banks and branches of foreign Insurance Companies.
4) Any other Licensed Financial Institution designated by the Central Bank, at its discretion, as being required to implement recovery planning. Article (1): Definitions
1.1 Bank: Any juridical person licensed in accordance with the provisions of the Central Bank Law, to primarily carry on the activity of taking deposits, and any other licensed financial activities, as defined in the Central Bank Law.
1.2 Central Bank: The Central Bank of the United Arab Emirates.
1.3 Central Bank Law: Decretal Federal Law No. (14) of 2018 Regarding the Central Bank & Organisation of Financial Institutions and Activities, as amended.
1.4 Control Function: Function (whether in the form of a person, unit or department) that has a responsibility in a Financial Institution to provide objective assessment, reporting and/or assurance; this includes the risk management, compliance, internal audit and, where applicable, actuarial, Shari’ah control and Shari’ah audit functions.
1.5 Core Business Lines: Business lines and associated services that represent material sources of revenue, profit or franchise value for a Financial Institution.
1.6 Critical Functions: Activities, services or operations the discontinuance of which is likely to lead to the disruption of financial stability, or of services that are essential to the economy due to the size, market share, external and internal interconnectedness, complexity, cross-border activities of a Financial Institution, with particular regard to the substitutability of those activities, services, or operations.
1.7 Enterprise Risk Management (ERM): The strategies, policies and processes of identifying, assessing, measuring, monitoring, controlling, reporting and mitigating risks in respect of an Insurance Company’s enterprise as a whole.
1.8 Financial Institution: a Bank or Insurance Company, or branch in the UAE of a foreign bank or insurance company, or any other Licensed Financial Institution designated by the Central Bank.
1.9 Financial Market Infrastructure: multilateral system among participating institutions, including the operator of the system, used for the purposes of clearing, settling, or recording payments, securities, derivatives, or other financial transactions.
1.10 Idiosyncratic Stress Scenario: a stress scenario that affects only the Financial Institution’s group or part of that group, but not the broader market or sector; as opposed to a System-Wide Stress Scenario.
1.11 Insurance Company: The insurance company incorporated in the State, or a foreign branch of an insurance company, that is licensed to underwrite primary insurance and reinsurance, including Takaful Insurance Companies.
1.12 Insurance Law: The Federal Law No. 6 of 2007 Concerning the Organization of Insurance Operations, as amended.
1.13 Internal Shari’ah Supervisory Committee: A body appointed by an Islamic Financial Institution (“IFI”) or a Takaful Insurance Company, comprised of scholars specialized in Islamic financial transactions, which independentlysupervises transactions, activities, and products of the IFI or the Takaful Insurance Company to ensure compliance with Islamic Shari’ah in all its objectives, activities, operations, and code of conduct.
1.14 Islamic Financial Institutions: The Central Bank licensed Financial Institutions that conduct all or part of their activities and businesses in accordance with Islamic Shari’ah Provisions.
1.15 Islamic Shari’ah Provisions:
a. The resolutions, Fatwas, regulations and standards issued by the Higher Shari’ah Authority in relation to activities and businesses of the IFIs and the Takaful Insurance Companies ("HSA’s Resolutions"),
b. The resolutions and Fatwas issued by the Internal Shari’ah Supervision Committee of the respective IFIs and the Takaful Insurance Companies, in relation to their activities and businesses ("ISSC’s Resolutions"), provided that they do not contradict the HSA’s Resolutions.
1.16 Own Risk and Solvency Assessment (ORSA): an internal process undertaken by an Insurance Company/ Group to assess the adequacy of its Risk Management and current and prospective solvency positions under normal and severe stress scenarios. It requires an Insurance Company to analyze all reasonably foreseeable and relevant material risks. It covers current and future risks and requires company-specific judgment about risk management and the adequacy of their capital position that could have an impact on its ability to meet both its business objectives as well as its policyholder obligations. This encourages management to anticipate potential business challenges, capital needs and to take proactive steps to reduce risks. The ORSA is not a one-off exercise; it is a continuously evolving process and must be a component of an Insurance Company’s Enterprise Risk Management (ERM) framework. Whilst there is not one specific way of conducting an ORSA, the output is expected to be a set of documents that demonstrate the results of management's proactive approach to its own self-assessment.
