A Recovery and Resolution Plan (RRP) is a comprehensive strategy developed by financial institutions to ensure the continuity of critical functions and minimize disruption in the event of severe financial distress or failure. In the crypto sector, for centralized exchanges, custodians, or large institutional players, an RRP outlines pre-defined actions to stabilize operations or facilitate an orderly wind-down, protecting clients and market stability. Its purpose is to mitigate systemic risk.
Mechanism
The plan typically details a hierarchy of measures, starting with internal recovery actions, such as liquidity management, asset sales, or capital injections, to restore financial health. If recovery fails, the resolution phase specifies how authorities can manage the firm’s failure without causing broader market contagion. This involves identifying critical operations, mapping interdependencies, and preparing for the transfer of assets or client accounts, potentially through a structured bankruptcy process or a specialized resolution authority.
Methodology
Developing an effective RRP for a crypto entity demands a thorough understanding of its operational architecture, financial linkages, and legal structures across various jurisdictions. This involves conducting detailed business impact analyses to identify essential services and their supporting infrastructure. Furthermore, it necessitates defining clear governance frameworks for crisis management, establishing communication protocols with regulators and stakeholders, and regularly testing the plan’s viability against stress scenarios. This systematic approach aims to build resilience and minimize the impact of individual entity failures on the wider crypto financial system.
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