Prudential Regulation Authority Rulebook

3.1

In recognition of the continued improvements of global recovery planning, the PRA is clarifying its expectations^[17] for UK subsidiaries of non-EU parents. This is not a fundamental change to the PRA’s expectations on recovery planning but rather an overview of how the PRA expects requirements relevant to UK entities^[18] to be met in the context of global cross-border groups.

3.2

The PRA recognises that a co-ordinated and consistent approach to recovery planning within a banking group is essential for the stabilisation of the group as a whole. As such, the group plan is considered critical to understanding overall recovery and the PRA places high importance on having sight of this. Group recovery plans provide details on group structure, CFs and arrangements to facilitate group recovery. The PRA recognises that recovery plans for UK subsidiaries of global groups should be considered within that group context and are most credible when they are consistent with recovery options proposed within the group plan and there are clear governance procedures which link the UK plan and local recovery options to those at group level.

3.3

The recovery plan for a UK subsidiary of a non-EU parent entity should be consistent with any group recovery plan. The level of detail and analysis provided by firms should be proportionate to their size and complexity. The following principles summarise the PRA’s expectations as to how Chapter 2 should be applied to these firms:

1. (i) The plan should include a summary of the UK entity business and descriptions of UK CFs: the UK plan should provide a sufficient overview of the UK business and any CFs that are specific to the UK entity. Where the PRA is in receipt of the global recovery plan, the PRA does not expect a description of the group or details on the group strategy and footprint. For smaller firms where the PRA is not in receipt of a group plan, the PRA would expect to see a high level description of the group strategy and global footprint.
2. (ii) The plan should include UK specific scenarios: firms should follow the guidance set out in Chapter 2 (iv) in designing scenarios, but for UK subsidiaries of non-EU parents, the PRA would expect to see at least one scenario specific to a stress in the UK entity and one scenario in relation to a macroeconomic stress which impacts the UK entity. For O-SIIs,^[19] the PRA expects to have sight of the group recovery plan which should contain additional scenarios which set out and test the group’s recovery capacity. For smaller subsidiaries of non-EU parents, the PRA expects at least the two scenarios listed above.
3. (iii) The plan should include UK specific recovery options: the PRA recognises that as subsidiaries of international groups, firms may have a more limited set of recovery options at the level of the UK subsidiary and that parental support may be the most credible recovery option. However, the PRA expects firms to consider what additional options are available at the level of the UK subsidiary and set out its recovery options against the expectations set out in Chapter 2 (i) (b), (c), (d), (e), (f), (g) and (ii). For O-SIIs the PRA expects these options to be consistent with what is proposed in the group plan.
4. (iv) The plan should be consistent with solvent wind down work done by the firm: UK subsidiaries of non-EU banks participating in the PRA’s solvent wind down work should ensure the assumptions made in the firm’s recovery plan are consistent with those made in the solvent wind down submission (to the extent that the wind down of certain portfolios are included as recovery options or if the recovery plan scenario(s) align with that of the solvent wind down work).
5. (v) The plan should include UK specific recovery indicators: the PRA expects UK subsidiaries to have a local recovery indicator framework which is appropriate to the UK business and in line with the expectations set out in Chapter 2 (iii).
6. (vi) The plan should include a UK governance framework for monitoring the indicators and taking action where appropriate. For UK subsidiaries of non-EU parents, in meeting expectations set out in Chapter 2 (viii), the PRA expects firms to set out when decisions would be escalated to group level. In addition, the PRA expects UK subsidiaries of non-EU parents to meet requirements set out in Chapter 2 (xiii) (c) in relation to responsibilities under the SMR.
7. (vii) UK subsidiaries of non-EU parents should also consider the guidance on fire drills and playbooks set out in Chapter 2 (vi) and (vii). In some cases, the PRA may explicitly ask firms to undertake more detailed work on UK playbooks as part of their UK recovery planning work. Firms should contact their supervisor to discuss whether this applies.
8. (viii) The PRA expects recovery plans to be consistent with other regulatory submissions; firms should meet the expectations set out in Chapter 2 (xiii) (a).