On 28 June 2023, the PRA published Consultation Paper 10/23: Solvent exit planning for non-systemic banks and building societies (CP10/23).

In CP10/23 the PRA sets out proposals for non-systemic banks and building societies in the UK to prepare, as part of their business-as-usual activities, for an orderly ‘solvent exit’, and if needed, to be able to execute one.

A ‘solvent exit’ would be a process whereby a firm ceases PRA-regulated activities (deposit-taking) while remaining solvent throughout. The firm would transfer or repay (or both) all deposits as part of its solvent exit. Once the firm has transferred and/or returned all deposits, a solvent exit will end with the removal of the firm’s Part 4A PRA permission. The PRA recognises that solvent exits may not always be the most appropriate exit route, for example in a ‘fast-failure’ scenario. However, in scenarios where there is more time for a firm and the PRA to prepare for an orderly solvent exit, greater advance planning would help ensure that the firm is better prepared to execute such an exit.

The proposals include:

  • New rules and expectations, stating that firms must prepare for a solvent exit as part of their business as usual activities, and that firms must document those preparations in a solvent exit analysis.
  • New expectations, which would apply only if solvent exit became a reasonable prospect for a firm, on how firms should: (i) prepare a detailed solvent exit execution plan, and (ii) monitor and manage a solvent exit.
  • Consequential changes to the ‘Solvent wind down’ section of Supervisory Statement 3/21 – Non-systemic UK banks: The PRA’s approach to new and growing banks.

The deadline for feedback to CP10/23 is 27 October 2023.

The PRA proposes that the implementation date for the changes resulting from the consultation would be Q3 2025.

The proposals, if implemented, will be added to a new chapter to the Recovery Plans Part of the PRA Rulebook. The PRA will also introduce a new supervisory statement, applicable to firms that are in scope of the proposed new rule.