1.17 Senior Management: The individuals or body responsible for managing the Financial Institution on a day-to-day basis in accordance with strategies, policies and procedures set out by the board, generally including, but not limited to, the chief executive officer, chief financial officer, chief risk officer, and heads of the compliance and internal audit functions.
1.18 Staff: All the persons working for a Financial Institution including the members of Senior Management, except for the members of its Board.
1.19 Standing Facilities: Monetary Policy tools made available to Licensed Financial Institutions, to enable management of their liquidity in accordance with the controls and instructions issued by the Central Bank, in accordance with the provisions of the Central Bank Law.
1.20 System-Wide Stress Scenario: a stress scenario that affects not only the Financial Institution’s group or part of that group, but also the broader market or sector in which it operates; as opposed to an Idiosyncratic Stress Scenario.
1.21 Takaful Insurance: A collective contractual arrangement aiming at achieving mutuality and cooperation among a group of participants against certain risks, whereby each participant pays certain contribution to form an account called the participants’ account. This account is used for paying the entitled compensations and/or benefits when risk is realized, in accordance with the terms and conditions. The Takaful Insurance Company manages this account and invests its funds.
All transactions of the Takaful Insurance Company should be in accordance with the Islamic Shari’ah Provisions. Article (2): Requirement for a Recovery Plan
Financial Institutions must have in place a recovery plan in line with the requirements stated in this Regulation, which must include, at a minimum, the following:
2.1 An executive summary setting out the key elements of the plan and a summary assessment of the overall recovery capacity;
2.2 A summary of the material changes to the Financial Institution and to the recovery plan since the most recent recovery plan;
2.3 Description of the Financial Institution that outlines its legal structure, Core Business Lines, main risks, business model, Critical Functions, and key financial operations and characteristics;
2.4 The governance aspects of the Recovery Plan and how it is integrated into the broader corporate governance, policies and processes of the Financial Institution;
2.5 A framework of recovery indicators, trigger thresholds, and the associated governance and escalation procedures;
2.6 A range of recovery options that can be implemented to restore the viability of the Financial Institution;
2.7 A range of stress scenarios, stressing the Financial Institution in various manners, and setting out the management actions to restore its viability, in particular by implementing recovery options;
2.8 The recovery capacity of the Financial Institution in general and applied to various scenarios;
2.9 The central bank liquidity facilities that the Bank may have access to and the process to obtain access, including the collateral available for this purpose;
2.10 An overview of the preparatory arrangements the Financial Institution has taken or intends to take to improve their access to recovery options;
2.11 Business continuity arrangements;
2.12 A communication plan catered to all relevant stakeholders, internal and external, to deploy when implementing recovery options; and
2.13 The Annex as set out in Article 13 below. Article (3): Scope of Recovery Plan and Proportionality
3.1 The recovery plan must be commensurate with the Financial Institution’s complexity, size, group and organizational structure, risk profile and interconnectedness.
3.2 Financial Institutions must assess whether they provide Critical Functions to the financial systems in which they operate and take this into account for all aspects of their recovery plan, including, in particular, the definition of stress scenarios, the calibration of recovery thresholds and the impact recovery options may have on the provision of these Critical Functions.
Examples of Critical Functions include payments, custody, certain lending and deposit-taking activities in the commercial or retail sector, clearing and settling, limited segments of wholesale markets, market making in certain securities and highly concentrated specialist lending sectors. Article (4): Group Recovery Plans
4.1 Groups must draw up recovery plans that cover all of the Financial Institutions within the group, and must consider in their plan the scenarios, recovery options, indicators and thresholds relevant for each Financial Institution in the group.
