PRA's four strategic priorities (SPs) are:
- Maintain and build the safety and soundness of the banking and insurance sector and ensure continued resilience.
- We will be at the forefront of identifying emerging risks and developing international policy.
- Promote international competitiveness and growth in regulated sectors and support competitive and dynamic markets.
- Operate a comprehensive, efficient and modern regulatory authority within the central bank.
SP1 — Maintain and build the safety and soundness of the banking and insurance sector and ensure continued resilience.
Areas where financial resilience is a priority for banks include:
- Basel 3.1 — Enforcement will begin on July 1, 2025, and the transition period will be 4.5 years until January 1, 2030. This is consistent with previously announced schedules. A second, near-final policy statement on the remaining elements of credit risk, production floors and Pillar 3 disclosure and reporting requirements will be published “in due course”. The PRA expects both near-final rules to be finalized in the second half of 2024, once the relevant parts of the Capital Requirements Regulation (CRR) are repealed.
- stress test — In 2024, the Bank of England (BoE) will conduct a tabletop exercise with support from the PRA. The BOE and PRA will also review and update the concurrent stress testing framework. Stress tests based on company submissions will resume in 2025.
- Exposure to non-bank financial institutions (NBFIs) The PRA aims to further improve firms' ability to identify and assess correlations across their financing activities with multiple customers, particularly for private equity financing and private credit.
- Model risk management (MRM) — Banks are expected to incorporate and implement the expectations set out in SS1/23 with effect from 17 May 2024. The PRA will also focus on a “hybrid” approach to mortgage modeling, IRB remediation programs, and ongoing assessment of suitability. Post-model adjustment (PMA).
- Liquidity risk management —PRA will track how companies are responding to lessons learned from market events. The Committee will continue its engagement with authorized firms' access to the BoE Financial Framework, and how firms can take account of changes in depositor behavior and future changes in bank funding and liquidity conditions. Carefully monitor whether
- credit risk management – The focus will be on the evolution of credit risk management practices, whether they are “robust and adaptable” to changing circumstances, whether downside and contagion risks are adequately taken into account, and the impact of customer refinancing. There will be a focus on corporate monitoring and planning. A thematic review of credit risk management frameworks for small and medium-sized enterprises is conducted. PRA is based on changes in a company's business mix and its credit exposure, vulnerable segments (e.g. cyclical sectors, major international portfolios, buy-to-let, credit cards, unsecured personal loans, small to personal loans, etc.) monitor exposure to high-risk portfolios). medium-sized businesses, leveraged lending, and commercial real estate). We will also continue to assess whether the trading book's policy framework for risk management, controls and culture is appropriate, robust and accessible.
- capital — The PRA aims to review the Pillar 2A methodology once the Basel 3.1 rules are finalized and consult on the proposed changes in 2025.
- Securitization regulations — Simultaneously with the FCA, the PRA will publish final regulations replacing or amending the relevant corporate provisions of the Securitization Regulations and related technical standards. It will also consult on draft PRA regulations to replace the strong requirements, subject to HMT enacting the necessary legislation.
Areas where insurers focus on financial resilience include:
- Introduction of solvency in the UK — The PRA is consulting on how to move the remaining Solvency II requirements from the Assimilation Act into the PRA rulebook. It will also streamline the approval process for internal models and matching adjustments, supported by the establishment of a dedicated expert team and the publication of templates to facilitate the implementation of new requirements by companies.
- Matching Adjustment (MA) Reform — Final policy announced in June 2024. The majority of reforms will come into force at the end of June, with the remainder coming into effect on December 31, 2024. This phased approach is in response to concerns about whether insurers will be able to submit certificates in time for medium-term insurance. Results of the year. The PRA will also consider creating a “sandbox” to allow for further expansion of self-certification or MA-eligible assets.
- Single regulatory reporting insurance classification — This will be rolled out in Q2 2024, followed by an industry roundtable to support implementation through the end of the year.
- stress test —The next stress test will be conducted in 2025. This is the first time that the PRA has published individual results for the largest pension administration companies, and for the first time it will include exploratory scenarios to assess exposure to funded reinsurance recoveries. contract. In 2025 he PRA plans to conduct the first dynamic stress test for general insurance companies, details of which he expects to be published in 2024.
- Cyber underwriting risk — Oversight focus on cyber exposure will continue. The PRA monitors the risk situation, including contract uncertainty.
- model drift — In 2024, PRA will address perceived systemic trends that may weaken the robustness of internal models across markets and continue to address firm-level model drift.
- Accumulated reinsurance — This remains a key policy and supervisory concern. PRA he plans to finalize and implement policy expectations in 2024. Assessing the resilience of funded reinsurance contracts is also part of the 2025 life insurance stress test.
- Impact of claims inflation — PRA will continue to monitor data throughout 2024 to assess whether further work is required. Concerns remain about the optimistic assumptions.
- Liquidity risk management —In response to market events, the PRA will develop liquidity reporting requirements for insurers most exposed to liquidity risk.
- credit risk management —As insurers' exposure increases, the PRA will monitor how corporate credit risk management evolves as a result. Areas of focus are internal valuations and concentration of exposure to rated assets.
Other regulatory reforms:
- Operational risk and resilience — The PRA will continue to work with the FCA to assess progress in firms' ability to deliver critical business services within established shock tolerances under severe but plausible scenarios (until March 2025 at the latest).
- Key third parties to the UK financial sector — The PRA will continue to work with other authorities to develop the final policy and oversight approach on CP26/23 (Operational Resilience: Critical Third Parties to the UK Financial Sector) in 2024.
- Enforcement policy review — Follow the principles of PS1/24 (Bank of England Enforcement Approach).
- Diversity and inclusion in PRA regulated companies — PRA continues to engage with the industry and will provide further updates in due course.
SP2 — Be at the forefront of identifying emerging risks and shaping international policy
PRA will continue to use its Horizon Scanning program to focus on:
- International involvement and impact on regulatory standards — Actively participates in organizations such as BCBS, IAIS, and FSB.
- Promoting supervisory cooperation — through universities and existing Memoranda of Understanding (MoU).
- overseas bank branch — Consulting on targeted improvements to our approach to banks entering the UK, reflecting lessons learned from the SVB failure.
- Operational and Cyber Resilience — Continue our work with the G7 Cyber Expert Group and other similar bodies.
- Managing economic risks from climate change — Publish thematic findings on banks' processes for quantifying the impact of climate risks on expected credit losses in 2024 and begin work on updating SS3/19.
- Artificial intelligence and machine learning — The third joint PRA/FCA survey on machine learning in financial services in the UK will be conducted in Q2 2024.
- International policy on digitalization Management of associated risks.
- Digital money and innovation — Continue to work with HMT and the FCA on issues such as the regulatory regime for crypto assets, interaction with wholesale payments/payments and retail payments.
SP3 — Promote international competitiveness and growth (in regulated sectors) and support competitive and dynamic markets.
In addition to the areas listed above, the PRA will focus on developing appropriate and efficient prudential requirements, including:
- regulatory changes — Incorporating an approach to rulemaking and leveraging new powers under FSMA 2023 to repeal and replace assimilated legislation related to financial services.
- Bank data review — Aims to reduce the burden on businesses by focusing data collection on the most useful and relevant information.
- Ease of exit — A policy statement on insurers’ solvent exit plans is expected to be published in the second half of 2024.
- remuneration reform — The PRA plans to consult on the changes in the second half of 2024.
- Changes to the Senior Manager and Certification System (SM&CR) — Discussions with HMT and FCA on proposed changes for H1 2024.
- PRA rulebook improvements and cost-benefit analysis (CBA) Framework.
