Banks are operating through a period of uncertainty and risk, driven by the impact of the cost-of-living crisis and interest rates. Kantilal Pithia and Chris Laverty explore how to build robust resolution and recovery plans.

In a challenging financial environment, the UK has already seen some high-profile banking casualties – driven by liquidity issues and loss of investor confidence. The Bank of England has highlighted its ongoing commitment to help firms fail safely and without contagion.

Now is the right time to review your resolution and recovery plans to make sure they're practical, fit for purpose, and ready to be put into action.

What are the regulatory requirements?

All banks need to have adequate recovery and resolution plans in place, but the requirements differ depending on whether the bank is systemically or non-systemically important.

Non-systemically important banks need to consider solvent exit plans and the potential for a modified insolvency.

Systemically important banks also need to consider operational continuity in resolution (OCIR), trading activity wind down plans, and key resolution tools, such as bail-ins or transfers.

Recovery planning

Recovery planning is a key part of the post-crisis reform agenda. It aims to help firms manage downside risks effectively and promote a safe financial landscape. An effective recovery plan may prevent firms going into resolution and exiting the market.

The PRA published a supervisory statement (SS9/17) [PDF] on recovery planning in 2022, which comes into effect from 3 March 2025. This supplies guidance for firms in building and strengthening robust plans.

From a regulatory standpoint, a recovery plan needs to include a wide range of information, such as:

  • a summary of the recovery options, templates for their use, and the recovery capacity
  • a forward-looking indicator framework to find different levels of stress
  • findings and lessons learned from scenario testing and fire drills
  • details of oversight and governance arrangements
  • effective communication plans to update all stakeholders
  • interaction between group and subsidiary plans, noting key dependencies, or ring-fencing requirements
  • triggers
  • financial and non-financial support (ie, funding of wind down and employee resources as critical)

Key tips for recovery planning

Even with SS9/17, firms are still struggling with core points in recovery planning.

Gauging the appropriateness of indicators calibrations – firms must ask whether they're adequate. Do they align with the firm’s risk appetite and business model? These calibrations need to reflect the urgency to act when firms are in recovery mode. Firms are struggling to articulate the answers to these questions in their plans.

Firms should also focus on proving the robustness of scenario testing. For example, are recovery stress-test scenarios relevant to the business model? Do tests align with regulatory expectations? Scenario tests must cover a range of different stresses and all the elements - governance, indicators, options, etc – of the recovery plan. Firms should look to align testing with the relevant indicators, allowing managers to make informed decisions based on a sufficiently robust stress test scenario analysis and the production of prompt, comprehensive, and reliable management information (MI).

In organisations where business activities spread across different jurisdictions –  does the recovery plan reflect the interactions or dependencies within the core group’s significant legal entities, branches, and subsidiaries? Firms need to clearly articulate how the recovery plan would work in a multinational structure and highlight the support (financial and non-financial) that would be available to the firm to help show the credibility and viability of its Recovery Plan.

Credibility and viability

Firms need to ask themselves: if we implement the recovery plan, will it produce the desired outcome(s)? Do we have the resources to carry it out? 'Credibility' and 'viability' require that firms assess and document the risks that could affect the likeliness of the success or effectiveness of implementing the identified options or a combination of options, in restoring the firm’s financial position following a stress situation.

This ties into showing the operational effectiveness of the recovery plan. Firms need to conduct realistic fire drills to further enhance the credibility and viability of them. The fire drill is expected to be undertaken by the Senior Management and supervised by the Board. Additionally, the outcome of these drills needs to be socialised with all key stakeholders, including the firm’s Board to ensure lessons learnt are implemented.

Firms also need to think about interaction with other relevant regulatory requirements and regimes. This includes interaction with the liquidity contingency plan, ICAAP and ILAAP documents. Ideally, firms should combine the liquidity contingency plan and recovery plans into one document to ensure consistency wherever possible.

Resolution planning

The PRA is extending the suspension of Phase 1 reporting under SS19/13 [PDF], until further notice. The suspension was extended in May 2020 to all firms in scope of the Resolution Pack Part of the PRA Rulebook and was due to expire at the end of 2022. Unless otherwise notified on an individual basis, the pause continues to apply to all in-scope firms.

As such, firms must continue to follow the PRA’s Fundamental Rule 8 on preparing for resolution, including by being able to provide the regulators with information in a timely manner. Regardless of the pause, the PRA can request Phase 1 resolution packs from firms on a case-by-case basis. Phase 2 reporting under SS19/13 stays unchanged, and the PRA may still request this information from firms. Additionally, firms in scope of stabilisation powers must continue to submit COREP13 reporting.

Building on the recovery plan, both systemically and non-systemically important banks need an effective resolution plan, which is split into two phases:

Phase 1: Information gathering, covering details of the corporate structure and economic functions, to help the PRA assess the preferred resolution strategy.

Phase 2: Implementing the resolution strategy, which is split into three parts. The first looks at specific resolution strategies, the second looks at the critical functions needed to support the resolution and the third covers additional information.

For systemically important banks, the resolution can follow one of two strategies – either a transfer or a bail-in. They both aim to avoid drawing on taxpayer funds to help the bank safely exit the market.

