PS5/24 – Solvent exit planning for non-systemic banks and building societies

1: Overview

1.1 This Prudential Regulation Authority (PRA) policy statement (PS) provides feedback to responses to consultation paper (CP) 10/23 – Solvent exit planning for non-systemic banks and building societies.^{footnote [1]} It also contains the PRA’s final policy, as follows:

• Chapter 7 of the Recovery Plans Part of the PRA Rulebook (Appendix 1);
• supervisory statement (SS) 2/24 – Solvent exit planning for non-systemic banks and building societies (Appendix 2); and
• updated SS3/21 – Non-systemic UK banks: The Prudential Regulation Authority’s approach to new and growing banks (Appendix 3).

1.2 This PS is relevant to UK banks and building societies to which Recovery Plans Chapter 7 applies (henceforth ‘firms’). Specifically, this means every UK bank or building society that is 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.

1.3 This PS is not relevant to credit unions or branches of third-country groups.

Background

1.4 The PRA stated in 2021^{footnote [2]} and confirmed in its business plan for 2022/23 that it would work to increase confidence that firms can exit the market with minimal disruption in an orderly way. As part of this programme of work, the PRA proposed in CP10/23:

• new rules and expectations stating that a firm must prepare for a solvent exit as part of its business-as-usual (BAU) activities, and that a firm must document the preparations in a solvent exit analysis (SEA);
• new expectations, which apply if solvent exit becomes a reasonable prospect for a firm, on how the firm should prepare a solvent exit execution plan (SEEP) and monitor and manage the execution of a solvent exit; and
• consequential changes to SS3/21 such as the ‘Solvent wind down’ section for alignment.

Summary of responses

1.5 The PRA received eight responses to CP10/23. Respondents generally supported the PRA’s proposed solvent exit policy to minimise the risks of a disorderly cessation of PRA-regulated activities. Respondents generally supported the distinction between the level of preparations made by all firms during BAU (in a SEA) and by firms with a reasonable prospect of solvent exit (in a SEEP). Respondents generally welcomed the PRA’s position that solvent exit planning should be proportionate to the nature, scale, and complexity of a firm. Respondents made a number of observations and requests for clarification which are set out in Chapter 2.

Changes to draft policy

1.6 Having considered the responses to CP10/23, the PRA has made changes to the final policy to further clarify the PRA’s expectations. A summary of the key changes is set out below:

• SS2/24 (paragraph 1.3): the PRA provides further clarity and elaboration of a firm’s solvent exit planning for the transfer and/or repayment of all deposits; and the removal of a firm’s Part 4A PRA permission.
• SS2/24 (paragraph 2.7): the PRA clarifies that a firm’s solvent exit indicators are intended to inform a firm as to when it may need to initiate a solvent exit, but they are not automatic triggers for a solvent exit.
• SS2/24 (paragraph 2.18 and Annex A): the PRA adds examples of stakeholders in a firm’s solvent exit planning on communication.
• SS2/24 (paragraph 2.25): the PRA clarifies that a firm may perform assurance activities internally, or externally as the firm considers appropriate.
• SS2/24 (paragraph 3.7): the PRA provides further details on what a firm should consider regarding exit valuations.
• The PRA has also made some editorial amendments to SS2/24 and SS3/21 to enhance clarity and consistency.

1.7 The PRA considers that the changes to its draft policy will not have a significant impact on firms, and will not have a significantly different impact on mutuals than for other firms, compared with the proposals upon which the PRA consulted. As a result, the cost benefit analysis has not been updated in respect of these changes.

1.8 When making rules, the PRA is required to comply with several legal obligations, including considering responses to consultation and publishing an explanation of the PRA’s reasons for believing that making the proposed rules is compatible with its objectives and with its duty to have regard to the regulatory principles.^{footnote [3]} In CP10/23, the PRA set out this explanation in Chapter 2, and these are further considered below in light of consultation responses.

Implementation and next steps

1.9 Recovery Plans Chapter 7 will come into force on Wednesday 1 October 2025. Firms are also expected to meet the expectations in SS2/24 by Wednesday 1 October 2025.

