Guidance

SS2/24 – Solvent exit planning for non-systemic banks and building societies

Chapter

Producing a solvent exit execution plan and executing a solvent exit

Printed on: 27/07/2024

Rulebook at: 01/10/2025

3

Producing a solvent exit execution plan and executing a solvent exit

3.1

This Chapter sets out the PRA’s expectations that apply when a solvent exit execution plan is needed, and during a firm’s execution of a solvent exit.

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3.2

The arrangements described in the ‘Governance and decision-making’ section in Chapter 2 apply when a firm produces a solvent exit execution plan and executes a solvent exit.

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Producing a solvent exit execution plan

3.3

The PRA expects a firm to produce a solvent exit execution plan when there is a reasonable prospect that the firm may need to execute a solvent exit (which could be informed by its solvent exit indicators41 and other relevant information), or when the firm is requested by the PRA to produce a solvent exit execution plan.42 The firm’s board of directors, or other appropriate senior governance committee or group, should provide sufficient challenge on the firm’s solvent exit execution plan, and review and approve it. The firm should meet commitments it makes to the PRA to provide its solvent exit execution plan to the PRA in an appropriate timescale.

  • 41. See the ‘Solvent exit indicators’ section in Chapter 2.
  • 42. For example in the exercise of powers under FSMA to impose and vary requirements on firms either by agreement or on the PRA’s own initiative.
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3.4

The PRA expects a firm to include in its solvent exit execution plan sufficient detail to inform itself and the PRA of how it will complete the cessation of its PRA-regulated activities. Annex A provides a non-exhaustive list of contents the PRA would expect a firm to set out in its solvent exit execution plan.

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3.5

The PRA expects a firm to ensure that its solvent exit execution plan is appropriate for its business model, structure, operations, risk strategy, and the circumstances leading to the initiation of a solvent exit. A firm should use its solvent exit analysis, prepared during BAU,43 as the starting point for its solvent exit execution plan. A firm should support any assumptions underpinning its solvent exit execution plan (such as the timeline for repaying depositors) with appropriate evidence.

  • 43. See Chapter 2 for details.
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3.6

The PRA expects a firm to set out in its solvent exit execution plan how it will monitor, and respond to, any emerging barriers and risks throughout the execution of a solvent exit. The barriers and risks identified in the solvent exit analysis44 should be updated to ensure they remain complete, relevant, and current for the firm’s solvent exit execution plan.

  • 44. See the ‘Potential barriers and risks’ section in Chapter 2.
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3.7

The PRA expects a firm to set out in its solvent exit execution plan details of the financial and non-financial resources needed to execute a solvent exit. A firm should take account of the costs of mitigating or removing barriers and risks to the solvent exit, including costs to mitigate any negative impacts of its decision to execute a solvent exit.45 A firm should ensure its assessment of the resources needed is supported by:

  • appropriate analysis, such as sensitivity analyses of factors that may impact the resources needed, and an analysis of any balance sheet items which may be difficult to transfer or sell after the main deposit and lending books have been disposed of;46 and
  • realistic exit valuations of assets and liabilities, including appropriate adjustments to their book value.47
  • 45. See also the ‘Communication’ section in Chapter 2.
  • 46. Examples include deposits with untraceable/uncontactable customers; and small and niche lending books.
  • 47. Assumptions underpinning accounting valuations conducted in BAU may no longer apply during the execution of a solvent exit, especially once a solvent exit has been publicly announced. Timing of asset sales may also impact the sale value of assets. This may result in asset sales which fail to provide adequate resources to repay liabilities.
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3.8

The PRA expects a firm to set out in its solvent exit execution plan details of how it will maintain access to, and monitor the adequacy of, the financial and non-financial resources needed throughout the execution of a solvent exit.

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3.9

The PRA expects a firm to set out in its solvent exit execution plan a clear and detailed communication plan for stakeholders impacted by the solvent exit.48

  • 48. See the ‘Communication’ section in Chapter 2.
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During the execution of a solvent exit

3.10

The PRA expects a firm to make the PRA aware of its decision to initiate a solvent exit. A firm should keep the PRA,49 and other stakeholders as appropriate, informed throughout the execution of a solvent exit. A firm should, in a prompt and timely manner, make its PRA supervisor aware if there arise risks to or concerns about the successful completion of a solvent exit.

  • 49. Fundamental Rule 7: ‘A firm must deal with its regulators in an open and cooperative way and must disclose to the PRA appropriately anything relating to the firm of which the PRA would reasonably expect notice’.
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3.11

The PRA expects a firm to assess on an ongoing basis whether its solvent exit actions are likely to succeed and whether they remain feasible and appropriate.50 A firm should assess whether it needs to take further actions to facilitate the completion of a solvent exit. Consistent with the duties that directors owe to a company and its creditors under the Companies Act 2006 and case law, a firm should also determine whether and when insolvency procedures should be invoked (ie when it appears to the firm that a solvent exit will no longer be successful).

  • 50. For example, a solvent exit may no longer be feasible if barriers to a solvent exit cannot be mitigated, or the asset value is lower than expected, which may lead to insolvency procedures being invoked in relation to a firm. A solvent exit may also no longer be appropriate if, for example, changed market conditions make the firm’s business model viable again, or if the firm finds a new investor and opts for restructuring instead of ceasing PRA-regulated activities.
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3.12

The PRA expects a firm to monitor on an ongoing basis the projected and actual levels and trends of those solvent exit indicators which remain applicable,51 and the implementation of the solvent exit execution plan, to inform the firm’s decision-making.

  • 51. See the ‘Solvent exit indicators’ section in Chapter 2.
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3.13

The firm should plan for the submission of an application to the PRA to have its Part 4A PRA permission removed, taking account of the timeline for making the application as described on the PRA’s web pages.52

  • 52. See PRA’s web pages on ‘Cancelling a firm’s permissions’ and ‘Variation of permission’ for further details. If the solvent exit involves the cessation of FCA-regulated activities, or activities authorised by non-UK authorities, the firm should also assess whether other regulatory approvals are required and inform relevant authorities as appropriate. Firms’ attention is drawn in particular to FCA’s web page on ‘Cancelling an authorisation or registration’ and Annex 4.5 of FCA’s Handbook SUP 6 ‘Applications to vary and cancel Part 4A permission and to impose, vary or cancel requirements’ regarding guidance on deposit-taking, which is relevant to firms, including dual-regulated firms.
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3.14

A firm must continue to comply with the PRA’s threshold conditions, rules, and other regulatory requirements throughout the execution of a solvent exit. 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, in line with Fundamental Rule 7, immediately alert the PRA if this might be the case.

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