Search

Focus On

Case Study

Recovery Fire Plan Drill

SUMMARY

The client, a UK challenger bank, providing a range of services to both individuals and business clients, including mortgages and unsecured loans, savings and current accounts, and other banking services. In line with the Prudential Regulation Authority’s (PRA) expectations, the client was required to conduct a periodical Recovery Plan Fire Drill exercise to test the effectiveness of executing the Recovery Plan under a stress scenario.

CUSTOMER GOALS

To address the regulator’s expectations, the client engaged Avantage Reply to assist with the preparation for the Recovery Plan Fire Drill exercise and to provide independent feedback on the exercise conducted. In particular, the client expected Avantage Reply to provide insights on key regulatory expectations regarding the exercise implementation, the structure and design of the Recovery Plan scenario employed for the Fire Drill. The Client also expected a formal feedback report on the exercise conducted as well as a high level feedback on the Recovery Plan document itself.

CHALLENGES

Some elements of the Recovery Plan document, such as related governance processes and Early Warning Indicators (EWIs) framework, were being enhanced by the client in parallel with the execution of the Fire Drill exercise. Therefore, the development of the Fire Drill scenario as well as the Fire Drill process had to reflect ongoing changes. In addition, given Covid-19 restrictions the preparation and execution was almost exclusively performed via conference calls which made running the Fire Drill exercise and observing the process more challenging.

APPROACH AND SOLUTIONS

The approach adopted by Avantage Reply ensured that the Recovery Plan Fire Drill exercise meets the regulatory requirements and is aligned with the industry best practice. It included the following steps:

  • Initial review of the Recovery Plan document to provide high-level feedback along with a list of observations and findings;
  • Assisting with the design of a capital-driven and a liquidity-driven scenarios and narrative, as well as estimation of initial impacts on the firm’s risk metrics employed in the Recovery Plan, in particular the EWIs, capital and liquidity position;
  • Observing the process the Fire Drill exercise including the pre-session communications and all meetings convened, followed by a feedback session that provided a high-level summary on the exercise development and results of the test; and
  • Providing a formal report that detailed the process used to prepare and execute the Fire Drill, evaluating the exercise against the Recovery Plan document and included a comprehensive list of recommendations for future improvements.