1.10 The PRA will continue to engage with relevant industry bodies regarding firms’ preparations for implementation before the rules and policy come into force. PRA supervisors will communicate with firms as appropriate for any request for a firm’s SEA.

1.11 Unless otherwise stated, any remaining references to EU or EU-derived legislation refer to the version of that legislation which forms part of retained EU law.^{footnote [4]}

2: Feedback to responses

2.1 The PRA must consider representations that are made to it in accordance with its duty to consult on its general policies and practices and must publish, in such manner as it thinks fit, responses to the representations.

2.2 The PRA has considered the responses received to CP10/23. This chapter sets out the PRA’s feedback to those responses, and its final decisions.^{footnote [5]}

2.3 The sections below have been structured along similar lines to the chapters of CP10/23 and SS2/24, with some areas rearranged to better respond to related issues. The responses have been grouped as follows:

• general comments;
• SEA and SEEP;
• solvent exit planning;
• interaction with existing regulatory requirements and initiatives; and
• cost benefit analysis.

General comments

2.4 The PRA proposed that the solvent exit policy apply to non-systemic firms. A firm should prepare for an orderly solvent exit as part of its BAU activities, regardless of how unlikely or distant a prospect solvent exit may seem to the firm. The implementation date of the solvent exit policy was proposed to be Q3 2025.

2.5 One respondent said that it is not proportionate to expect all firms, regardless of their scale or complexity, to produce a SEA. One respondent commented that the solvent exit policy could be made more proportionate by only expecting a loss-making firm to conduct a full SEA. Two respondents suggested that firms focus more on identifying barriers to solvent exit. One of these two respondents said that firms should also be encouraged to focus on solvent exit indicators, and governance and decision-making arrangements.

2.6 After considering the responses, the PRA has decided not to change the scope of application of the solvent exit policy. The PRA’s view is that a firm could prioritise certain items in its SEA that have more material impact on its preparations for a solvent exit. However, the PRA is of the view that the minimum contents expected in a SEA (prepared during BAU) as covered in Chapter 2 of SS2/24 could be pertinent to increase all firms’ ease of ceasing PRA-regulated activities successfully. For instance, as a firm sets out in its SEA the identified barriers to the execution of a solvent exit, it will identify issues such as potential complications arising from complex corporate structure or use of deposit aggregators. It can then take reasonable steps in BAU to mitigate or remove the material barriers in advance of a solvent exit; or identify them as constraints around which the firm will have to plan. The PRA also highlights that the level of detail in a firm’s SEA should be proportionate to the nature, scale and complexity of the firm, according to paragraph 2.3 of SS2/24.

2.7 One respondent agreed that solvent exit is an important route for firms that do not generate adequate returns to choose to exit the market. Two respondents said that subsidiaries with a non-UK parent and building societies are less likely to have solvent exit as an exit route. One of these respondents commented that solvent exit should not be the primary way, but one of the ways, that a firm may exit the market. The PRA recognises that solvent exit may not be an effective approach in all circumstances, such as in the case of a fast failure of a firm. Paragraph 1.6 and Box A of the draft SS2/24 have been amended for editorial clarity.

2.8 One respondent said that the proposed implementation of the solvent exit policy by Q3 2025 may not be realistic without further PRA guidance. The respondent also suggested that the implementation timeline be delayed to fit into the PRA’s strong and simple (S&S) policy timeline.

2.9 After considering the responses, the PRA has decided to maintain the proposed implementation timeline. The PRA’s view is that an 18-month implementation timeline allows firms sufficient time to implement the solvent exit policy. A firm’s existing work, such as recovery planning, should be able to support a firm to meet, or begin to meet, the solvent exit policy as a starting point.

2.10 The PRA is also of the view that it is not appropriate to delay the implementation timeline of the solvent exit policy in light of the S&S framework. The PRA has taken a phased approach to developing the S&S framework, which currently focuses on the scope criteria, liquidity and disclosure requirements for Small Domestic Deposit Takers (SDDTs).^{footnote [6]} The PRA’s view is that that these S&S policy proposals do not have significant overlap with the expectations in the solvent exit policy. The PRA also does not anticipate that the solvent exit policy will become inconsistent with future S&S policy.

