Prudential Regulation Authority priorities 2024/25

The PRA published its 2024/25 Business Plan on 11 April 2024. The main points of regulatory and supervisory focus that firms should consider align with the PRA’s four strategic priorities:

1. Maintain and build on the safety and soundness of the banking and insurance sectors and ensure continuing resilience.
2. Be at the forefront of identifying new and emerging risks and developing international policy.
3. Support competitive and dynamic markets and facilitate international competitiveness and growth in our regulated sectors.
4. Run an inclusive, efficient, and modern regulator within the central bank.

The following topics will be of particular interest to regulated firms as these have been highlighted in the Business Plan:

Maintain and build on the safety and soundness of the banking and insurance sectors and ensure continuing resilience

Financial resilience – banking

1. Implementation of the Basel 3.1 standards

• The PRA has announced that implementation will be delayed by six months to 1 July 2025 with a transitional period of 4.5 years. Full implementation will be by 1 January 2030.

2. Bank stress testing

• The Bank, working closely with the PRA, Financial Conduct Authority (FCA), and The Pensions Regulator, plans to publish a final report on the system-wide exploratory scenario in late 2024 upon completion of the exercise. A summary of observations from participants’ Round 1 responses was published in the Financial Stability Report in June 2024.

3. Model risk management and internal ratings-based approach/hybrid models

• The PRA will continue to assess the adequacy of post-model adjustments to ensure any potential capital underestimation is addressed.

4. Liquidity risk management

• The PRA will continue to supervise closely firms’ liquidity and funding risks considering recent market stresses through the Liquidity Supervisory Review and Evaluation Processes.

5. Credit risk management

• In September 2024, the PRA published a Dear CRO letter that summarises the findings of a thematic review of smaller firms’ credit risk management frameworks. The six findings included the need to enhance quality assurance controls and to calibrate appropriately the credit risk appetite limits.

6. Capital

• The PRA plans to review its Pillar 2A methodologies (see section ‘Review of the Pillar 2 framework’ of PS17/23 – Implementation of the Basel 3.1 standards) for banks after the rules on Basel 3.1 are finalised with a view to consulting on any proposed changes in 2025.

7.  Securitisation regulation

• In April 2024, the PRA published its final policy (simultaneously with the FCA) on final rules to replace or modify the relevant firm-facing provisions in the Securitisation Regulation and related Technical Standards (PS7/24 – Securitisation: General requirements).

Financial resilience – insurers

8. Solvency UK implementation

• Most of the reforms set out in CP19/23 –Review of Solvency II took effect at the end of June 2024 and the remaining reforms will take effect on 31 December 2024.

9. Insurance stress testing

• The PRA will run its first dynamic stress test for insurers in 2025. The dynamic nature of the exercise represents a significant change from previous exercises and will involve simulating a sequential set of adverse events over a short period. The objectives of the exercise will be to assess:
  • the industry’s solvency and liquidity resilience; and
  • the effectiveness of insurers’ risk management.

10. Cyber underwriting risk

• The PRA published an updated SS4/17 – Cyber insurance underwriting risk in November 2024. The PRA will share the aggregate findings of its recent thematic project focused on cyber underwriting risk with the industry.

11. Liquidity risk management

• The PRA will build on the existing liquidity framework, currently based on risk management expectations set out in SS5/19 – Liquidity risk management for insurers, and develop liquidity reporting requirements for insurance firms most exposed to liquidity risk.
• The Bank has signalled its intention to develop a new lending tool for eligible non-bank financial institutions to help tackle future episodes of severe dysfunction in core markets that threaten UK financial stability. The development of the PRA’s approach to supervising liquidity will therefore inform the design of the lending tool as it relates to insurers.

12. Credit risk management

• The PRA will continue to focus on the effectiveness of firms’ credit risk management capabilities and seek further assurance that firms’ internal credit assessments appropriately reflect the risk profile of their asset holdings.
• The PRA will assess how firms’ credit risk management frameworks are evolving in line with their supervisory expectations and also review the suitability of firms’ current and forward-looking internal credit assessment validation plans and approaches.

Regulatory reforms

13.   Operational risk and resilience

• In November 2024, the PRA, jointly with the Bank and the FCA, published PS16/24 – Operational resilience: Critical third parties to the UK financial sector, which includes final rules for critical third parties and provides feedback to responses to the consultation paper.

Be at the forefront of identifying new and emerging risks, and developing international policy 

14. Managing the financial risks arising from climate change

• In November 2024, the PRA published an updated SS3/19 – Enhancing banks’ and insurers’ approaches to managing the financial risks from climate change. This was to update all previous references to the Commission Delegated Regulation (EU) 2015/35 so they now refer to the relevant rule(s) in the PRA Rulebook. The recently published Interim Regulatory Initiatives Grid indicates that in Q1 2025 the PRA intends to publish an updated SS3/19 to consolidate public feedback since 2019 on the management of climate-related risks and to bring the expectations into closer alignment with international standards.

Support competitive and dynamic markets, alongside facilitating international competitiveness and growth, in the sectors that we regulate

15. Strong and Simple framework

• In 2024/25, the PRA will move further towards finalising and implementing the Strong and Simple prudential framework for Small Domestic Deposit Takers (SDDTs). These changes include simplifications to liquidity requirements and finalising the rules for the Interim Capital Regime. On 12 September 2024, the PRA published CP7/24 – The Strong and Simple Framework…for SDDTs. The proposed implementation date for the new capital rules is 1 January 2027.

Run an inclusive, efficient, and modern regulator within the central bank

16. Transforming Data Collection (TDC)

• The Banking Data Review (BDR) forms an integral part of TDC. The PRA will consult on the first of three phases of reforms under the BDR in 2024 H2. The consultation will involve streamlining current regulatory reporting requirements, removing templates that may no longer be required, or which contain information that can be gathered at a lower cost elsewhere.

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