| 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.
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| 7.2 | With respect to recovery options, the recovery plan must contain:
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| | 7.2.1 | | a broad range of recovery options to ensure the sufficient availability of implementable options in a variety of stress situations;
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| | 7.2.2 | | an approach to determine which recovery options to implement and in what sequence depending on the circumstances of each stress;
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| | 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;
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| | 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;
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| | 7.2.5 | | details of the Financial Institution’s available collateral and the processes to identify it; and
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| | 7.2.6 | | an assessment of the possibility to transfer liquidity across group entities, where relevant.
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| 7.3 | For Banks, the range of recovery options must also include:
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| | 7.3.1 | | actions to strengthen capital and capital conservation measures such as suspension of dividends and payments of variable remuneration;
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| | 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
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| | 7.3.3 | | sales of subsidiaries and spin-off of business units, and voluntary restructuring of liabilities through debt-to-equity conversion, where possible.
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| 7.4 | For Insurance Companies, the recovery plan must also include or justify the non-inclusion of the following range of recovery options:
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| | 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;
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| | 7.4.2 | | triggering of contingent capital instruments;
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| | 7.4.3 | | possible sales of subsidiaries, portfolios of insurance contracts, or spin-off of business units;
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| | 7.4.4 | | changes to the reinsurance programme;
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| | 7.4.5 | | changes to the investment strategy and hedging programme;
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| | 7.4.6 | | changes to business mix, sales volumes and product designs, including options to close books of business to new sales or business;
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| | 7.4.7 | | changes to underwriting and claims handling practices; and
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| | 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).
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| 7.5 | Each recovery option must at a minimum include the following details:
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| | 7.5.1 | | a description of the recovery option;
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| | 7.5.2 | | detailed preparatory arrangements to ensure it is implementable in a timely manner;
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| | 7.5.3 | | clearly allocated roles and responsibilities for its implementation;
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| | 7.5.4 | | the capital and liquidity impact of its implementation, measured in both monetary terms and relevant regulatory metrics; and
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| | 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.
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| | An assessment of:
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| | 7.5.6 | | the credibility of its successful implementation and realization of benefits;
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| | 7.5.7 | | the timeline for its implementation;
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| | 7.5.8 | | the timeline for the impact of its capital and liquidity benefits;
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| | 7.5.9 | | the potential impact of its implementation on the Financial Institution’s franchise, ranging between low, medium and high;
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| | 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;
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| | 7.5.11 | | the impact of its implementation on the Financial Institution’s Critical Functions;
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| | 7.5.12 | | the potential impediments to its implementation, including those of a legal and regulatory nature, and how they could be mitigated;
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| | 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
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| | 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.
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| 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.
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| 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.
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| 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.
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| 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.
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| 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. |