2.11 One respondent was concerned that a firm that prepares for, but ultimately fails to effect, solvent exit due to external factors may contravene the proposed rules. The PRA’s view is that the rules focus on a firm’s preparations for a solvent exit, not the exit itself. However, a firm’s preparations that rely heavily on external factors (such as a willing and able purchaser, or valuations being maintained under stressed circumstances) could suggest a lack of realistic preparations for a solvent exit that could undermine its compliance with the rules. After considering the responses, the PRA has maintained the view that the legal drafting in Recovery Plans Chapter 7 is appropriate to reflect the solvent exit policy intent.

2.12 One respondent suggested changes to the proposed text in paragraph 2.2 of the draft SS3/21. The PRA agrees that the clarity of the proposed changes to SS3/21 can be enhanced. The final SS3/21 reflects the editorial changes made to that effect.

SEA and SEEP

2.13 The PRA proposed that a firm set out its solvent exit preparations in a SEA as part of its BAU activities. A firm should produce a SEEP when solvent exit becomes a reasonable prospect for a firm. A firm may include the SEA as a discrete section in its recovery plan, but may also set out the SEA separately if the firm finds it appropriate.

2.14 Six respondents commented on the links between solvent exit policy and recovery planning. They had differing views about whether a firm’s SEA should be incorporated into its recovery plan; where three of these respondents said that a firm’s SEA may duplicate content in the recovery plan and argued that a firm’s SEA should not be separated from a firm’s recovery plan. Two of these respondents also suggested combining SS2/24 with existing SS9/17 – Recovery planning.

2.15 The PRA highlights that the purposes of recovery and solvent exit differ:

• The purpose of recovery is for a firm to maintain or restore its viability or financial position following a significant deterioration of its financial situation,^{footnote [7]} and to continue its PRA-regulated activities.
• The purpose of solvent exit is for a firm to cease its PRA-regulated activities, whether due to financial or non-financial reasons, and whether in stressed or non-stressed circumstances.

2.16 After considering the responses, the PRA has maintained the view that it is appropriate to include the solvent exit policy in a separate SS instead of merging it with SS9/17. The PRA confirms that a firm has the option to set out its SEA separately or include its SEA as a discrete section in its recovery plan, as per paragraph 2.3 of SS2/24. The PRA highlights that a firm should view solvent exit preparations as complementary to its work on recovery planning, as per paragraph 1.7 of SS2/24, and may draw on and adapt existing work on recovery planning as a starting point to meet the solvent exit policy, as noted in Chapter 2 of SS2/24. However, a firm should still additionally take account of plausible circumstances that could lead to it needing to execute a solvent exit in its SEA, as per paragraph 2.4 of SS2/24, in order to meet the solvent exit policy.

2.17 Two respondents supported, and one of the respondents requested confirmation, that a ‘light touch’ approach is adopted for a SEA. One respondent welcomed that a SEEP builds from a SEA. The PRA confirms that a firm’s SEA should contain details which are proportionate to the nature, scale and complexity of a firm, as per paragraph 2.3 of SS2/24. As noted in paragraph 3.5 of SS2/24, a firm should use its SEA as the starting point for producing its SEEP when solvent exit becomes a reasonable prospect.

2.18 Two respondents suggested that firms be provided with a SEA template. One respondent asked for clarification of what is expected in a SEA. After considering the responses, the PRA has decided not to prescribe a SEA template because a firm should set out its SEA based on firm-specific circumstances. This enables a firm to meet the expectations in SS2/24 in a proportionate manner. This also reduces the risk of the solvent exit policy being treated as a form-filling compliance exercise. The PRA highlights that Chapter 2 of SS2/24 covers the minimum list of contents expected in a firm’s SEA.

