UK regulators outline enhanced recovery planning for financial firms

The Prudential Regulation Authority (PRA) has issued Supervisory Statement SS9/17, outlining its expectations for recovery plans.

These plans apply to UK banks, building societies, and PRA-designated investment firms, serving as a key component of post-2008 financial crisis reforms.

The PRA emphasizes that firms must not treat recovery planning as a mere compliance exercise, but as a vital tool to promote safety and soundness.

Firms are expected to be prepared for periods of financial stress, stabilize their positions, and recover from losses.

This involves maintaining, testing, and clearly governing their plans, with effective processes for risk identification and reporting.

The PRA assesses plans based on their usability, realistic quantification of impacts, and the board's ability to execute them.

Effective recovery plans enhance a firm's resilience, integrating a robust risk management framework with diverse recovery options.

These options must be broad enough to address various stress scenarios, extending beyond easily implementable measures to include radical steps like selling strategic assets or fundamentally altering business models.

For systemically important institutions (O-SIIs) engaged in trading, the PRA mandates a Trading Activity Wind-Down (TWD) option as a critical recovery tool.

Failure to include TWD could render a firm non-recoverable.

The PRA also acknowledges simplified obligations for eligible smaller firms, tailoring the detail and analysis required to their complexity and size.