In June the Prudential Regulation Authority released CP10/23 ‘Solvent exit planning for non-systemic banks and building societies’ to which UK Finance has published our response.  

Solvent exit is “the process through which a firm ceases PRA-regulated activities (deposit-taking) while remaining solvent throughout to the point that they can be liquidated safely and repay all depositors and creditors in full” and sits between resolution and recovery in the PRA’s framework.  

This is designed to enable smaller firms whose business model may not be viable in the longer term to wind down their operation without going through bank insolvency process.  The proposals require firms to prepare a plan describing how they would exit the market, what resources they would need and the expected timeline to carry this out.  

For some time, this type of planning has been a pre-condition for new entrants to the market gaining PRA authorisation. This consultation paper proposes to make this type of planning ubiquitous for all non-systemic PRA regulated firms as part of their Business As Usual activities, by adding a new chapter to the Recovery Plans Part of the PRA Rulebook.  The PRA’s proposals will also require firms to subsequently prepare a more granular execution plan when solvent exit looks to be a reasonable prospect, inform the PRA of progress as the solvent exit plan is executed, and monitor continuing business viability. 

Over the last 4 months UK Finance has engaged with a variety of our non-systemic members and the PRA to create our response. It asked for clarity on a number of issues such as:  

• the identification of appropriate solvent exit indicators 

• the overlap with firms on the pathway to MREL issuance 

• the likely costs of creating solvent exit plans and the extent of the governance surrounding them  

• what activities, including deposit raising, firms can engage in whilst executing a solvent exit 

• at what point should firms make public disclosures that they have activated a solvent exit plan.  

The PRA sees the first phase of these plans as being undetailed and designed to ensure that firms are thinking ahead of time about the solvent exit process and to ensure that they have identified data and (potentially external) resources needed to carry out a solvent exit successfully. There was some scepticism about this with members fearing a creep of scope and cost.  If you have any questions about this consultation, our response to it or Solvent Exit more generally email: Ben Moore