2.19 One respondent requested further guidance and examples of good practice and common weaknesses observed in firms’ current solvent exit planning. The PRA highlights that the Financial Conduct Authority’s (FCA’s) Wind-down Planning Guide, TR22/1: Observations on wind-down planning: liquidity, triggers & intragroup dependencies and Investment Firms Prudential Regime implementation observations: quantifying threshold requirements and managing financial resources – concluding report contain content and examples of good practice which firms may find helpful.

2.20 One respondent said that the solvent exit policy should be more prescriptive about the level of detail required in a SEEP. After considering the responses, the PRA has maintained the view that Chapter 3 and Annex A of SS2/24 contain the appropriate level of detail. Setting further specific expectations for a firm’s SEEP may limit how a firm produces a SEEP, which should be appropriate for its business model, structure, operations, risk strategy and the circumstances leading to the initiation of a solvent exit as per paragraph 3.5 of SS2/24.

Solvent exit planning

Solvent exit actions

2.21 The PRA proposed that a firm set out the actions needed to cease its PRA-regulated activities while remaining solvent, including the transfer and/or repayment of all deposits.

2.22 One respondent said that solvent exit should be an option to be considered under recovery planning, alongside other existing recovery options such as sale of assets and merger. The PRA highlights that paragraph 1.7 of SS2/24 states that a firm should view solvent exit preparations as complementary to its work on recovery planning, but the PRA’s view is that it is prudent for a firm not to assume that existing recovery options will be appropriate or available for a solvent exit. As noted in paragraph 2.5 of SS2/24, a firm should include solvent exit actions which may not be existing recovery actions, such as the transfer and/or repayment of deposits.

2.23 One respondent commented that it is not practicable to complete a transfer of deposits in less than six months. The respondent also said that the transfer may be longer subject to the identification of a counterparty and terms agreed. The respondent suggested that this timing consideration be included as a potential barrier and risk to solvent exit.

2.24 The PRA’s view is that firms may cease PRA-regulated activities with different solvent exit actions, which may (or may not) include transfer of deposits. For example, deposits could be repaid in full. As noted in paragraph 2.6 and Annex A of SS2/24, a firm should anticipate the timeline for executing a solvent exit based on its solvent exit action(s), taking account of internal and external factors. As per paragraph 3.13 of SS2/24, a firm should also take account of the timeline for making a relevant application to the PRA and other regulators as appropriate.

2.25 One respondent requested further guidance on how a firm can transfer or repay term deposits. The PRA’s view is that it is appropriate for a firm to take account of the characteristics of its deposits in assessing the implications and feasibility of its solvent exit actions, as part of its solvent exit preparations. For example, a firm may assess how interest accrued has to be calculated if the firm repays term deposits before maturity, taking into account depositors’ potential loss of interest.

2.26 One respondent enquired whether a firm can continue to accept deposits, which may be needed for covering liquidity needs, during the execution of a solvent exit. The PRA’s view is that in principle, so long as a firm has the Part 4A PRA permission of accepting deposits and meets the threshold conditions for authorisation, it may continue to accept deposits. However, the PRA may also consider exercising its FSMA powers to limit a firm’s deposit-taking activities on case-by-case basis.^{footnote [8]}

2.27 One respondent suggested that a firm plan for post-solvent exit liquidation when it produces a SEEP, given the risks that may arise if it falls into insolvency immediately after the removal of its Part 4A PRA permission.

2.28 The PRA has decided not to include this as an expectation relating to the SEEP because a solvent exit will not necessarily result in the liquidation of a firm. The PRA’s view is that a firm may choose to plan for any post-solvent exit liquidation as appropriate. The PRA has amended paragraph 1.3 of the draft SS2/24 to enhance editorial consistency and to provide further clarity and elaboration of a firm’s solvent exit planning for the transfer and/or repayment of all deposits; and of the removal of a firm’s Part 4A PRA permission.

Solvent exit indicators, resources and costs, and governance and decision-making

2.29 The PRA proposed that a firm set out the financial and non-financial resources needed to execute a solvent exit. The PRA also proposed that a firm be able to make timely decisions regarding the execution of a solvent exit, including whether a solvent exit should be initiated at a particular point in time. The decision should take account of solvent exit indicators and relevant information.