4.2 The aim of the group recovery plan is to achieve the recovery of the group as a whole, or of one or more Financial Institutions within that group while considering the impact on the group as a whole.
4.3 Group recovery plans must include an overview of the arrangements in place to enable intra-group financial support, where applicable.
4.4 The group recovery plan should provide an overview of any material links between group entities, including for example back-to-back transactions and guarantees.
4.5 Group recovery plans must identify and set out any possible practical, legal or other impediments that may prevent the implementation of recovery options that involve multiple entities in the group, and in particular when the options involve transfers between group entities.
4.6 Group recovery plans must be assessed and approved by the parent entity of the group’s board of directors.
4.7 For a Financial Institution whose head office is in the UAE, the recovery plan must cover the entire group.
4.8 For a Financial Institution that is a UAE subsidiary of an institution whose parent entity is outside the UAE, the recovery plan must cover the UAE subsidiary. The recovery plan must be consistent with and complement the group’s recovery plan and clearly set out the interactions and interdependencies between the local and group recovery plans.
4.9 For a Financial Institution that is a UAE branch of a foreign institution, the recovery plan must be tailored to its local operations. The Central Bank may require the branch to disclose fully or partially the recovery plans prepared by the foreign institution at the level of its group and may at its discretion determine that such recovery plan suffices to meet the requirements under this Regulation or recommend changes thereto for this purpose. In making this determination, the Central Bank will consider whether the local operations have been sufficiently considered in the group recovery plan.
4.10 For a group recovery plan to be deemed to sufficiently cover the local operations, the group recovery plan must at a minimum:
4.10.1 describe whether and how, the major recovery options in the group recovery plan, if deployed, would impact the UAE operations either directly or indirectly;
4.10.2 demonstrate how recovery plan actions at the group level may be triggered by the occurrence of severe stress events in the UAE;
4.10.3 describe the process for activating the group recovery plan, specifying the local UAE management’s role and involvement in the recovery planning process and outlining the conditions for execution of recovery options (such as the necessary steps, estimated implementation time and cross-border considerations); and
4.10.4 illustrate how the recovery options are expected to restore the financial position and overall viability of the operations in the UAE.
4.11 The Central Bank may require Financial Institutions in a group to have recovery plans of their own, in addition to the group recovery plan. Article (5): Governance
5.1 Financial Institutions must ensure effective governance arrangements are in place for the production, review and approval of the recovery plan, as well as the monitoring of its recovery indicators and its implementation.
5.2 Production, review and approval of the recovery plan:
5.2.1 The Financial Institution’s board of directors must assess and approve the recovery plan prior to its submission to the Central Bank.
5.2.2 For branches of foreign Financial Institutions, the recovery plan must be assessed and approved by the branch’s Senior Management committee.
5.2.3 For branches of foreign Financial Institutions, the Central Bank may require that, in addition to Article 5.2.2 above, the recovery plan is approved by the Board of Directors of the head office.
5.2.4 The chief risk officer is responsible for leading the development of the recovery plan along with the Senior Management.
5.2.5 The Financial Institution must ensure all relevant Senior Management including key persons in Control Functions have been involved in the production, review and approval of the recovery plan, including senior individuals from relevant business areas related to recovery plan options and those responsible for stress testing. In this context key persons in Control Functions refers to persons responsible for heading control functions.
5.2.6 The recovery plan must undergo a self-assessment and review by the Financial Institution’s internal audit function, before its submission for approval to the board of directors.
5.2.7 For governance arrangements to be effective, the Financial Institution must be prepared to demonstrate that the credibility and executability of the recovery plan in a severe stress has been sufficiently challenged to justify its approval. This includes the establishment of a development and approval process with an appropriate segregation of duties and controls between those accountable for the development of the plan and those who review and/or approve the plan.
5.2.8 An Islamic Financial Institution must, in addition, obtain approval from its Internal Shari’ah Supervisory Committee that the recovery plan is compliant with the Islamic Shari’ah Provisions.
