In April, the PRA published a “Dear CEO” letter reminding firms about the PRA’s expectations when a firm in run-off is preparing a request for a capital extraction.

The PRA’s letter states that the quality of the information supporting some requests has been “inadequate”. In particular, information relating to stress tests and reserving has not met the PRA’s expectations, causing “delays in the PRA’s assessment, and inefficient use of resources.” The letter reminds firms to consider Supervisory Statement 4/14 when preparing requests.

In our experience, the PRA has been reluctant to permit firms in run-off to extract capital, even where capital projections suggest that the firm will have no trouble meeting capital requirements following the extraction.

We think the PRA’s letter can be read in a number of ways. Taken at face value, the letter is clearly a reaction to requests for capital extraction which have been accompanied by poor supporting evidence, and have caused the PRA unnecessary work at what is undoubtedly a busy time for the regulator.

However, the letter could also be a way of managing firms’ expectations as to the PRA’s reluctance to approve extractions, by emphasising that a relatively high bar must be met before the PRA will approve a capital extraction.