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The strongest recovery plans are not designed for the moment a crisis begins, but to prevent it from escalating in the first place. In a period marked by heightened financial volatility, regional geopolitical uncertainty, and continuously evolving regulatory expectations, the need for early preparedness and meaningful resilience is more relevant than ever. For banks, this is where Recovery Planning plays a central role.
It enables banks to stay prepared and respond quickly and effectively during periods of severe financial stress. Under the EU’s Bank Recovery and Resolution Directive (BRRD), banks are required to develop, maintain, and regularly update comprehensive recovery plans designed to restore financial viability in the event of severe distress. These plans must include recovery plan indicators, scenarios, escalation processes, recovery options, communication plans and governance arrangements. Recovery Planning is not only a regulatory requirement but also a strategic priority. It provides a discipline that helps identify vulnerabilities early and mitigate the risk of crises escalating.
Τurning preparedness into action
A recovery plan helps banks:
- Anticipate risks by assessing different scenarios and planning how to respond before issues arise.
- Identify early warning signs through indicators that signal when financial or operational stress is building up.
- Activate clear recovery actions by outlining practical steps that can be taken to stabilise the bank if conditions worsen.
Define clear roles and responsibilities to support faster, more coordinated decision-making. Rely on realistic recovery options that are practical, feasible, and executable under pressure. This discipline has become particularly important as recent assessments by European authorities, including the European Banking Authority, indicate that the banking sector has entered this period of geopolitical uncertainty from a position of relative strength, supported by strong capitalisation, ample liquidity, and solid asset quality.
Recovery Planning is increasingly becoming relevant not only for banks but also for investment firms within the BRRD scope and is expanding across the wider financial sector as regulatory expectations continue to broaden.
The same direction is now visible in the insurance sector The European Insurance and Occupational Pensions Authority (EIOPA) is actively supporting the implementation of the EU-wide Insurance Recovery and Resolution Directive (IRRD), which is expected to be progressively rolled out across Member States with implementation expected in early 2027.
Main Recovery Planning Requirements
The EU has established a robust regulatory framework governing recovery and resolution planning, shaped by EU legislation and directives. Within this framework, banks are increasingly expected to demonstrate:
- Granular and institution‑specific recovery plans that reflect each bank’s unique risk profile, business model, and critical functions.
- Calibrated early-warning indicators with clearly defined thresholds to identify emerging stress at an early stage. Regular testing of recovery options, including option feasibility analysis under a range of stressed but plausible conditions.
- Demonstrated recovery capacity, ensuring options are actionable, and capable of restoring viability under severe stress. Institutions are expected to conduct deeper analyses of option execution timelines, operational constraints, and cross‑entity interdependencies.
- Mature governance arrangements that support timely decision‑making and escalation.
- Clear internal and external communication protocols to support coordinated action during crises.
- Alignment with broader resilience frameworks, such as risk appetite, stress testing, and capital and liquidity planning.
A critical element in making Recovery Planning operational lies in the use of detailed playbooks and the frequent dry‑run exercises. Playbooks turn theoretical instructions into step‑by‑step guidance, while dry runs confirm governance readiness, data availability, and coordination under pressure.
The Introduction of the IRRD for Insurers
The upcoming IRRD introduces a harmonised EU framework aimed at strengthening insurer resilience and safeguarding policyholders.
Under the IRRD, (re)insurance undertakings will be required to develop recovery plans that outline credible actions to restore their financial position during periods of severe stress. These plans are expected to be supported by robust scenario analysis, clearly identified critical functions, and measures aimed at safeguarding policyholders. The directive also reinforces the importance of cooperation between supervisory and resolution authorities, as well as the use of early intervention tools to address vulnerabilities before they escalate.
Regional Developments and EU Regulatory Maturity It is notable that some regional regulators, such as those in Saudi Arabia, the UAE and Egypt, have also developed comprehensive recovery‑planning expectations aligned with international standards, highlighting the importance of recovery planning. However, the regulatory frameworks in the EU (including Cyprus) remain more extensive and mature, particularly under the BRRD and forthcoming IRRD for insurers.
Strengthening resilience through recovery planning Recovery Planning is helping banks become stronger and more resilient not only in managing crises, but in helping prevent them from escalating in the first place. In Cyprus, clear expectations are set for robust, actionable, and institution‑specific recovery plans. As regulatory scrutiny continues to intensify, banks that maintain well‑governed, rigorously tested, and fully integrated recovery frameworks will be best positioned to withstand severe stress and navigate future uncertainty.
Building on this foundation, the IRRD, the insurance companies equivalent, will extend similar principles to the insurance sector, bringing it closer to the level of preparedness established in banking under the BRRD and further strengthening the overall resilience of the financial system.
EY Cyprus remains committed to supporting institutions in achieving these objectives by leveraging its extensive experience and deep understanding of regulatory requirements.
Adib Mounla
Manager – Risk Consulting
EY Cyprus