2.30 One respondent enquired about the ‘relevant information’ to be used alongside solvent exit indicators to support decision-making regarding a solvent exit. The PRA highlights that examples of relevant information can be found in paragraph 2.22 of SS2/24. If a firm relies upon requisite advice and activities (eg producing valuations) preceding its decision to execute a solvent exit as noted in paragraph 2.12 of SS2/24, these are also examples of relevant information.

2.31 One respondent sought clarification regarding whether a firm has to initiate a solvent exit when solvent exit indicators are met. The PRA does not expect that a firm will necessarily initiate a solvent exit automatically if the indicators are met. The PRA has amended paragraph 2.7 of the draft SS2/24 to clarify this.

2.32 One respondent requested that the PRA work with firms to establish the conditions necessitating a solvent exit for a firm, as well as an appropriate timeline for executing a solvent exit. The PRA’s view is that a firm’s solvent exit preparations set out in its SEA would inform a firm about these conditions. As noted in Chapter 2 of SS2/24, a firm’s SEA should take into account plausible circumstances leading to a solvent exit, and should set out solvent exit indicators, timeline for solvent exit actions, and governance for decision-making (including whether to initiate a solvent exit). A firm may discuss issues with its PRA supervisor if needed.

2.33 Two respondents sought clarification about the meaning of ‘reasonable prospect’ of a solvent exit. One of the respondents enquired whether it links to the concept as used in the wrongful trading provisions in the Insolvency Act 1986.

2.34 The PRA highlights that a firm and its directors must comply with regulatory requirements (including insolvency and company law) throughout the execution of a solvent exit, in line with paragraph 3.14 of SS2/24. However, the PRA’s view is that it is not appropriate to tie the solvent exit policy, even indirectly, to legal concepts drawn from insolvency law. In the solvent exit policy, ‘reasonable prospect’ of a solvent exit relates to the production of a SEEP and the execution of a solvent exit. In line with paragraph 2.7 of SS2/24, a firm’s solvent exit indicators should be forward-looking and set to provide sufficient warning to the firm to execute a solvent exit while it still has the necessary financial and non-financial resources, such that it will be unlikely for insolvency procedures to be invoked.

2.35 Two respondents commented on the setting of a firm’s solvent exit indicators in light of capital and liquidity considerations, and potential impact to the wider economy. The PRA highlights that in a firm’s solvent exit planning, a firm should identify and monitor indicators relating to its level of financial resources (which include capital, funding, and liquidity) necessary for the execution of a solvent exit, in line with paragraphs 2.7 and 2.14 of SS2/24.

2.36 One respondent made several observations regarding asset valuations in a firm’s solvent exit planning and flagged that the timing of asset sales impacts the sale value of assets. After considering the responses, the PRA has amended a footnote in paragraph 3.7 of the draft SS2/24 to include the consideration of timing of asset sales in a firm’s exit valuations.

Potential barriers and risks

2.37 The PRA proposed that a firm set out the barriers and risks to the execution of a solvent exit. A firm should also set out how and when it would communicate the firm’s solvent exit to stakeholders; and how it would manage stakeholders’ reactions.

2.38 One respondent enquired about the extent to which a firm should consider the impact of the cost of a liquidity run in its SEA. The PRA acknowledges in paragraph 1.6 of SS2/24 that solvent exit may not always be possible. The PRA also recognises depositor run as an example of potential risks to a firm’s execution of a solvent exit in Box B of SS2/24. The PRA’s view is that it is appropriate for a firm to identify how best to manage the risk of a depositor run when the firm assesses in its SEA how to manage any negative impacts of stakeholders’ reaction to its solvent exit, in line with paragraph 2.19 of SS2/24.

2.39 One respondent said that a firm’s analysis of potential barriers to a solvent exit should consider its ability to separate data and identify the associated service provision, because this is needed for the separation of a business. The PRA’s view is that this relates to a firm’s complex structure potentially complicating the execution of solvent exit actions, which has been included in Box B of SS2/24.

