The Danish Financial Supervisory Authority (Danish FSA) is seeking comments, until February 14, 2023, on the draft guidance on recovery plans for banks, mortgage credit institutions, and certain other entity types. The draft document aims to guide on the application of simplified obligations in a recovery plan, the possible scenarios in recovery plans, and the qualitative and quantitative indicators in recovery plans.
The draft guidance states that a recovery plan is a management tool that primarily aims to prevent the company from getting into such serious difficulties that it becomes necessary to liquidate it. The recovery plan not only indicates what the company must do in a crisis situation, it also defines how the company must organize itself in ordinary times. A recovery plan will thus help to ensure that the company identifies problems and implements the necessary measures with a view to ensuring the company's viability in the long term. The most significant amendments compared to the previous set of rules relate to the addition of a ship finance company to the guidance’s scope of application, expectation for calibration of capital indicators and the use of reverse stress tests and sensitivity analyses. The amendment to the draft guidance indicates that capital indicators should be calibrated above the combined capital buffer requirement in accordance with the European Banking Authority (EBA)’s updated guidelines for indicators in recovery plans (EBA/GL/2021/11). In addition, the use of reverse stress tests and sensitivity analyses is recommended based on the EBA guidelines for stress tests of institutions (EBA/GL/2018/04). The draft guidance is expected to enter into force on May 01, 2023.
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