How to Construct a Recovery Plan That Credibly Demonstrates Optionality to the PRA

The PRA does not want a longer list of recovery options. It wants fewer options that actually work, under the conditions you are least likely to have modelled. Most Recovery Plans fail this test not because the analysis is thin, but because the options do not hold up when a supervisor asks the second question: what happens if this one is unavailable, and the next one too?

Key Executive Takeaways

• Credible optionality means demonstrating that recovery capacity survives the loss of your most attractive options, not adding more options to the menu.
• Each option needs a defensible execution timeline, counterparty analysis, and evidence of internal readiness, not just a capital or liquidity impact number.
• The PRA reads Recovery Plans looking for evidence of management judgement under stress, so the narrative around triggers, escalation, and decision rights matters as much as the quantitative analysis.

Start With the Scenarios, Not the Options

The common mistake is to inventory options first and then map them to scenarios. This produces plans where the same options appear everywhere, with identical impacts, regardless of the stress. The PRA sees through this immediately.

Build the scenario set first. You need idiosyncratic, market-wide, and combined stresses, each with a clear narrative of how the firm reaches near-failure. Then ask which options are actually available in each. A capital raise looks different in an idiosyncratic reputational stress than in a system-wide dislocation. Asset sales assume buyers. Intragroup support assumes a parent that is not itself distressed.

Good plans show options being eliminated by the scenario, not surviving it unchanged.

Pressure-Test Execution, Not Just Impact

For each material option, the plan should evidence four things:

• Feasibility under stress: who is the counterparty, what is their likely position in this scenario, and what is the realistic price or haircut.
• Time to impact: from decision to cash or capital in the entity that needs it, including regulatory approvals, operational steps, and settlement.
• Dependencies: legal, tax, systems, staff, and third parties required to execute.
• Reversibility and second-order effects: what does executing this option do to franchise, funding, ratings, and remaining options.

Where most firms fall short is time to impact. A £500m disposal that takes nine months is not a recovery option in a liquidity stress. State this honestly. The PRA prefers a smaller number of fast, executable options over a larger number of slow ones dressed up as immediate.

Demonstrate Loss of Options

This is where optionality is actually tested. Take your primary recovery scenario and remove the two most impactful options. Can the firm still recover? If not, the plan does not demonstrate optionality; it demonstrates dependency.

Include this analysis explicitly. A short section titled something like "Recovery capacity under option unavailability" signals to supervisors that you have done the work they would otherwise ask for. The alternative is receiving that request in a follow-up letter, on their timetable, not yours.

Triggers and Escalation Must Be Real

Triggers that only activate when the firm is already gone are worthless. Set them early enough that management actually has time to act, and calibrate them to leading indicators, not lagging capital ratios alone. Funding concentration, deposit behaviour, collateral quality, and market access indicators all matter.

More importantly, show what happens when a trigger fires. Who convenes, in what timeframe, with what authority to act. If the plan says "the Board will consider options," you have not described a recovery mechanism. You have described a meeting.

What Good Looks Like

A credible Recovery Plan reads like the firm has actually rehearsed it. There are references to fire drills or dry-runs. Playbooks exist for the top three options. Legal documentation for intragroup support has been reviewed, not just assumed. The Board has seen the plan discussed under a live scenario, and there is minute evidence of challenge.

What most firms get wrong: treating the Recovery Plan as a compliance artefact updated annually rather than an operational document that sits alongside the ICAAP, ILAAP, and resolution submissions. The PRA reads these together. Inconsistencies between them are the fastest route to a Section 166.

Next Decision Point

Before your next submission, run one exercise: remove your two largest recovery options and ask the ExCo whether the plan still works. If the answer is uncertain, you do not yet have optionality. You have a list.

Frequently Asked Questions

How many recovery options should a plan contain?

There is no correct number. The PRA cares about coverage and executability, not count. A plan with six well-evidenced options that survive scenario stress is stronger than one with fifteen that overlap or share dependencies.

How detailed should the execution playbooks be?

Detailed enough that a new SMF holder could execute them. Named roles, decision rights, legal steps, counterparty contacts, and expected timelines. If the playbook fits on a page, it is not a playbook.

Should we include options we are unlikely to use?

Only if they are genuinely available. Including implausible options weakens the plan by inviting challenge on the credible ones. Better to be explicit about what you have chosen not to rely on and why.

How often should the plan be tested?

At least annually through a live scenario exercise involving the Board or a Board committee, with documented challenge. Component testing of specific options, such as intragroup transfers or asset sale readiness, should happen more frequently.