The U.K. Prudential Regulation Authority has published a Dear CEO letter addressed to non-systemic U.K. banks and building societies setting out proposals for improvement on resolvability and recovery planning. The PRA's proposals are also applicable to PRA-regulated international banking subsidiaries operating in the U.K. The letter follows the PRA's recent review of the recovery planning capabilities of a sample of such firms, which found that although many firms understood the basics of recovery planning, there were significant areas for improvement, in particular the development of recovery scenarios and calculation of recovery capacity.

In particular, the PRA found that, with respect to recovery scenarios, firms were not using scenarios of sufficient severity. They are encouraged to provide analysis on how they define and calculate their point of non-viability and to ensure their recovery capacity calculation reflects the parameters of the stress. With respect to recovery capacity, firms were found not to be calculating their recovery capacity effectively and are requested to review their methodology for such calculations.

The PRA proposes to engage with firms and trade associations on the substance of the letter in H2 2024. Firms are expected to consider the PRA's proposals and update their recovery plans to meet expectations in PRA Supervisory Statement 9/17 on Recovery Planning.

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