PRA confirms solvent exit planning regime for non-systemic institutions

What does this mean?

The PRA’s requirements seek to ease the way in which non-systemic firms can exit the market in an orderly way. The PRA expects non-systemic firms to integrate solvent exit planning into their recovery and resolution planning, aiming to remain solvent should they choose or need to wind down PRA-regulated activities.

Scope of the regime

After considering the responses, the PRA has decided not to change the scope of application of the solvent exit policy. 

As a result the regime will apply to UK banks and building societies which are not:

• itself, or part of a group that is, a global systemically important institution (G-SII) or an other systemically important institution (O-SII); or
• subject to the Operational Continuity Part of the PRA Rulebook.

Policy changes

After reviewing feedback on CP10/23, the PRA made adjustments to its final policy to provide clearer guidance on solvent exit planning. 

This includes providing further details on managing deposits and permission removal, specifying solvent exit indicators as advisory rather than automatic triggers for exit, and expanding on stakeholder communication requirements. 

Additionally, the PRA clarified the flexibility in conducting assurance activities, to allow external specialists to undertake the role and elaborated on exit valuations.

Preparing for a solvent exit

Firms will need to produce a detailed solvent exit analysis (SEA), regardless of how unlikely or distant a prospect solvent exit may seem to the firm. The SEA will need to cover a broad range of assessments and measures including:

• Solvent exit actions: A comprehensive list of actions to end PRA activities solvently, including transferring or repaying deposits.

• Solvent exit indicators: The identification and monitoring of both financial and non-financial indicators that signal when to initiate a solvent exit.

• Potential barriers and risks: An assessment of potential obstacles and risks to executing a solvent exit, including firm-specific and market-wide factors.

• Resources and costs: Assess financial and non-financial needs for a solvent exit, including costs from asset sales and penalties.

• Communication: Plan how to inform stakeholders about a solvent exit to manage their expectations and reactions.

• Governance and decision-making: Set up clear governance to manage solvent exit planning and execution, defining roles and duties.

• Assurance: Conduct activities to check solvent exit plan adequacy, including necessary reviews and updates to the SEA. The PRA has clarified that firms can use external specialists to undertake this role. 
  

Executing a solvent exit (SEEP)

The PRA also details the actions firms should take when a solvent exit becomes a reasonable prospect or when the firm is requested by the PRA to produce one.

The key requirements include:

• Producing a SEEP: Developing a detailed plan when exiting the market becomes a reasonable prospect, outlining steps to cease regulated activities.

• Governance and decision-making: Defining clear roles and frameworks for solvent exit oversight, promoting accountability and effective decisions.

• Monitoring and responding to emerging risks: Actively monitor for new risks during the exit process and adjust the SEEP accordingly to mitigate these risks.

• Communication with stakeholders: Executing a communication plan to update stakeholders on the exit process, managing their expectations and reactions.

• Regulatory compliance: Ensuring ongoing compliance with all regulatory requirements throughout the solvent exit and promptly addressing any compliance issues.

• Assessing feasibility and appropriateness: Regularly evaluating the likelihood of a successful solvent exit and adjusting plans or considering alternatives if viability changes.

• Submission of regulatory applications: Prepare and submit required applications to the PRA to remove the firm's Part 4A permission, following regulatory guidelines.

What do firms need to do?

With 18 months to implement the new expectations, firms should start now by considering how to proportionately address the new requirements for their business.

Firms will need cross-functional input to need to execute a solvent exit, the solvent exit actions they would take, the timeline over which they could be executed, the resources required and potential barriers and risks to execution. These will need to be supported by robust communication plans and governance arrangements.

Through projections of the costs under each scenario, firms will need to assess the financial resources, including capital, funding and liquidity, needed to execute a solvent exit.

Firms will also need to engage their Board and relevant governance committees to challenge, review and approve the document, including solvent exit indicators.

Assurance will be essential across the solvent exit planning process, ensuring plans are thorough, indicators are relevant, and plans are clear. 

Firms will need to review and update their solvent exit analysis whenever a material change has taken place, and at least once every three years.

Next steps

Firms need to comply with Recovery Plans Chapter 7 and expectations from SS2/24 by 1 October 2025. The PRA will engage industry bodies on firms' readiness for new rules. Supervisors will reach out to firms for their SEA as needed.