Prudential Regulation Authority Rulebook

6.1

Any society which proposes to embark on any diversification into an area (whether regulated or unregulated, associated with the retail housing market or otherwise):

1. (a) which is not covered by the tables in the appendices; and
2. (b) where the investment (of any type) required to set it up exceeds 5% of own funds, or the projected post implementation income within any of the three years following the diversification exceeds 10% of projected net interest margin plus other income net of commission paid for that year;
3. (c) is expected to pre-notify the PRA and provide a copy of the board paper setting out the risks and benefits of the proposed diversification.

6.2

In particular, this paper is expected to include:

1. (a) central case projections of balance sheet, profit and loss (P&L), capital and liquidity before and after the diversification;
2. (b) the outcome of severe but plausible stress tests of those projections, based on relevant scenarios;
3. (c) a clear analysis of the risks arising from the diversification and how these are to be mitigated; and
4. (d) an analysis of potential exit costs, should the diversification prove to be unsuccessful.

6.3

In some cases, particularly where the proposed diversification is to be by acquisition, a revised ICAAP will need to be approved by the board and submitted for supervisory review and evaluation before proceeding. This is in order that appropriate individual capital guidance can be given for the revised business plan.

6.4

Societies should also note and comply with the provisions of section 92A of the 1986 Act in relation to acquisition or establishment of a business.