Communication

2.40 One respondent requested confirmation that a firm’s invocation of SEEP is not a disclosable event. Three respondents said that public communication regarding solvent exit may risk liquidity outflow or reduce the potential disposal value. One of the respondents commented that it is appropriate to share more information with regulators rather than the public. The respondent also said that information to be communicated to stakeholders may be commercially sensitive.

2.41 The PRA’s view is that it is appropriate for a firm’s solvent exit planning on communications to take into account relevant factors like commercial sensitivity of certain information, as well as the regulatory and contractual requirements imposed on the firm, such as disclosure requirements under the listing rules in relevant jurisdictions, confidentiality agreements and consumer duty. Whether the circumstances which lead to a firm’s invocation of SEEP is a disclosable event depends on the circumstances at the time when the firm executes a solvent exit and the disclosure requirements applicable to the firm. Firms are responsible for understanding and complying with their disclosure obligations. The PRA has also added examples of stakeholders in a firm’s solvent exit planning on communication in paragraph 2.18 and Annex A of the draft SS2/24.

Assurance

2.42 The PRA proposed that a firm undertake adequate assurance activities for its solvent exit preparations. A firm should review and update its SEA whenever a material change has taken place that may affect its preparations for a solvent exit, and at least once every three years.

2.43 One respondent said that an insolvency practitioner would be more appropriate for the assurance of solvent exit preparations. Another respondent commented that reliance on external specialists is recommended in the proposed solvent exit policy. After considering the responses, the PRA has amended paragraph 2.25 of the draft SS2/24 to clarify that a firm may choose to use external specialists as the firm considers appropriate.

2.44 One respondent supported the triennial review of SEA. The respondent sought clarification regarding the meaning of ‘material change’ which may result in a need to update SEA. The respondent said that the materiality of the change may depend on firm-specific characteristics and general market conditions. The PRA highlights that a firm should assess whether the change affects its preparations for a solvent exit, in line with Recovery Plans 7.3. If it does, the firm must update its SEA, and also at least once every three years.

2.45 One respondent suggested that the PRA’s review of SEA and recovery plan be combined into one process, and asked about the frequency of such review. The PRA intends to engage with firms regarding the review of, and request for, a firm’s SEA as appropriate. In the PRA’s supervisory engagement on solvent exit with a firm, the PRA will take into account its current approach to recovery planning on the firm as appropriate.

Interaction with existing regulatory requirements and initiatives

2.46 The PRA proposed that a firm may draw on and adapt its work under other existing regulatory requirements for meeting the solvent exit policy. A firm 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.

2.47 Two respondents commented on how a firm’s governance arrangements could be integrated into a firm’s existing processes and arrangements. Another respondent further commented on how solvent exit indicators and communication framework could each be integrated into a firm’s existing processes and arrangements. The PRA confirms that there is flexibility for a firm to have its solvent exit planning as part of, or separated from, existing processes and arrangements, provided that this does not impede the firm’s compliance with the solvent exit policy and other regulatory requirements.

2.48 Three respondents enquired about the interaction between the solvent exit policy and the S&S framework. Two of the respondents said that the solvent exit policy imposes additional expectations on non-systemic firms and appears to be inconsistent with the PRA’s S&S framework.

2.49 The PRA’s view is that the approach adopted for the solvent exit policy is not inconsistent with the policy intention of the S&S framework. Solvent exit planning is an enabler of S&S by increasing confidence that firms can execute a solvent exit in an orderly manner with minimal disruption to the market. This helps the PRA form its supervisory judgement and adjust the intensity of supervision.^{footnote [9]}

2.50 Moreover, the PRA’s view is that the proportionate approach adopted in the design of the solvent exit policy supports the objective of the S&S framework. Throughout Chapter 2 of SS2/24, the PRA highlights that a firm may use existing work such as recovery planning to meet, or begin to meet, the solvent exit policy. As noted in paragraph 2.3 of SS2/24, a firm is only expected to produce a SEA with the level of detail proportionate to the nature, scale, and complexity of the firm. Chapter 3 of SS2/24 also states that a firm is only expected to produce a detailed SEEP when solvent exit becomes a reasonable prospect.

