PS13/25 – The PRA’s implementation of the Bank Resolution (Recapitalisation) Act

1: Overview

1.1 This Prudential Regulation Authority (PRA) policy statement (PS) provides feedback to responses the PRA received to the section of consultation paper (CP) 4/25 – Depositor protection relating to the PRA’s implementation of the Bank Resolution (Recapitalisation) Act 2025 (the Act).^{footnote [1]} It also contains the PRA’s final amendments to the Depositor protection Part of the PRA Rulebook (Appendix 1) relating to the implementation of the Act.

1.2 This PS is relevant to PRA-authorised UK banks, building societies and credit unions; overseas firms with a UK branch or subsidiary; the Financial Services Compensation Scheme (FSCS); and depositors.

Background

1.3 The Act introduces a new option to support the continuity of banking services in failure by allowing for the recapitalisation of a failing firm. The funds needed for any recapitalisation will be provided by the FSCS and recouped via a levy on firms. This would support the sale of all, or part, of the firm to a private sector purchaser or a transfer to a bridge bank, where that is judged to be in the public interest. The Act received Royal Assent on 15 May 2025.

1.4 The Act expands the functions of the FSCS in relation to the failure of deposit takers, from making compensation payments to the eligible depositors of failed firms to also making recapitalisation payments, where required to do so by the Bank acting as resolution authority, and levying firms to recoup those payments. In CP4/25, the PRA consulted on proposed amendments to the Depositor Protection Part (DPP) of the PRA Rulebook to ensure the FSCS has the necessary powers to fulfil its new functions under the Act, including a power to levy to recoup any recapitalisation payments made. At the same time, the PRA took the opportunity to consult on removing from the DPP some spent provisions that are no longer relevant. A summary of the amendments is set out in Table 1 below.

Table 1: Summary of Amendments

Summary of responses

1.5 The PRA received seven responses to the proposals in CP4/25 relating to the PRA’s implementation of the Act. The names of respondents to the consultation who consented to their names being published are set out in Appendix 1. Respondents welcomed the PRA’s proposals and were supportive of the introduction of the Act. Some respondents made observations and requests for clarification which are set out in Chapter 2.

Changes to draft policy

1.6 No significant amendments to the draft policy have been made following consultation. When making rules, the PRA is required to comply with several legal obligations. In the section of CP4/25 relating to PRA’s implementation of the Act, the PRA published its explanation of why the rules proposed by the consultation were compatible with its objectives and duty to have regard to the regulatory principles.^{footnote [2]} As no significant amendments to the draft policy have been made following consultation, the analysis, as presented in the consultation, remains unchanged.

1.7 The PRA has made one minor amendment to the draft policy, to rename the new class for recapitalisation levies as class A2 rather than A1 as was consulted on. This is intended to better fit with the Financial Conduct Authority (FCA)’s existing FSCS levy class naming conventions. This has no impact on the effect of the rule changes.

Implementation

1.8 The rule changes were made on 15 July 2025, coming into force on 16 July 2025 in line with commencement of the Act. Amendments to supervisory statement (SS) 18/15 – Depositor protection, and to the statement of policy (SoP) – Deposit Guarantee Scheme relating to the PRA’s implementation of the Act, will be introduced on publication of the PS relating to the proposed changes to Depositor protection limits in CP4/25.

2: Feedback to responses

2.1 Before making any proposed rules, the PRA is required by FSMA to have regard to any representations made to it in response to the consultation, and to publish an account, in general terms, of those representations and its feedback to them.^{footnote [3]}

2.2 The PRA has considered the representations received in response to the CP. This chapter sets out the PRA’s feedback to those responses, and its final decisions.

2.3 Respondents noted support for the proposed approach to PRA rule changes to implement the new resolution tool outlined in the consultation. Respondents were also supportive of the introduction of the Act generally, with many expressing agreement with the potential benefits to Depositor protection and financial stability.

2.4 Three respondents were keen for the PRA to maintain a balanced approach to levy contributions and avoid placing the costs of any recapitalisation levy disproportionately on smaller or challenger banks. The PRA considers that the proposed rule changes achieve this, replicating the same funding model for recapitalisation levies as is currently in place for compensation levies. The current approach spreads the cost of FSCS levies across the sector, with funding contributions based on amounts of protected deposits held and a measure of the relative riskiness of firms.

2.5 One respondent called for clarification on the scope of the Act and how FSCS funds may be used. The scope of the Act is set out in the Act itself and is outside of the remit of PRA rulemaking. The PRA considers the scope is clear in the legislation, including all firms in scope of stabilisation powers, which cannot be applied to credit unions. The Act allows for the Bank of England, acting as the resolution authority, to request FSCS funds to cover costs and other expenses associated with a resolution. The expected approach to these costs was set out in detail by HM Treasury (HMT) in its consultation response on Enhancing the Special Resolution Regime.

2.6 One respondent expressed concern that recapitalisation levies may reduce protection for consumers under the compensation regime given limits on what the FSCS can levy firms annually, and that firms would pass on the expected costs of a recapitalisation levy to consumers. The PRA considers the new mechanism enhances the level of consumer protection under the Compensation Regime when used instead of the alternative of a Bank Insolvency Procedure. This is because access to banking services will be maintained, meaning depositors will not require a payout that would be subject to FSCS compensation limits. Furthermore, the PRA expects that if recapitalisation or compensation levies combined were to surpass the annual levy limit, the FSCS will continue to meet its obligations to consumers by borrowing from the National Loans Fund via HMT. The FSCS would then levy the sector over subsequent years to repay HMT for any borrowing from the National Loans Fund.

2.7 The PRA also does not expect the new mechanism to significantly increase costs for consumers. HMT’s cost-benefit analysis of the new resolution tool found that, in most cases, costs will be lower under a recapitalisation than under the alternative Bank Insolvency Procedure. The PRA does not consider it likely that the new mechanism will impact decisions made by industry with respect to how firms fund FSCS costs.

2.8 Other points raised by respondents were not relevant to the PRA’s proposals on the implementation of the Act.

2.9 Having considered the responses, the PRA has not made any material changes to the draft policy in the section of CP4/25 relating to PRA’s implementation of the Act.