Prudential Regulation Authority Rulebook

1.1

This supervisory statement (SS) sets out the Prudential Regulation Authority’s (PRA) expectations for non-systemic banks and building societies in the UK to prepare, as part of their business-as-usual (BAU) activities, for an orderly ‘solvent exit’; and if needed, to be able to execute one.

1.2

This SS applies to a firm that is a non-systemic UK bank or building society (‘firm’). For the purpose of solvent exit planning, the PRA defines this as a UK bank or building society that is: a) not subject to the Operational Continuity Part of the PRA Rulebook, or (b) not part of a global systemically important institution (G-SII) or an other systemically important institution (O-SII), according to Chapter 7 of the Recovery Plans Part of the PRA Rulebook.¹ Other firms that are not in scope of this SS may also find the expectations helpful in preparing themselves for the cessation of PRA-regulated activities.

1.3

A solvent exit means the process through which a firm ceases its PRA-regulated activities while remaining solvent.² The firm should transfer³ or repay (or both) all deposits as part of its solvent exit.⁴ In the firm’s solvent exit planning, it should build in sufficient time and resources to support the firm in meeting liabilities when they fall due and in transferring and/or repaying all deposits. At a point after this, a solvent exit will end with the removal of deposit-taking activity from the firm’s Part 4A permission, or with the cancellation of the firm’s Part 4A permission (hereinafter referred to as the removal of the firm’s Part 4A PRA permission).⁵

1.4

This SS sets expectations for both the preparations for and execution of a solvent exit. Chapter 2 sets out the PRA’s expectations for how a firm should prepare for an orderly solvent exit as part of its BAU activities. A firm should produce a ‘solvent exit analysis’ to meet the expectations in this Chapter. Chapter 3 sets out the PRA’s expectations for a firm to produce a ‘solvent exit execution plan’ when solvent exit becomes a reasonable prospect for a firm. It also sets out the PRA’s expectations for how a firm should manage and monitor the execution of a solvent exit.

1.5

The expectations in this SS further the PRA’s general objective to promote the safety and soundness of firms, helping to minimise the risks of a disorderly cessation of PRA-regulated activities. These expectations also support the PRA’s secondary objective to facilitate effective competition, supporting a well-functioning and dynamic market in which new firms can enter and unviable firms can more easily leave with minimal disruption.

1.6

Solvent exit may not be an effective approach in all circumstances. Solvent exit planning is designed to complement the other ways in which a firm’s failure may be managed: for example, a fast failure of a firm⁶ may necessitate the exercise of stabilisation tools by the Bank of England as resolution authority, or may lead to insolvency procedures being invoked in relation to a firm.⁷

1.7

In meeting the expectations in this SS, a firm may draw on and adapt its work under other existing regulatory requirements, and should ensure that its solvent exit preparations are consistent with and viewed as complementary to its work in other areas such as recovery and resolution planning.

1.8

This SS complements, and should be read in conjunction, with:

• the Recovery Plans Part of the PRA Rulebook;⁸
• SS9/17 – Recovery planning;⁹
• the PRA’s web page on ‘Cancelling a firm’s permissions’;¹⁰
• the PRA’s web page on ‘Variation of permission’;¹¹
• the Financial Conduct Authority’s (FCA’s) web page on ‘Cancelling an authorisation or registration’¹² and Handbook SUP 6 ‘Applications to vary and cancel Part 4A permission and to impose, vary or cancel requirements’¹³ which applies to firms, including dual-regulated firms; and
• the FCA’s ‘Wind-down Planning Guide’ (WDPG),¹⁴ TR22/1: ‘Observations on wind-down planning: liquidity, triggers & intragroup dependencies’,¹⁵ and ‘Investment Firms Prudential Regime implementation observations: quantifying threshold requirements and managing financial resources – concluding report’ (such as section 4.3 Wind-down plans and section 6.6 Wind-down planning process)¹⁶ which contain content and examples of good practice which firms may find helpful.