2.51 One respondent said that the solvent exit policy should be incorporated into the PRA’s S&S 2024 consultation proposals for the capital regime. The PRA’s view is that it is not appropriate to conflate the solvent exit policy and S&S capital policy as they each have a different focus. Solvent exit planning covers aspects beyond financial resources, including but not limited to non-financial resources and communication regarding a solvent exit.

2.52 Two respondents made comments about the application of capital requirements during the execution of a solvent exit. The PRA highlights that paragraph 3.14 of SS2/24 states that a firm must continue to comply with the PRA’s threshold conditions, rules, and other regulatory requirements throughout the execution of a solvent exit. Paragraph 3.14 of SS2/24 also states that a firm should assess proactively and on an ongoing basis whether it may fall short of any legal or regulatory obligations during the execution of a solvent exit and immediately alert the PRA if this might be the case.

2.53 Two respondents requested further guidance regarding how the timing and execution of a solvent exit interact with the Building Societies Act 1986 (and the Edinburgh Reforms where applicable). The respondents were concerned that the minimum voting levels required under the Building Societies Act 1986 might be a barrier to a solvent exit. The PRA’s view is that it is appropriate for a building society to set this out in its SEA as a potential barrier to the execution of a solvent exit. The PRA intends to continue to work with industry bodies and building societies in the scope of the solvent exit policy regarding the Building Societies Act 1986.

2.54 One respondent enquired whether a firm must continue solvent exit planning when it starts, or is expected to start, becoming subject to minimum requirement for own funds and eligible liabilities (MREL). The PRA highlights that the applicability of the solvent exit policy is not determined by applicability of MREL to a firm. If a firm anticipates that it may become out of scope of the solvent exit policy in the future (eg the firm will become a G-SII, an O-SII or subject to the Operational Continuity Part of the PRA Rulebook), the firm should make the PRA aware of this in line with Fundamental Rule 7.

2.55 One respondent requested clarity regarding how a firm should consider the FCA’s consumer duty policy during the execution of a solvent exit. The PRA notes that the FCA’s FG22/5 Final non-Handbook Guidance for firms on the Consumer Duty provides examples which illustrate the types of behaviours adopted by a firm that may (or may not) meet the expectations under the consumer duty.

Cost benefit analysis

2.56 The PRA analysed the costs and benefits of the solvent exit policy in CP10/23. The PRA estimated one-off implementation costs of between £25,000 and £75,000 per firm; and ongoing costs of between £10,000 and £25,000 per firm annually.

2.57 One respondent said that further details regarding how often the SEA would be reviewed by the Bank of England and the PRA, and whether the review leads to further iteration of SEA, are needed before the respondent could accurately comment on the cost. One respondent said that streamlining solvent exit processes with existing recovery planning processes lowers the cost of solvent exit policy. Three respondents argued that the cost is underestimated because small firms rarely have in-house skills but require expensive external resources to meet the solvent exit policy.

2.58 After considering the responses, the PRA has maintained the view that the cost benefit analysis presented in CP10/23 appropriately took into account the proportionate approach adopted for the solvent exit policy. The PRA’s view is that a firm’s preparations for solvent exit are based on the firm’s own circumstances, business model and strategy, of which the firm itself is more likely to have the fullest understanding rather than external specialists. A firm is likely to be able to carry out the incremental work based on its existing work, such as recovery planning, as a starting point for its SEA in BAU, without necessarily relying on external specialists. The PRA highlights that it is the responsibility of a firm to review and update its SEA as per Recovery Plans 7.3. The PRA recognises that a firm may also incur additional costs to those detailed in the cost benefit analysis when taking steps to remove or mitigate material barriers or risks to solvent exit. It was not practicable to quantify these additional costs which depend on firm-specific circumstances.

2.59 The PRA considers that the changes to the draft SS are not significant and will not materially alter the cost benefit analysis presented in CP10/23. They are minor technical updates to enhance the clarity for firms.