Overview of the Resolution Authority
When a bank is experiencing financial difficulties, legislation in the Isle of Man allows for the ‘resolution’ of the bank to be used to help limit the harm that can be caused as a result of a disorderly failure. Bank resolution is a process that enables part, or all, of the distressed bank’s business to continue to operate, or to be wound down in an orderly way. Using the bank resolution framework enables the Isle of Man to minimise potential disruption to critical functions, protect public money, and protect financial stability.
The resolution framework applies to banks that hold Class 1(1) and Class 1(2) permissions in the Isle of Man and also extends to any company incorporated in the Island which is a holding company or subsidiary of such a bank.
Under the resolution framework, the Isle of Man Financial Services Authority (“IOMFSA”) is the Resolution Authority for the Isle of Man and has been ascribed specific functions by the legislation: the Bank (Recovery and Resolution) Act 2020 (“BRRA20”).
The Resolution Authority’s objectives are set out in BRRA20, section 44:
“The resolution objectives are —
a) to ensure the continuity of banking services in the Island and the provision of critical functions in the Island;
b) to protect and enhance the stability of the financial system of the Island, including by preventing contagion and maintaining market discipline;
c) to protect and enhance public confidence in the stability of the financial system in the Island;
d) to protect public funds, including by minimising reliance on extraordinary public financial support;
e) to protect depositors to the extent that they have eligible protected deposits; and
f) to protect client assets.”
The Resolution Authority may do anything it reasonably considers necessary to facilitate, or which is conducive to, the performance of its functions as laid out in BRRA20, to meet the resolution objectives.
In preparation for a possible future crisis, banks are required to produce recovery plans, detailing the warning indicators that could signify the start of a crisis and the steps that the bank could take to protect itself.
The Resolution Authority is required to prepare resolution plans, detailing the actions that might be taken should the exercise of the bank’s recovery plan be unsuccessful, and the bank be at risk of failure.
In a crisis, the Resolution Authority must determine whether a bank has “failed or is likely to fail”, and then take appropriate action using the stabilisation powers.
In line with recognised international standards, the Resolution Authority will continue to add further elements to its resolution framework where necessary, to enhance its role in protecting the stability of the financial systems of the Isle of Man.