The failure of a financial institution always concerns regulators, customers, and competitors. However, institutions must prepare differently for this worst-case scenario depending on their size. Regulators and stakeholders devote significant attention\u2014both externally and internally\u2014to systemically important financial institutions, such as banks, insurance companies, and building societies, whose failure could destabilise the global or domestic economy and trigger a financial crisis. But what attention do they give to smaller non-systemic banks and building societies?<\/p>\n
Although these institutions are unlikely to cause wholesale ramifications across the sector, they are still vital to millions of consumers.<\/p>\n
To address this, The Prudential Regulation Authority (PRA) has proposed that UK non-systemic banks and building societies should prepare an orderly \u2018solvent exit\u2019 as part of their business-as-usual (BAU) activities. Although these institutions should have minimal disruption on economies if they were to disappear, the PRA proposed that a plan should increase the confidence of firms that they can exit the market smoothly and efficiently without the need for a Corporate Insolvency Resolution Process (CIRP).<\/p>\n
The PRA states that non-systemic firms most commonly exit the market through \u2018solvent exits\u2019. Firms typically view solvent exits as a smooth and cost-effective way to cease operations when their business model becomes unviable or unsustainable. However, not all firms experience this ease. Some encounter issues during the process, with barriers often emerging only after they begin solvent exit execution planning. In some cases, resolving these issues takes months, costing firms both time and money. When solvent exits fail, firms may end up in insolvency proceedings, which wastes even more resources.<\/p>\n
Through conducting a solvent exit analysis, the PRA believes a firm should increase its likelihood of a successful solvent exit that is more efficient and cost-effective. By preparing in advance, firms can deliver better and more consistent results that benefit not just themselves but also the wider market.<\/p>\n
The PRA has proposed changes to SS3\/21 \u2013 Non-systemic UK banks: The Prudential Regulation Authority\u2019s approach to new and growing banks. These proposed changes would replace the term \u2018solvent wind-down\u2019 with \u2018solvent exit\u2019, to introduce more accurate language that clarifies the exact nature of the process a firm is going through when ceasing PRA-regulated activities.<\/p>\n
The PRA\u2019s objective is to clarify expectations for firms going through the solvent exit process. The proposed expectations include the production of a detailed solvent exit execution plan as well as consistent monitoring and reporting during the solvent exit process. A detailed solvent exit execution plan should produce clearer decision-making and communication in a firm to become the basis of a successful solvent exit. Throughout the solvent exit process, the PRA expects firms to keep them informed through continuous monitoring, which a detailed solvent exit execution plan can assist in. The PRA\u2019s proposed expectations will ensure that any firm entering the solvent exit process, starts with a higher likelihood of a more orderly, timely and easy process that will succeed.<\/p>\n
The PRA\u2019s secondary objective is to promote effective international competitiveness of the UK economy. Through the introduction of a detailed solvent exit execution plan, the PRA aims to reduce the risk of disorderly exits, helping to enforce the UK\u2019s financial stability. The PRA\u2019s proposal will promote healthy competition, a fundamental aspect of any well-functioning and dynamic market, allowing the UK to remain a desirable place to conduct business. Trusted and sensible regulatory standards that enforce stability are a key component in building trust amongst investors, firms, and other regulators.<\/p>\n
From Q3 2025, the PRA is expecting non-systemic banks and building societies to develop solvent exit plans. To ensure all aspects are fully considered, it\u2019s essential to start defining a clear strategy and creating internal governance arrangements to support the new expectations.<\/p>\n
Davies provides a specialist capability in legal entity change, having previously worked with systemic banks to meet requirements of Solvent Wind Down regulation.<\/p>\n
By utilising our deep domain expertise within our Banking & Markets Practice, we are ideally positioned to support non-systemic banks and building societies in addressing and aligning with PRA Solvent Exit proposals<\/p>\n","protected":false},"excerpt":{"rendered":"
What thought is given to smaller Non-Systemic Banks and Building Societies?<\/p>\n","protected":false},"featured_media":26083,"parent":0,"menu_order":0,"template":"","format":"standard","meta":{"_acf_changed":false},"practices":[29],"industries":[105],"capabilities":[104,109],"class_list":["post-26082","blog","type-blog","status-publish","format-standard","has-post-thumbnail","hentry"],"acf":[],"yoast_head":"\n