Solvent exit planning webinar
In line with the PRA’s new requirements, our prudential risk experts discussed how non-systemic banks and building societies can prepare for an orderly solvent exit.
Solvent exit is an alternative to insolvency or resolution procedures, offering a viable exit path for firms in stress or those wishing to cease PRA-regulated activities. The aim of the policy is to facilitate a smooth, efficient exit. Firms will be required to transfer or repay (or both) all deposits during this process, which concludes with the removal of their permission to receive deposits under its Part 4A permission, or with the cancellation of this permission all together. The requirements of SS2/24 become effective from 1 October 2025, and applies to firms that are:
Therefore, most medium-sized, and small firms operating in the UK will need to prepare a solvent exit plan.
The PRA expects firms to:
From 1 October 2025, solvent exit will replace the existing solvent wind down regulations within Chapter 5 of SS3/21. The new rules mandate that firms must prepare for an orderly ‘solvent exit’ as part of their regular operations, and to demonstrate their preparedness to execute a solvent exit. This requirement is distinct from the solvent wind down requirements per SS3/21, where different considerations apply.
Both ‘solvent exit’ and ‘trading wind down’ are concerned with the orderly discontinuation of an operating activity, with minimal disruption to the financial system. However, there are two key differences:
Although the PRA’s solvent exit regime and the Financial Conduct Authority’s (FCA) wind-down planning guide apply to different firms, the latter document is an invaluable source of information that could guide firms with their solvent exit planning.
Solvent exit should be triggered when recovery plans fail – which in turn is triggered when management actions in response to stress events are unable to bring the firm to pre-stress levels. As such, there should be an element of continuity between stress testing, recovery planning, and solvent exit planning.
Conceptually, the trigger for solvent exit should align with the results of firms’ reverse stress testing. However, this should not be considered as the only trigger, and other possible exit scenarios should be considered.
Firms will have to consider how the solvent exit execution plan impacts their ability to meet the minimum regulatory expectations in the Consumer Duty guidelines.
In-scope firms may leverage previous implementations done under their existing recovery planning regime to meet the expectations of the PRA. Firms may also consider the following:
To speak to a member of our financial services team, please get in touch via the form below.
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