CP10/23 – Solvent exit planning for non-systemic banks and building societies

On June 28, 2023, the Prudential Regulation Authority (PRA) published a new Consultation Paper (CP10/23) entitled „Solvent exit planning for non-systemic banks and building societies“. In the consultation paper the PRA proposes to require non-systemic banks and building societies in the UK to prepare for an orderly „solvent exit“ and have the ability to execute such an exit if necessary.
According to the Authority, a „solvent exit“ refers to a process in which a firm ceases its PRA-regulated activities, specifically deposit-taking activities, while maintaining solvency throughout the process. As part of a solvent exit, the firm would transfer or repay all deposits. The solvent exit concludes with the removal of the firm’s Part 4A PRA permission after transferring and / or returning all deposits to clients. The PRA acknowledges that solvent exits may not always be the most suitable option, particularly in fast-failure scenarios. However, in cases where there is more time for preparation, advance planning for an orderly solvent exit is crucial for the timely, comprehensive, and orderly wind-down of operations and for the sake of recovering ALL funds of depositors.
Therefore, the PRA proposes to
– introduce a new point under the „Recovery Plans“ section of the PRA Rulebook to require non-systemic banks and building societies to incorporate preparations for a solvent exit into their regular business activities and to „produce a solvent exit analysis and update it whenever a material change has taken place that may affect its preparations for a solvent exit, and at least once every three years“.
– introduce a new supervisory statement entitled „Solvent exit planning for non-systemic banks and building societies“ which would include instructions on all the aspects that shall be covered in the solvent exit analysis, specifically all the actions a firm shall undertake to manage and monitor the execution of a solvent exit, in case such exit becomes feasible.
– make corresponding revisions to Supervisory Statement (SS3/21): Non-systemic UK banks: The Prudential Regulation Authority’s approach to new and growing banks.
Interested parties have until October 27, 2023 to provide feedback on the consultation. The PRA proposes that the changes resulting from the consultation would be implemented in the third quarter of 2025.