5.3 Implementation of the recovery plan:
5.3.1 The recovery plan must include a clear escalation and decision-making process to determine its timely implementation, which should take into account the recovery indicators.
5.3.2 Decisions and actions must be associated to clearly defined roles and responsibilities assigned to key individuals.
5.3.3 Governance procedures for the communication plan must be included in the recovery plan and be consistent with governance procedures to implement the recovery plan.
5.4 Financial Institutions must have adequate systems in place to generate, on a timely basis, all relevant and up-to-date information required to support the recovery plan.
5.5 A Bank must ensure that the recovery plan is consistent with its liquidity contingency funding plan, and vice versa.
5.6 For an Insurance Company, the existing tools of its ERM framework may serve as a source of input when drafting and developing the recovery plan; these may include, but are not limited to, the ORSA, contingency plans and capital and liquidity risk management plans. Article (6): Recovery Plan Indicators
6.1 The recovery plan must include a series of recovery indicators with recovery plan triggers calibrated in a manner that will warn with sufficient notice of an upcoming stress and allow the Financial Institution to take prompt corrective action through its recovery plan.
6.2 The breach of a recovery plan trigger does not necessitate the automatic or immediate implementation of recovery options. However upon a breach:
6.2.1 The Senior Management must be notified immediately and must assess the nature of the breach, and determine whether the recovery plan needs to be activated;
6.2.2 The board of directors must be notified within 1 business day of the breach of the recovery plan indicator or immediately upon activation of the recovery plan; and
6.2.3 The Central Bank must be notified within 2 business days of the breach of the recovery plan indicator or immediately upon activation of the recovery plan.
For the purpose of the above, activation of the recovery plan means that the breach of the recovery plan trigger was confirmed and that the implementation of recovery options must be considered.
6.3 The recovery indicator framework must be integrated into the Financial Institution’s risk management and management information system. Financial Institutions must calibrate their recovery triggers to enable the timely implementation of recovery options and reduce the risk that its risk tolerance will be breached. The recovery plan must contain the expected implementation timeframes of the recovery options.
6.4 The recovery plan must include a range of quantitative and qualitative recovery indicators.
6.5 Quantitative indicators shall at a minimum include capital indicators, liquidity indicators, profitability indicators, and asset quality indicators. Quantitative recovery indicators are specified in the corresponding Annex to this Regulation.
6.6 Qualitative recovery indicators could include, for example, difficulties in issuing liabilities at current market rates, unexpected loss of Senior Management, adverse court rulings, negative market press and significant reputational damage to the franchise.
6.7 The choice of recovery indicators and the calibration of their corresponding triggers must be justified in the recovery plan. Capital and liquidity recovery indicators must be calibrated in respect of the Financial Institution’s corresponding buffers.
6.8 The recovery plan must include a detailed description of the governance arrangements surrounding the monitoring of the recovery indicators and the associated escalation procedures when they are triggered. Article (7): Recovery options
7.1 Recovery options are capital, liquidity, restructuring and other measures a Financial Institution can implement in response to stress or expected stress to restore or maintain its viability or financial position.
7.2 With respect to recovery options, the recovery plan must contain:
7.2.1 a broad range of recovery options to ensure the sufficient availability of implementable options in a variety of stress situations;
7.2.2 an approach to determine which recovery options to implement and in what sequence depending on the circumstances of each stress;
7.2.3 a description of the processes for determining the value and marketability of the Core Business Lines, operations and assets in the respective recovery options;
7.2.4 an assessment of the viability of any business lines and legal entities subject to separation in a recovery option and the impact on the remaining group structure and its viability;
7.2.5 details of the Financial Institution’s available collateral and the processes to identify it; and
7.2.6 an assessment of the possibility to transfer liquidity across group entities, where relevant.
7.3 For Banks, the range of recovery options must also include:
7.3.1 actions to strengthen capital and capital conservation measures such as suspension of dividends and payments of variable remuneration;
7.3.2 measures to secure sufficient funding while ensuring sufficient diversification of funding sources and adequate availability of collateral in terms of volume, location and quality. Proper consideration must be given to possible transfers of liquidity and assets within the Bank’s group; and
7.3.3 sales of subsidiaries and spin-off of business units, and voluntary restructuring of liabilities through debt-to-equity conversion, where possible.
