PRA published the Business Plan for 2020-21. This document presents the workplan for each strategic goal of PRA and details the highest-level actions taken to mitigate the impact of COVID-19 on the PRA-regulated firms. The strategy of PRA is to deliver a resilient financial sector by seeking an appropriate quantity and quality of capital and liquidity, effective risk management, robust business models, and sound governance, including clear accountability of firms’ management. Alongside the Business Plan, PRA also published a consultation paper (CP4/20) that explains how it proposes to fund its budget.
PRA strategy outlines its intentions over the medium to long-term, with the following key strategic goals:
- Robust prudential standards and supervision—Have in place robust prudential standards and hold regulated firms, and those who run them, accountable for meeting these standards. In 2020-21, PRA will focus on maintaining robust prudential standards and support the Financial Policy Committee’s (FPC) commitment to uphold the same level of resilience, to ensure continuity in the supply of vital financial services to the real economy throughout the cycle, including after severe shocks.
- Adapt to market changes and horizon scanning—PRA will seek to maintain the dynamic resilience of the regulatory framework by scanning the horizon for emerging and evolving risks; evaluating the functioning of the framework for unintended consequences; and, where appropriate, intervening to make adjustments in response to these. Over the coming year, the areas that have been identified to be of particular interest include climate change risks, fintech, digital currencies, regtech, and application of artificial intelligence and machine learning.
- Financial resilience—In the coming year, PRA will assess the adequacy of capital and liquidity resources of firms in the banking sector through a range of measures. PRA will continue to assess credit risk and asset quality and to consider the level and drivers of risk-weighted assets. Technical risk reviews, including internal models of firms, liquidity and capital assessments, and scrutiny of regulatory returns and other data, will remain core parts of the PRA work to ensure that firms are adequately capitalized and have sufficient liquidity. PRA also intends to consult on enhancing the internal capital adequacy assessment process (ICAAP) review process for mid-sized UK banks and building societies from 2020 and to continue engaging with relevant firms to take this forward. Additionally, in 2020, PRA will finalize and publish a supervisory statement on its expectations of firms’ implementation of the Prudent Person Principle (PPP) in Solvency II.
- Operational resilience—Develop the supervision of operational resilience to mitigate the risk of disruption to the provision of important business services.
- Recovery and resolution—Ensure that banks and insurers have credible plans in place to enable them to recover from stress events and that firms work to remove barriers to their resolvability to support the management of failure—proportionate to the firm’s size and systemic importance—in an orderly manner. PRA will continue to progress the work to end "too big to fail."
- Brexit—Deliver a smooth transition to a sustainable and resilient UK financial regulatory framework following the exit of UK from EU. In the insurance sector, PRA will take forward work on the risk margin, regulatory data, and the appropriate calibration of the matching adjustment. Also, PRA will ensure a smooth transition to the risk-free rate calculation and will develop capabilities to independently produce all the various Solvency II risk-free rate components. In the banking sector, PRA will continue to monitor any risks presented by firms’ business models and governance as a result of restructuring their activities to accommodate the withdrawal of UK from EU.
- Efficiency and effectiveness—Strive to maintain the level of financial resilience of the banking and insurance sectors to be at least as high as it is today and work closely with these sectors to support their resilience while measures to prevent the spread of COVID-19 affect the business. PRA will endeavor to maintain a risk-aware, post-crisis culture in the firms, while embracing new technologies to improve its efficiency and effectiveness as a regulator and delivering greater benefits to financial services firms. PRA also plans to carryg out a discussion with firms to transform data collection from the UK financial sector over the next decade, seeking ways to decrease the burden on industry and to increase the timeliness and effectiveness of data in supporting supervisory judgments. BoE and PRA issued a discussion paper in January 2020, setting out a range of potential options drawing on ideas explored in the BoE response to the Future of Finance report (published in June 2019) and in the pilot on digital regulatory reporting. BoE and PRA plan to carry out direct stakeholder engagement during 2020, where possible in light of Covid-19, including bilateral meetings, round-table events, webinars, and industry working groups, some of which will be run jointly with FCA as the regulators continue to work closely together to ensure that reforms to data collection are aligned.
Keywords: Europe, UK, Banking, Insurance, Business Plan, COVID-19, Fintech, Regtech, Climate Change Risk, Recovery and Resolution, Brexit, Regulatory Capital, Operational Resilience, Solvency II, Reporting, PRA
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
Previous ArticlePRA Announces Additional Measures in Response to COVID-19 Outbreak
The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.
The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.
The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.
The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.
The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.
The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.
The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.
The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.
The Financial Conduct Authority (FCA) is seeking comments, until December 21, 2022, on the draft guidance for firms to support existing mortgage borrowers.
The Financial Stability Board (FSB) published a report that assesses progress on the transition from the Interbank Offered Rates, or IBORs, to overnight risk-free rates as well as a report that assesses global trends in the non-bank financial intermediation (NBFI) sector.