Transfers allow the bank to move its assets and liabilities, partially or in full, to a financially stable firm. Within this option, available tools include a private sector purchase, setting up a bridge bank, using a bank administration procedure, or using an asset management vehicle.

A bail-in may include a partial transfer, but ultimately writes off equity and writes down debt. This is followed by recapitalisation, where the debtholders are issued equity and become shareholders.

A bail-in will be conducted in four stages, covering contingency planning, the resolution weekend, the bail-in period, and the end of the bail-in. After that time, the firm can return to private control and any suspended listings or frozen instruments can resume – although the firm’s reorganisation plan will be ongoing, including restructuring and post-resolution regulatory expectations from the PRA.

Key tips for resolution planning

There are four common pain points. Banks need to clearly communicate core business lines, but the identification criteria isn't explicitly defined by regulators; therefore, banks need to clearly articulate why, or not, certain activities are core business lines.

They also need accurate methodologies to calculate the capital needed to support each significant legal entity and subsidiary in resolution planning. Banks must carry out these calculations, and they often forget ask for input and challenge from other areas of the business to support their figures.

Banks also need to strengthen access to financial market infrastructure (FMI) during periods of resolution. This means considering the critical services provided by external bodies. Banks that are relying on external parties to carry out essential functions must look closely at clauses in contracts to understand what will happen in the event of resolution.

Similarly, banks must review the arrangements on how critical shared services would be provided across legal entities, business lines, and jurisdictions. While some may see themselves as one unified organisation, some contract clauses may hinder the provision of services across borders.

Meeting MREL requirements

It's important to consider MREL calculations, which help banks absorb losses and recapitalise in case of a resolution. It must be held in conjunction with minimum capital requirements, and in-scope firms must undertake additional calculations for valuation in resolution, specifically assessing the equity and liquidation values. The amount of MREL held will depend on the resolution strategy.

For non-systemically important banks, which are applying a modified insolvency, MREL will equal minimum capital requirements for firms with less than 40,000 transactional accounts.

For systemically important banks, MREL will depend on the specific resolution strategy:

Partial transfers

MREL will range from one to two times the minimum capital requirements for firms with 40,000-80,000 transactional accounts, less than £15-25 billion in assets, and which are subject to stabilisation and potentially provide other critical functions.


MREL is twice the minimum capital requirement for firms with more than 40,000 transactional accounts, over £15-25 billion in assets, and which are subject to stabilisation and potentially supply other critical functions.

Specific requirements for non-systemically important banks

Modified insolvency is a key resolution tool to help non-systemically important banks exit the market safely. This draws on insolvency and administration processes, which have been tailored to support the PRA’s key goals. Protected deposits need to be returned under the Financial Services Compensation Scheme (FSCS) or be transferred (using the scheme) to another firm. The process will also ensure that banking services can continue throughout this period.

Once firms have met these key aims, they can continue with the insolvency structure.

Specific requirements for systemically important banks

Systemically important banks have additional requirements, as they pose the greatest risk to the financial system in the event of a collapse.

Creating trading activity wind-down plans

The PRA has introduced new requirements for firms to create trading wind-down plans by March 2025. The move is in response to the regulator’s solvent wind-down exercise, which found firms unable to de-escalate their trading wind down activities in an orderly way. As such, in-scope firms need to set out trading activity wind-down plans to cover scenarios of severe financial and macroeconomic stress.

Key considerations include effective use of data, responsiveness, governance, reporting, and implications for UK subsidiaries of third-country groups. Scenario testing is also essential, and firms need to think about trading activity wind-down plans in the context of both firm-specific stress and market-wide stress. They must also consider the ability to wind-down partially, or in full, as needed.

Wherever possible, firms should use their existing capabilities rather than building an approach from scratch.

Effectively implementing OCIR

Operational continuity helps firms continue to function throughout recovery and resolution by protecting critical services. It helps to make sure the right resources are available at the right time to ensure firms can discharge their regulatory responsibilities.

Key considerations include financial and operational resilience, ongoing access to operational assets, contractual arrangements and fees for critical services, contractual obligations, governance arrangements, and service level agreements.

When implementing OCIR, firms need to consider potential conflicts of interest across multiple group entities. These can be mitigated through effective governance, arm's length arrangements and robust contracts. This highlights the importance of employees in delivering these.

Firms must also produce appropriate MI to show that there's no preferential treatment for in-group service providers, including through cost allocations and commercial charging structures.

What can firms do now?

The PRA’s Recovery, Resolution and Wind-down Framework aims to help firms exit the market safely. But firms often view these as hypothetical documents that are simply needed for compliance purposes.

These plans need to be living documents that reflect the current state of the business and can be put into action at any time. They need to clearly articulate your unique business model, risk profile, and organisational structure. Crucially, they need to work in practice, not just on paper. Regulators are increasingly scrutinising these plans.

To achieve that, you need to think about many factors, including interdependencies across the bank, the role of third parties, and financial and non-financial resources. Plans need to be flexible and pragmatic to include a range of causal factors, and internal and external impacts.

While some plans can be drawn out processes, others can be extremely quick, and people need clarity over who does what, and when. Focusing on these key elements will help you create robust, meaningful and practical plans to help you prepare for a recovery or resolution process.

To learn more about strengthening recovery and resolution planning, contact Kantilal Pithia and Chris Laverty.