7.4 For Insurance Companies, the recovery plan must also include or justify the non-inclusion of the following range of recovery options:
7.4.1 actions to strengthen capital, for example recapitalization after extraordinary losses and capital conservation measures such as suspension of dividends and payments of variable remuneration;
7.4.2 triggering of contingent capital instruments;
7.4.3 possible sales of subsidiaries, portfolios of insurance contracts, or spin-off of business units;
7.4.4 changes to the reinsurance programme;
7.4.5 changes to the investment strategy and hedging programme;
7.4.6 changes to business mix, sales volumes and product designs, including options to close books of business to new sales or business;
7.4.7 changes to underwriting and claims handling practices; and
7.4.8 modifications to contract terms and conditions, the level of charges, fees and surrender payments, the amount and timing of any discretionary benefits and the operation of discretionary incentives to renew contracts (such as “no-claims discounts” or contract renewals without new underwriting).
7.5 Each recovery option must at a minimum include the following details:
7.5.1 a description of the recovery option;
7.5.2 detailed preparatory arrangements to ensure it is implementable in a timely manner;
7.5.3 clearly allocated roles and responsibilities for its implementation;
7.5.4 the capital and liquidity impact of its implementation, measured in both monetary terms and relevant regulatory metrics; and
7.5.5 for Islamic Financial Institutions, the preparatory arrangements referred to in Article 7.5.2 above may include the requirement for obtaining pre-approval for the documentation associated with the sales and transfers of debt-based assets.
An assessment of:
7.5.6 the credibility of its successful implementation and realization of benefits;
7.5.7 the timeline for its implementation;
7.5.8 the timeline for the impact of its capital and liquidity benefits;
7.5.9 the potential impact of its implementation on the Financial Institution’s franchise, ranging between low, medium and high;
7.5.10 the potential impact of its implementation on customers or policyholders, counterparties, the financial sector and market confidence ranging between low, medium and high;
7.5.11 the impact of its implementation on the Financial Institution’s Critical Functions;
7.5.12 the potential impediments to its implementation, including those of a legal and regulatory nature, and how they could be mitigated;
7.5.13 the particularities of Islamic contracts including Takaful Insurance products, to ensure Shari’ah compliance of its implementation, for example in respect of the transferability of assets and liabilities, contract-specific requirements and terms and conditions, among others; and
7.5.14 identification of mutually exclusive recovery options and financial and operational dependencies between recovery options whose combined implementation would likely result in a lower benefit than the aggregate impact of implementing them in isolation of each other.
7.6 Recovery options that consist of asset sales or disposals must at a minimum detail potential purchasers by type and the realistic discount required to achieve a sale, taking into account different market conditions.
7.7 For Banks, the timeline for the implementation of a recovery option and the impact of its benefits must generally not exceed six months, except in rare cases where a longer timeframe is robustly justified in the recovery option’s assessment. It is expected that such cases would primarily relate to certain disposals and capital market transactions.
7.8 The recovery plan and the options it contains must be reasonably likely to be implemented quickly and effectively in situations of financial stress, and must be likely to restore the viability of the Financial Institution.
7.9 Financial Institutions must provide an overview of the preparatory measures they have taken or intend to take to improve their access to recovery options, including also new recovery options not yet included in the plan.
7.10 Islamic Financial Institutions must monitor on an ongoing basis the portion of their debt-based assets in portfolios designated for sale as part of their recovery options, and ensure that such portions remain within the permissible limits that allow the sale of these portfolios. Article (8): Scenario Testing
8.1 The purpose of scenario testing is to demonstrate the effectiveness of the recovery plan in a range of different types of stress. In particular, scenario testing should help evaluate the adequacy of arrangements in respect of recovery plan indicators, governance and recovery options.
8.2 The recovery plan must include at least:
8.2.1 An Idiosyncratic Stress Scenario;
8.2.2 A System-Wide Stress Scenario; and
8.2.3 A combined scenario, combining elements of an Idiosyncratic Stress Scenario with elements of a System-Wide Stress Scenario.
8.3 Financial Institutions must take into account how the scenario, including actions of other Financial Institutions within that scenario, may impact the effectiveness and feasibility of certain recovery options, and provide an adjusted estimate of the recovery option impact specific to the scenario, in addition to the non-adjusted impact referred to in Article 7.5.4 of this regulation.
8.4 Scenario testing for recovery planning should be aligned with other stress tests conducted by Financial Institutions as part of their capital and liquidity planning.
8.5 The recovery plan must identify a point of near failure for the Financial Institution and each scenario must be sufficiently severe to cause the Financial Institution to reach it. Financial Institutions are encouraged to use reverse stress testing as a starting point for the design of the recovery plan scenarios.
6-8 Each scenario must show the evolution of recovery indicators, including the points at which triggers are breached, across the whole scenario period, both in the absence of implementing the recovery plan and with the impact of implementing the chosen recovery options necessary to restore the Financial Institution’s financial position.
8.7 The scenario impact of the chosen recovery plan options must be set at a conservative point estimate instead of a range.
8.8 Each scenario must include an explanation of the choice of recovery plan options, sequencing and point of implementation during the recovery timeline. Article (9): Recovery Capacity
9.1 The recovery capacity is the maximum financial benefits that could be achieved by implementing the most effective and sufficiently credible combination of recovery options under different types of stress scenarios.
9.2 The combination of recovery options must consider the dependencies between them and the viability of the post-recovery business model.
9.3 Actual recovery capacity is based on the Financial Institution’s currently available recovery options. Potential recovery capacity is based on planned improvements to the effectiveness of existing recovery options, or the creation of new options whereconcrete steps have already been taken for their development.
9.4 The recovery plan must describe planned improvements to recovery options with details of the expected timeline and concrete steps that have already been taken for their development.
9.5 With respect to a Financial Institution’s recovery capacity, the recovery plan must include an assessment of:
9.5.1 the actual recovery capacity, and its potential recovery capacity where relevant, measured in both monetary terms and relevant regulatory metrics;
9.5.2 the contribution of each recovery option;
9.5.3 the timeline for implementation of each recovery option; and
9.5.4 the timeline for the impact of the capital and liquidity benefits of each recovery option.
9.6 For Banks, the minimum regulatory metrics to measure recovery capacity must comprise the common equity tier 1 ratio, leverage ratio, liquidity coverage ratio and net stable funding ratio, or eligible liquid asset ratio and loans and advances to stable resources ratio where relevant.
9.7 For Insurance Companies, the minimum regulatory metrics to measure recovery capacity must comprise the solvency ratios, the liquidity ratios and earnings ratios.
9.8 The Financial Institution may present a range of recovery capacities on the basis of a range of potential impacts and timelines for each recovery option of its recovery capacity assessment. Article (10): Central Bank Liquidity Facilities
10.1 Banks’ recovery plans must include an operational plan for accessing the Central Bank's Standing Facilities, including foreign central bank standing liquidity facilities where relevant.
10.2 In respect of these standing facilities, the operational plan must include the following information:
10.2.1 Identification of the facilities, including a description of their purpose and their suitability at different stages of implementation of the recovery plan;
10.2.2 An assessment of how the Financial Institution would meet their eligibility criteria;
10.2.3 An assessment of the Financial Institution’s eligible assets and the drawing capacity against them;
10.2.4 Processes and steps necessary to access the facilities with clearly allocated roles and responsibilities; and
10.2.5 An identification of the recovery options that would allow the Financial Institution, over time, to repay any central bank liquidity support received.
10.3 The recovery plan must be prepared without including the availability of discretionary extraordinary central bank liquidity facilities or public support.
10.4 Banks that specify standing liquidity facilities as part of their recovery options shall regularly test the operational aspects of accessing such facilities, including through test transactions. Banks shall notify the Central Bank, or any other authorityproviding the facility, that these are test transactions. Article (11): Business Continuity arrangements
11.1 The recovery plan must include:
11.1.1 An assessment of the additional requirements to which the Financial Institution may potentially become subject during crisis situations to maintain its membership of Financial Market Infrastructures, such as, for example, the prefunding or collateralising of positions, and measures to address them such as plans for the sourcing of additional collateral and the impact this in turn may have on the Financial Institution; and
11.1.2 Appropriate contingency arrangements to enable the Financial Institution to continue operating during the implementation of its recovery options. At a minimum, these arrangements must cover infrastructure and IT systems, key suppliers and key Staff, and be consistent with the Financial Institution’s other business continuity arrangements.
11.2 Financial Institutions must ensure that key service level agreements are not terminated as a result of recovery events and that contracts allow for their transfer to third parties. Article (12): Communication Plan
12.1 Financial Institutions must develop an adequate communication strategy to communicate with the public, financial markets, their Staff and other stakeholders to use in the event of deploying the recovery plan.
12.2 To this end, Financial Institutions must have in place prepared statements and a step by step plan setting out the target audience, the timing, and the approvals required to issue them. Article (13): Annex to the Recovery Plan
13 The recovery plan Annex must at a minimum include:
13.1 The recovery plan template, as determined by the Central Bank;
13.2 an overview of crisis-management roles and responsibilities and relevant contact information;
13.3 supporting documentation for the operational preparedness of the recovery options; and
13.4 supporting documentation for the assessments and analyses in the recovery plan. Article (14): Update and Submission Frequency
14.1 Financial Institutions must carry out a comprehensive review of all aspects of the recovery plan, in particular of the recovery capacity, the recovery indicators and their thresholds, the scenarios and scenario testing:
14.1.1 At least annually, for domestic systemically important Financial Institutions;
14.1.2 At least every two years, for other Financial Institutions, except where required annually by the Central Bank; and
14.1.3 Upon a change to the Financial Institution’s legal or organizational structure, business model or financial situation that would have a material effect on the recovery plan.
14.2 The recovery plan must be submitted annually to the Central Bank. Where the recovery plan has not undergone a comprehensive review in accordance with Article 14.1 above, the outline of changes referred to in Article 2.2 must demonstrate that this was not required in accordance with Article 14.1.3 above by providing an assessment of the most important relevant events.
14.3 The Central Bank may require a Financial Institution to revise its recovery plan in accordance with the instructions and timeframes determined by the Central Bank.
14.4 Where the Central Bank judges a recovery plan to not meet the objectives of this regulation due to a lack of viable or effective recovery options or due to the presence of material impediments to their implementation, the Central Bank may require the Financial Institution to take specific measures that address these deficiencies. Article (15): Enforcement & Sanctions
15.1 Violation of any provision of this Regulation and any accompanying Standards may be subject to supervisory action and administrative & financial sanctions as deemed appropriate by the Central Bank.
15.2 Supervisory action and administrative & financial sanctions by the Central Bank may include withdrawing, replacing or restricting the powers of Senior Management or members of the board of directors, providing for the interim management of the Bank, imposition of fines or barring individuals from the UAE banking sector. Article (16): Interpretation of Regulation
16.1 The Regulatory Development Division of the Central Bank shall be the reference for interpretation of the provisions of this Regulation. Article (17): Publication & Effective Date
17.1 This Regulation shall be published in the Official Gazette in both Arabic and English and shall come into effect immediately upon its publication.
17.2 Financial Institutions must have a recovery plan in place by 30 June 2024. Khaled Mohamed Balama
Governor of the Central Bank of the UAE
Recovery Planning Regulation: Annex
Recovery Planning Regulation: Annex
Indicators to be included in every recovery plan (Banks)(Banks may justify replacing an indicator that is not sufficiently relevant to them with a suitable alternative indicator)
1. Capital indicators
a) Common Equity Tier 1 ratio (CET 1)
b) Total Capital ratio
c) Leverage ratio
2. Liquidity indicators
a) Liquidity Coverage Ratio (LCR) or Eligible Liquid Asset Ratio (ELAR)
b) Net Stable Funding Ratio (NSFR) or Loans to Stable Resources Ratio (LSRR)
c) Available central-bank eligible unencumbered assets
d) Liquidity position
e) Loan/financing-to-deposit ratio (LDR, FDR)
f) Asset encumbrance
3. Profitability indicators
a) Return on assets
b) Return on equity
c) Significant operational losses
4. Asset quality indicators
a) Growth rate of gross non-performing loans/financing
b) Coverage ratio [provisions ÷ (total non-performing loans/financing)]
5. Market-based indicators
a) Rating under negative review or rating downgrade
b) Credit Default Swaps spread
c) Stock price variation
6. Macroeconomic indicators
a) GDP variations
b) Credit Default Swap spreads of sovereigns
Additional indicators to be included in the recovery plan as appropriate (Banks)
Additional indicators to be included in the recovery plan as appropriate (Banks)
(non-exhaustive list provided for illustration purposes only)
1. Capital indicators
a) (Retained earnings and reserves) ÷ total equity
b) Adverse information on the financial position of significant counterparties
2. Liquidity indicators
a) Concentration of liquidity and funding sources
b) Cost of total funding (retail and wholesale funding)
c) Average tenure of wholesale funding
d) Contractual maturity mismatch
e) Cost of wholesale funding
f) Increased collateral demands
g) Deposit withdrawal
3. Profitability indicators
a) Cost-income ratio (operating costs ÷ operating income)
b) Net interest/profit margin
4. Asset quality indicators
a) Off-balance-sheet exposures
b) Net non-performing loans/financing ÷ equity
c) (Gross non-performing loans/financing) ÷ total loans/financing
d) Growth rate of impairments on financial assets
e) Non-performing loans/financing by significant geographic or sector concentration
f) Forborne exposures ÷ total exposures
5. Market-based indicators
a) Price to book ratio
b) Reputational threat to the institution or significant reputational damage
6. Macroeconomic indicators
a) Rating under negative review or rating downgrade of sovereigns
Indicators to be included in every recovery plan (Insurance Companies)
Indicators to be included in every recovery plan (Insurance Companies)
(Insurance Companies may justify not including an indicator that is not sufficiently relevant to them)
1. Capital indicators
a) Admissible assets less liabilities
b) Own funds eligible to meet the minimum capital requirement (MCR)
c) MCR surplus/ deficit
d) Own funds to meet solvency capital requirement (SCR)
e) SCR surplus/ deficit
f) Own funds eligible to meet the MGF
g) SCR ratio - groups
h) SCR ratio - non-life/general
i) SCR ratio - life/family
j) SCR underwriting
k) SCR market
l) SCR counterparty default
m) SCR operational
2. Liquidity indicators
a) Liquid assets ratio
3. Profitability indicators
a) Net combined ratio - non-life
b) Investment return - non-life/general (considering the segregation of accounts for takaful)
b) Investment return - life/family (considering the segregation of accounts for takaful)
c) Assets over liabilities
d) Return on excess of assets over liabilities
e) Return on assets
f) Return to premiums/contributions (both Gross and Net)
g) Underwriting surplus
4. Market-based indicators
a) Concentration of assets
b) Duration mismatch (years)
5. Credit Risk indicators
a) Average rating of investments (credit quality step)
b) Share of below investment grade assets (credit quality step > 3)
6. Reserving indicators
The Insurer or Re-insurer/Takaful insurance or Re-takaful insurance companies must consider including reserving indicators that measure and monitor the development of its technical provisions. Reserving indicators may include key reserving assumptions such as relevant yield curve, lapse rates or changes to the value of options and guarantees or expected profits included in future premiums/contributions.
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