BoE Outlines Work Priorities & Progress on Data Transformation Program
The Bank of England (BoE) issued a communication to firms to provide an update on the progress of the joint data transformation program—which is being led by BoE, the Financial Conduct Authority, and the industry—for the financial sector in UK. Additionally, the Prudential Regulation Authority (PRA) published the Business Plan for 2022-23, which is structured around strategic priorities of PRA. PRA also announced the intent to publish, in June 2022, the Annual Report for 2021-22, which will focus on the progress of PRA toward implementing the business plans set out last year.
The Business Plan outlines the following work priorities over the medium- to long-term, within the context of key strategic goals:
- Financial resilience. During 2022, PRA will consult on the implementation of Basel 3.1. With respect to the annual statutory review of the UK leverage ratio, changes are due from January 01, 2023, when the scope of the minimum leverage ratio requirement will extend to firms with non-UK assets above GBP 10 billion. In the light of uncertainty related to the Russian invasion of Ukraine, the launch of the 2022 annual cyclical scenario was delayed and a revised timeline will be announced in the second quarter of 2022. PRA also plans to publish a supervisory statement in 2022 that will tie together all PRA expectations, rules, and requirements on model governance, model validation, and general model risk management.
- Operational risk and resilience. A focus of engagement during 2022 will be to assess whether firms had implemented the operational resilience policy expectations by the time they came into force on March 31, 2022. This will include an assessment of firms’ plans to ensure they will be able to deliver important business services within impact tolerance, no later than March 31, 2025. Additionally, the Bank of England (BoE), PRA, and the Financial Conduct Authority (FCA) will publish a joint discussion paper outlining potential additional measures to enhance the oversight of the systemic risks posed by critical third-party service providers. Joint authorities will also co-ordinate work on the longer-term approach to supervising cyber risks and improving the collection of operational incident and outsourcing data.
- Governance and risk management. PRA considers diversity and inclusion to be an important part of corporate culture and the way a firm manages its risk. PRA intends to consult in Autumn 2022 on proposals to support diversity and inclusion in the financial services sector, with the final policy to be published during 2023. During 2022-23, PRA will focus on improving governance and controls around the provision of regulatory reporting data until there is sufficient assurance around the quality of regulatory data received.
- