Entire Section

  • RAR 2 RAR 2 Recovery and Resolution Planning

    • RAR 2.1 RAR 2.1 Recovery Planning

      • RAR 2.1 Guidance

        In accordance with Article 84D of the Law, an Authorised Firm is required to prepare and submit a Recovery Plan to the DFSA if it is included in a class of Authorised Firms required to prepare and submit such a plan or if it is not included in such a class but has been given written notice by the DFSA that it has to prepare a plan. RAR Rule 2.1.1 prescribes the class of Authorised Firms require to prepare and submit a Recovery Plan.

         

        Derived from DFSA RMI283/2020 (Made 16th December 2020). [VER1/04-21]

      • Classes of Authorised Firms required to prepare a Recovery Plan

        • RAR 2.1.1

          An Authorised Firm shall prepare and submit to the DFSA for review a Recovery Plan if it is authorised under its Licence to carry on either or both of the following Financial Services:

          (a) Accepting Deposits; or
          (b) Managing a Profit-Sharing Investment Account where that account is received on an unrestricted basis (a PSIAu).

           

          Derived from DFSA RMI283/2020 (Made 16th December 2020). [VER1/04-21]

      • Submission of Plans

        • RAR 2.1.2

          (1) The Recovery Plan for an Authorised Firm referred to in RAR Rule 2.1.1 shall be submitted to the DFSA:
          (a) in the case of an Authorised Firm that has an authorisation referred to in that Rule on the commencement day, no later than two months from the commencement day; or
          (b) in the case of an Authorised Firm that receives such an authorisation after the commencement day, no later than two months from the date on which the authorisation is granted.
          (2) Where the DFSA gives an Authorised Firm written notice under Article 84D(1)(b) of the Law that it must prepare a plan, the Authorised Firm shall submit the Recovery Plan to the DFSA by no later than the date specified in the notice.
          (3) Where the DFSA gives an Authorised Firm written notice under Article 84D(5) of the Law requiring it to take measures to rectify any deficiencies in the Recovery Plan, the Authorised Firm shall submit the rectified Recovery Plan by no later than the date specified in the notice.

           

          Derived from DFSA RMI283/2020 (Made 16th December 2020). [VER1/04-21]

      • General requirements relating to Recovery Plans

        • RAR 2.1.3

          An Authorised Firm shall ensure that the Recovery Plan processes and implementation are integrated, and aligned, with its overall governance structure, processes and internal risk management frameworks, such as its early warning indicators.

           

          Derived from DFSA RMI283/2020 (Made 16th December 2020). [VER1/04-21]

        • RAR 2.1.4

          (1) An Authorised Firm shall ensure that it has in place appropriate contingency arrangements, which will enable it to continue to operate if it implements Recovery Measures set out in the Recovery Plan.
          (2) The contingency arrangements under (1) shall include processes relating to IT, access to financial market infrastructure such as clearing and settlement facilities, and the continuation of supplier and employee contracts.

           

          Derived from DFSA RMI283/2020 (Made 16th December 2020). [VER1/04-21]

      • Responsibility for Recovery Planning

        • RAR 2.1.5

          (1) An Authorised Firm shall designate a Senior Manager who will be responsible for leading, formulating and overseeing the Recovery Planning process, including providing to the DFSA any information relevant for the review of the Recovery Plan.
          (2) The Authorised Firm shall notify the DFSA of the Senior Manager designated under (1).
          (3) Without limiting the generality of the Principles for Authorised Individuals in GEN Rule 4.4, the senior management of an Authorised Firm are responsible for the Recovery Planning of that Authorised Firm.

           

          Derived from DFSA RMI283/2020 (Made 16th December 2020). [VER1/04-21]

      • Scope of the Recovery Plan

        • RAR 2.1.6 RAR 2.1.6

          A Recovery Plan prepared by an Authorised Firm shall be prepared on the following basis:

          (a) if the Authorised Firm has its head office in the DIFC, the Recovery Plan shall cover the recovery of the entire Group;
          (b) if the Authorised Firm is a Subsidiary of a Financial Institution that has its head office outside the DIFC, the Recovery Plan shall specifically address stress scenarios and triggers for the Authorised Firm and adequately cover any downstream operations, as well as including specific recovery options for the DIFC operations; and
          (c) if the Authorised Firm is a Branch of a Regulated Financial Institution, the Recovery Plan may generally be part of the Group plan, provided the Recovery Plan adequately covers the DIFC operations.

           

          Derived from DFSA RMI283/2020 (Made 16th December 2020). [VER1/04-21]

          • RAR 2.1.6 Guidance

            1. For a Branch with significant DIFC operations, the Recovery Plan should be tailored to the local operations and contain all relevant information. For a Branch with limited operations, the DFSA may accept considerable reliance on a Group plan, provided the Branch can demonstrate how the Recovery Plan options can be effectively applied to address stress events that pose a risk to the Branch’s viability.
            2. The DFSA will approach the Recovery Plan requirements in a proportionate manner.

             

            Derived from DFSA RMI283/2020 (Made 16th December 2020). [VER1/04-21]

      • Content of the Recovery Plan

        • RAR 2.1.7 RAR 2.1.7

          A Recovery Plan shall be commensurate with the nature, complexity, interconnectedness, size and substitutability of the Authorised Firm’s DIFC operations, and set out the Recovery Measures the Authorised Firm can take, as well as how and when it can take them, including the following key elements:

          (a) consideration of a range of scenarios including both idiosyncratic (specific to the Group or Authorised Firm) and market-wide scenarios, likely to cause severe stress which will require Recovery Measures to be considered or activated;
          (b) the actual Recovery Measures, which may include measures to reduce the Authorised Firm’s risk profile, address capital shortfalls or liquidity pressures, change funding strategy, or change governance structure; and
          (c) processes to ensure the timely implementation of Recovery Measures in a range of stress situations.

           

          Derived from DFSA RMI283/2020 (Made 16th December 2020). [VER1/04-21]

          • RAR 2.1.8 RAR 2.1.8

            (1) A Recovery Plan shall include:
            (a) a summary of the key elements of the plan and a summary of overall recovery capacity;
            (b) a summary of the material changes to the Authorised Firm since the most recently filed Recovery Plan;
            (c) a communication and disclosure plan outlining how the Authorised Firm intends to manage any potentially negative market reactions;
            (d) a range of capital and liquidity actions required to maintain or restore the viability and financial position of the Authorised Firm;
            (e) a framework of indicators which identify the points at which appropriate actions referred to in the Recovery Plan may be taken;
            (f) an estimate of the timeframe for executing each material aspect of the Recovery Plan;
            (g) a detailed description of any material impediment to the effective and timely execution of the Recovery Plan, including consideration of impact on the rest of the Group, customers and counterparties;
            (h) identification of Critical Functions;
            (i) a detailed description of the processes for determining the value and marketability of the Core Business Lines, operations and assets of the Authorised Firm;
            (j) a detailed description of how recovery planning is integrated into the corporate governance structure of the Authorised Firm as well as the policies and procedures governing the approval of the Recovery Plan and identification of the persons in the organisation responsible for preparing and implementing the Recovery Plan;
            (k) arrangements and measures to conserve or restore the Authorised Firm’s own funds;
            (l) arrangements and measures to ensure that the Authorised Firm has adequate access to contingency funding sources, including potential liquidity sources, an assessment of available collateral and an assessment of the possibility to transfer liquidity across Group entities and business lines, to ensure that it can continue to carry out its operations and meet its obligations as they fall due;
            (m) arrangements and measures to reduce risk and leverage;
            (n) arrangements and measures to restructure liabilities;
            (o) arrangements and measures to restructure business lines;
            (p) arrangements and measures necessary to maintain continuous access to financial markets infrastructures;
            (q) arrangements and measures necessary to maintain the continuous functioning of the Authorised Firm’s operational processes, including infrastructure and IT services;
            (r) preparatory arrangements to facilitate the sale of assets or business lines in a timeframe appropriate for the restoration of financial soundness;
            (s) other management actions or strategies to restore financial soundness and the anticipated financial effect of those actions or strategies;
            (t) preparatory measures that the Authorised Firm has taken or plans to take in order to facilitate the implementation of the Recovery Plan, including those necessary to enable the timely recapitalisation of the Authorised Firm; and
            (u) stress scenarios that consider the Financial Stability Board (FSB) “Guidance on Recovery Triggers and Stress Scenarios”, relating them to the Authorised Firm’s particular business model and specific fragile points which can cause it to become non-viable or fail.
            (2) The Recovery Plan of a DIFC Company, or a Branch of an international Group, shall include at least two scenarios:
            (a) one DIFC entity-specific scenario; and
            (b) one macroeconomic scenario that impacts the DIFC entity,
            and the scenarios are to be tested to ensure that the Recovery Plan is suitable for use in a range of various types of stress.

             

            Derived from DFSA RMI283/2020 (Made 16th December 2020). [VER1/04-21]

            • RAR 2.1.8 Guidance

              1. The Recovery Plan should serve as a guide or a “road map” for the Authorised Firm and the DFSA in a recovery scenario, i.e., a situation of distress where there is still a reasonable prospect of recovery, if appropriate Recovery Measures are taken, and the Resolution Conditions have not been met.
              2. While the stress scenarios in Recovery Plans need not be the same for all Authorised Firms, they should be realistic and specific to each Authorised Firm’s business model. The DFSA will check the assumptions used in the scenarios and may require additional scenarios.
              3. The DFSA expects a Recovery Plan to adopt a structure, as follows:
              a. a high-level substantive summary of the key recovery strategies;
              b. the analysis that underlies the key recovery strategies;
              c. a range of factors indicating that the implementation of Recovery Measures may be necessary (recovery indicators);
              d. tangible and practical options for Recovery Measures;
              e. description of preparatory actions to ensure that the Recovery Measures can be implemented effectively and in a timely manner;
              f. an operational plan for implementation of the Recovery Plan, including sequencing and indication of time needed for implementing each step;
              g. details of any potential material impediments to an effective and timely execution of the Recovery Plan and how these are being addressed;
              h. responsibilities for executing the preparatory actions, triggering the implementation of the Recovery Plan and the actual Recovery Measures; and
              i. internal and external communication and disclosure plan to manage any potential negative market reactions, if applicable.
              4. The strategic analysis referred to in item 3.b should include the Authorised Firm’s analysis and, where relevant, identification of essential and systemically important functions carried out by the Authorised Firm, which it should aim to maintain as part of the recovery process. The strategic analysis should also cover:
              a. actions necessary for maintaining operations of, and funding for, those essential and systemically important functions, if such are identified;
              b. assessment of the viability of any business lines and legal entities which may be subject to separation (sale) in a recovery scenario, as well as the impact of such separation on the remaining Group structure;
              c. assessment of the likely effectiveness of each material aspect of the Recovery Measures and potential risks related thereto, including potential impact on customers, counterparties and market confidence;
              d. underlying assumptions for the preparation of the Recovery Plan; and
              e. processes for determining the value and marketability of the material business lines, operations, and assets.
              5. The recovery indicators referred to in item 3.c. are both quantitative and qualitative metrics that identify points at which an Authorised Firm has to decide whether an action referred to in its Recovery Plan should be taken. The types and number of indicators should be appropriately selected to be well-targeted, but not to render the exercise unmanageable. They should be calibrated, and not linked to inherently lagging metrics, and to ensure sufficient notice to decide on the corrective action for the DFSA, so as to begin contingency planning.
              6. A number of quantitative recovery indicators should, as a minimum, be included:
              a. Capital (e.g. CET1, total capital and leverage ratio);
              b. Liquidity (e.g., LCR or NSFR (as defined in PIB), cost of wholesale funding, deposit withdrawal, increased collateral demands);
              c. Profitability (e.g. return on equity (RoE) or return on assets (RoA), significant operational losses);
              d. Asset quality (e.g. non-performing loan (NPL) rate, including off-balance sheet (OBS)); and
              e. Market aspects (e.g. rating downgrades, negative review, credit default swap (CDS) spreads).
              7. The qualitative recovery indicators could include, for example, difficulties in issuing liabilities at current market rates, an unexpected loss of senior management, adverse court rulings, negative market press and significant reputational damage to franchise.
              8. The recovery indicators should be closely connected with the Authorised Firm’s early warning indicators, which should form part of its internal risk management. They should be designed to prevent undue delays in the eventual implementation of Recovery Measures.
              9. The expected result of one of several indicators occurring should lead to an appropriate, and clearly described in the Recovery Plan, internal escalation procedure to the senior management and the Board, without, however, leading to an automatic activation of the Recovery Plan.
              10. The Recovery Measures can include a host of actions to be taken by the Authorised Firm alone or in combination, depending on the circumstances and the business model of the Firm. The Authorised Firm should consider each situation on a case-by-case basis.
              11. The Recovery Measures may include, among other things:
              a. actions to strengthen the capital profile through capital raising or capital conservation measures such as suspension of dividends and payments of variable remuneration;
              b. restructuring business lines with a view to permitting carrying out of sales of downstream entities and spin-off of business units, sales of assets or loan portfolios;
              c. voluntary restructuring of liabilities (e.g. through debt-to-equity conversion);
              d. liquidity improvement options through, for example, securing funding via various techniques such as improved valuation of available collateral, repurchase agreements (“repo”), bonds issuance, monetisation of unencumbered assets; and
              e. reduction of RWA (as defined in PIB) or leverage.
              12. In terms of contingency funding sources, while it is conceivable that parental financial support would, in many cases, be the most credible recovery option, Authorised Firms are expected to consider all funding options available, at the level of the DIFC entity, and set them out in the Recovery Plan.

               

              Derived from DFSA RMI283/2020 (Made 16th December 2020). [VER1/04-21]

    • RAR 2.2 Resolution Planning

      • RAR 2.2 Guidance

        1. The DFSA may, where it considers it necessary and practicable to do so, prepare a Resolution Plan for an Authorised Firm (see Article 84E of the Law).
        2. The DFSA may, in preparing a Resolution Plan:
        a. create the Resolution Plan, or parts thereof, itself;
        b. amend or accept a resolution plan, or parts thereof, created or provided by the Authorised Firm or any other person (such as a Resolution Authority in another jurisdiction); or
        c. prepare the Resolution Plan using a combination of a. and b.
        3. Where it has prepared a Resolution Plan, the DFSA may review and update it:
        a. on a regular basis; or
        b. after material changes to the legal or organisational structure of the Authorised Firm, or to its business or financial position, which could have a material effect on the effectiveness of the Resolution Plan.

        Content of the Resolution Plan

        4. The Resolution Plan may set out any relevant matters, including the following:
        a. financial and economic functions for which continuity is critical;
        b. the resolution strategy and the Resolution Powers or Resolution Tools which the DFSA would plan to take if the Authorised Firm concerned met the Resolution Conditions, particularly in view of preserving Critical Functions;
        c. options for exercising Resolution Powers and applying Resolution Tools in the context of the potential Resolution scenarios;
        d. data requirements for the Authorised Firm’s operations, structures and Critical Functions;
        e. potential barriers to effective Resolution and actions to mitigate these;
        f. actions to protect depositors and for the prompt return of Client Assets; and
        g. actions or principles for exit from Resolution.

        DFSA’s general approach to resolution planning

        5. The DFSA will aim to approach resolution planning proportionally, taking into account its Resolution Objectives, including the systemic importance of the Authorised Firm or its Group, the need to maintain Critical Functions, protect depositors and Client Assets as well as, more broadly, the impact on and the reputation of the DIFC. Proportionality also implies that the DFSA’s approach will take account of the nature, complexity, interconnectedness, level of substitutability, size and extent of cross-border operations of the Authorised Firm.
        6. The DFSA will consider all potential, credible and feasible options for a resolution strategy for an Authorised Firm, including, where possible, options with respect to the position of the Authorised Firm in its Group Resolution Plan prepared by the home Resolution Authority, provided its relevant parts are available to the DFSA.
        7. The DFSA will cooperate, to the extent possible, with the home Resolution Authority and any other relevant Resolution Authorities.
        8. The DFSA will consider Resolution Plans prepared by other Resolution Authorities in light of its Resolution Objectives and whether the position of the DIFC entity has been adequately taken into account. If the DFSA considers that the preferred resolution strategy, as set out in the Group Resolution Plan, and the outcome for the DIFC, are indeed consistent with its Resolution Objectives and the position of the DIFC entity has been sufficiently taken into account, it may limit its resolution planning to anticipating actions and expressing acceptance of the Group Resolution Plan. This would often imply that, in the event of Resolution, the DFSA would aim to take measures in the DIFC consistent with the home Resolution Authority’s actions taken in line with the Group Resolution Plan. If the DFSA is not satisfied that the Group Resolution Plan meets or is consistent with its Resolution Objectives, it will consider whether it is necessary to pursue alternative or independent strategies as the preferred resolution strategy in the DIFC. The DFSA will attempt to ensure, as far as it is possible, that the DIFC Resolution Plan is as consistent as possible with the Group Resolution Plan.

         

        Derived from DFSA RMI283/2020 (Made 16th December 2020). [VER1/04-21]

      • Obligation to Provide Information for Resolution Plan

        • RAR 2.2 Guidance

          Under Article 84E(4) of the Law, where the DFSA decides to prepare a Resolution Plan for an Authorised Firm it may require the Authorised Firm to provide information or assistance.

           

          Derived from DFSA RMI283/2020 (Made 16th December 2020). [VER1/04-21]

        • RAR 2.2.1 RAR 2.2.1

          The information which the DFSA may by written notice require an Authorised Firm to provide for the purposes of preparing, amending or reviewing a Resolution Plan, may include but is not limited to:

          (a) a detailed description of the Authorised Firm’s organisational structure including a list of all legal entities in its Group (“legal entities”);
          (b) identifying the direct holders and the percentage of voting and non-voting rights of each legal entity;
          (c) the location, jurisdiction of incorporation, licensing and key management associated with each legal entity;
          (d) a mapping of the Authorised Firm’s Critical Functions and Core Business Lines including material asset holdings and liabilities relating to such operations and business lines, by reference to legal entities;
          (e) a detailed description of the components of the Authorised Firm’s and all its legal entities’ liabilities, separating, at a minimum by types and amounts of short term and long-term debt, secured, unsecured and subordinated liabilities;
          (f) details of liabilities of the Authorised Firm that are Eligible Liabilities;
          (g) identifying processes needed to determine to whom the Authorised Firm has pledged collateral, the person that holds the collateral and the jurisdiction in which the collateral is located;
          (h) a description of the off-balance sheet exposures of the Authorised Firm and its legal entities, including a mapping to its Critical Functions and Core Business Lines;
          (i) the material hedges of the Authorised Firm including a mapping to legal entities;
          (j) identification of the major or most critical counterparties of the Authorised Firm and entities in its Group as well as an analysis of the impact of the failure of major counterparties on the Authorised Firm’s financial situation;
          (k) each system on which the Authorised Firm conducts a material number or value amount of trades, including a mapping to legal entities in the Group, Critical Functions and Core Business Lines;
          (l) each payment, clearing or settlement system of which the Authorised Firm is directly or indirectly a member, including a mapping to the legal entities in the Group, Critical Functions and Core Business Lines;
          (m) a detailed inventory and description of the key Management Information Systems, including those for risk management, accounting and financial and regulatory reporting used by the Authorised Firm including a mapping to legal entities in the Group, Critical Functions and Core Business Lines;
          (n) identifying the owners of the systems identified in (m), service level agreements related thereto, and any software and systems or licences, including a mapping to their legal entities, Critical Functions and Core Business Lines;
          (o) identifying and mapping the legal entities in the Group and the interconnections and interdependencies among the different legal entities such as:
          (i) common or shared personnel, facilities and systems;
          (ii) capital, funding or liquidity arrangements;
          (iii) existing or contingent credit exposures;
          (iv) cross guarantee agreements, cross-collateral arrangements, cross-default provisions and cross-affiliate netting arrangements;
          (v) risks transfers and back-to-back trading arrangements; and
          (vi) service level agreements;
          (p) the Senior Manager designated under RAR Rule 2.2.2 as well as those responsible, if different, for the different legal entities, Critical Functions and Core Business Lines;
          (q) a description of the arrangements that the Authorised Firm has in place to ensure that, in the event of Resolution, the DFSA will have all the necessary information, as determined by the DFSA, for exercising a Resolution Power and applying a Resolution Tool;
          (r) all the agreements entered into by the Authorised Firm and their legal entities with third parties the termination of which may be triggered by a decision to exercise a Resolution Power and apply a Resolution Tool and whether the consequences of termination may affect the exercise of the Resolution Power and application of the Resolution Tool;
          (s) a description of possible liquidity sources for supporting Resolution; and (t) information on asset encumbrance, liquid assets, off-balance sheet activities, hedging strategies and booking practices.

           

          Derived from DFSA RMI283/2020 (Made 16th December 2020). [VER1/04-21]

          • RAR 2.2.1 Guidance

            1. To approach resolution planning on a proportionate basis, and to alleviate the burden on an Authorised Firm, the DFSA will:
            a. consider the actual scope of information required based on the preferred resolution strategy chosen for the Authorised Firm in the DFSA’s discretion.
            b. not require all data to be provided immediately, or from all Authorised Firms. The DFSA will consider the information required in terms of scope and granularity. As the Authorised Firm will be individually contacted by the DFSA, a large majority can expect to be asked to provide, at first, high level core data, and only some would be asked for supplementary information; and
            c. will make use of the information al available to it, e.g. through prudential returns.
            2. The process for requesting, and submission of, information, may require several exchanges between the DFSA and the Authorised Firm and, in many instances, a continual dialogue before the DFSA is satisfied with the information. On this basis, the DFSA may request relevant information from the Authorised Firm or its senior management in writing, as frequently as reasonably necessary, setting out appropriate deadlines to satisfy the request. On site visits may also be carried out.

             

            Derived from DFSA RMI283/2020 (Made 16th December 2020). [VER1/04-21]

      • Person Responsible for Providing Information Relevant to Resolution Planning

        • RAR 2.2.2 RAR 2.2.2

          (1) An Authorised Firm shall designate a Senior Manager who will be responsible for providing the DFSA with the information relevant for the preparation or review of a Resolution Plan.
          (2) The Authorised Firm shall notify the DFSA of the Senior Manager designated under (1).

           

          Derived from DFSA RMI283/2020 (Made 16th December 2020). [VER1/04-21]

          • RAR 2.2.2 Guidance

            The DFSA considers that it may make sense for an Authorised Firm, from an operational and resourcing perspective, to designate the same Senior Manager who is responsible for Recovery Planning under RAR Rule 2.1.5 as the person responsible under RAR Rule 2.2.2 for providing information relevant to resolution planning.

             

            Derived from DFSA RMI283/2020 (Made 16th December 2020). [VER1/04-21]

    • RAR 2.3 Resolvability Assessment

      • RAR 2.3 Guidance

        1. The DFSA may under Article 84F(1) of the Law conduct a Resolvability Assessment to determine if there are any impediments that may prevent or affect the Resolvability of an Authorised Firm.
        2. The DFSA may consider a range of matters when it conducts a Resolvability Assessment and to identify whether it is feasible and credible for an Authorised Firm to be subject to Resolution. For example, it may consider any one or more of the following:
        a. the extent to which the Authorised Firm is able to map Core Business Lines and Critical Functions to legal persons;
        b. the extent to which legal and corporate structures are aligned with Core Business Lines and Critical Functions;
        c. the extent to which there are arrangements in place to provide for essential staff, infrastructure, funding, liquidity and capital to support and maintain the Core Business Lines and the Critical Functions;
        d. the extent to which the service agreements that the Authorised Firm maintains are fully enforceable in the event of the Resolution of the Authorised Firm;
        e. the extent to which the governance structure of the Authorised Firm is adequate for managing and ensuring compliance with the Authorised Firm’s internal policies with respect to its service level agreements;
        f. the extent to which the Authorised Firm has a process for transitioning the services provided under service level agreements to third parties in the event of the separation of Critical Functions or of Core Business Lines;
        g. the extent to which there are contingency plans and measures in place to ensure continuity in access to AMIs, Regulated Exchanges, payment systems, Central Counterparties, Securities Settlement Systems and Central Securities Depositories;
        h. the adequacy of the Management Information Systems in ensuring that the DFSA is able to gather accurate and complete information regarding the Core Business Lines and Critical Functions so as to facilitate rapid decision making;
        i. the capacity of the Management Information Systems to provide the information essential for the effective Resolution of the Authorised Firm at all times even under rapidly changing conditions;
        j. the extent to which the Authorised Firm has tested its Management Information Systems under stress scenarios;
        k. the extent to which the Authorised Firm can ensure the continuity of its Management Information Systems both for the affected Authorised Firm and the new institution in the case that the Critical Functions and Core Business Lines are separated from the rest of the operations and business lines;
        l. the extent to which the Authorised Firm has established adequate processes to ensure that it provides the DFSA with the information necessary to identify depositors;
        m. where the Authorised Firm’s Group uses intragroup financial support, the extent to which those guarantees are provided at market conditions and to which the risk management systems concerning those guarantees are robust;
        n. where the Authorised Firm or the Authorised Firm’s Group engages in back-to-back transactions, the extent to which those transactions are performed at market conditions and to which the risk management systems concerning those transactions practices are robust;
        o. the extent to which the use of intragroup financial support or back-to-back booking transactions increases contagion across the Authorised Firm’s Group;
        p. the extent to which the legal structure of the Authorised Firm or its Group inhibits the application of a Resolution Tool as a result of the number of legal persons, the complexity of the Group structure or the difficulty in aligning business lines to the Group entities;
        q. the existence and robustness of service level agreements;
        r. the amount and type of Eligible Liabilities of the Authorised Firm;
        s. the extent to which the Resolution of the Authorised Firm could have a negative impact on its Group, where applicable;
        t. whether Resolution Authorities in the other jurisdictions in which the Authorised Firm’s Group operates have the power to apply a Resolution Tool necessary to support Resolution Actions by the DFSA and the extent to which there is scope for cooperation between such Resolution Authorities and the DFSA;
        u. the feasibility of applying a Resolution Tool in such a way which meets the Resolution Objectives, given the tools available and the Authorised Firm’s structure;
        v. the extent to which the structure of the Authorised Firm’s Group allows the Resolution Authorities of the Group entities to resolve the whole Group or one or more of its Group entities without causing a significant direct or indirect adverse effect on the financial system, market confidence or the financial services industry in the DIFC and with a view to maximising the value of the Group as a whole including the DIFC Branch/es and Subsidiaries;
        w. the arrangements and means through which Resolution could be facilitated in the cases of Groups that have subsidiaries established in different jurisdictions;
        x. the arrangements and means by which Resolution could be hampered due to collateral arrangements being established in different jurisdictions;
        y. the credibility of applying a Resolution Tool in such a way which meets the Resolution Objectives, given possible impacts on creditors, counterparties, customers, clearing participants and employees and possible actions that third-country authorities may take;
        z. the extent to which the impact of the Authorised Firm’s Resolution on the financial system in the DIFC and on financial markets confidence can be adequately evaluated;
        aa. the extent to which the Resolution of the Authorised Firm could have a significant direct or indirect adverse effect on the financial system, market confidence or on the DIFC;
        bb. the extent to which contagion to other Authorised Firms or to the financial markets could be contained through the exercise of a Resolution Power and application of a Resolution Tool; and
        cc. the extent to which the Resolution of the Authorised Firm could have a significant effect on the operation of AMIs, Regulated Exchanges, payment systems, Central Counterparties, Securities Settlement Systems or Central Securities Depositories.
        3. For the purposes of the Guidance in item 1:
        a. the feasibility test involves looking at whether the preferred resolution strategy can be implemented effectively and in a timely manner; and
        b. the credibility test checks the impact of the preferred resolution strategy and its ability to mitigate risks which have been identified against the Resolution Objectives.
        4. In practice, when the DFSA prepares or updates a Resolution Plan, the Resolvability Assessment will typically be done concurrently.
        5. The DFSA will exercise its power under Article 84G of the Law to require measures it considers reasonably necessary to remove impediments to, or improve, the resolvability of an Authorised Firm in a proportionate and priority-driven manner. The DFSA will target the removal of the most important impediments first. It will also inform other relevant Resolution Authorities, where applicable, of its intentions to formally require the removal of the impediments.

         

        Derived from DFSA RMI283/2020 (Made 16th December 2020). [VER1/04-21]

    • RAR 2.4 RAR 2.4 Loss-Absorbing Capacity Requirement

      • RAR 2.4 Guidance

        Under Article 84H of the Law, the DFSA may by written notice require an Authorised Firm to hold and maintain a minimum amount of financial resources which will be available during Resolution to absorb losses and recapitalize it so that it can continue to perform Critical Functions while Resolution is ongoing (Loss Absorbing Capacity).

         

        Derived from DFSA RMI283/2020 (Made 16th December 2020). [VER1/04-21]

      • RAR 2.4.1 RAR 2.4.1

        (1) This Rule applies where the DFSA by written notice under Article 84H of the Law requires an Authorised Firm to hold and maintain a minimum amount of Loss Absorbing Capacity (LAC).
        (2) The DFSA will issue a LAC requirement only in relation to an Authorised Firm that is not a Branch.
        (3) The Authorised Firm shall maintain the specified amount of LAC at all times from the date specified by the DFSA in the notice.
        (4) The LAC requirement:
        (a) shall include the Authorised Firm’s own funds and Eligible Liabilities, whether issued externally or internally within its Group;
        (b) may be applied on an unconsolidated balance sheet basis to an individual entity or on a consolidated balance sheet basis to two or more entities that the DFSA groups together;
        (c) may specify criteria that must be met by Debt Instruments or other instruments issued for the purposes of complying with the requirement;
        (d) may require eligible instruments to contain contractual terms designed to promote recognition of their loss-absorbing characteristics and their eligibility to be the subject of the exercise of the Bail-In Tool.

         

        Derived from DFSA RMI283/2020 (Made 16th December 2020). [VER1/04-21]

        • RAR 2.4.1 Guidance

          1. The DFSA will calibrate the LAC requirement according to the existing level of capitalisation of the Authorised Firm and having regard to its business model and the other relevant parameters such as the resolution strategy, situation of other Group or sub-Group entities and macro-prudential considerations.
          2. The LAC requirement will be based on the Total Loss-Absorbing Capacity (TLAC) Standard issued by the Financial Stability Board (FSB), or any relevant document relating to loss-absorbing capacity issued by an international standard-setting body, which will be given effect in whole or in part and subject to any modifications that the DFSA thinks fit, having regard to the prevailing circumstances in the DIFC.
          3. A LAC requirement may be imposed concurrently or separately to the resolution planning process regarding the Authorised Firm, and will have regard to the resolution strategy adopted for the Authorised Firm.
          4. The DFSA will set reasonable deadlines for the Authorised Firm to meet the LAC requirement, which may include staggered build-up toward the target amount of the LAC.

           

          Derived from DFSA RMI283/2020 (Made 16th December 2020). [VER1/04-21]