This Prudential Regulation Authority (PRA) Supervisory Statement (SS) sets out expectations for firms engaged in trading activities that may affect the financial stability of the UK. The PRA expects such firms to have a set of capabilities that will allow them to execute a full or partial wind-down of their trading activities in an orderly fashion (hereinafter referred to as trading activity wind-down, or TWD).
The expectations in this SS aim to further the PRA’s general objective to promote firms’ safety and soundness, advanced primarily by minimising the adverse effect firm failure could have on financial stability.
The expectations aim to enhance firms’ ability to recover from firm-specific and/or market-wide stress, and should be read in conjunction with the Bank of England’s (the Bank’s) approach to assessing resolvability, including the Bank’s Statements of Policy (SoP) published as part of the Resolvability Assessment Framework (the ‘RAF policies’). These expectations are also relevant in terms of firms meeting two PRA rules:
- Rule 2.11 Recovery Plans Part of the PRA Rulebook, which requires that a firm must be able to demonstrate that the implementation of its recovery plan is reasonably likely to maintain or restore the firm’s viability and financial position, and that the recovery plan is reasonably likely to be implemented quickly and effectively; and
- Fundamental Rule 8 in the PRA Rulebook, which requires that a firm must prepare for resolution so if the need arises it can be resolved in an orderly manner.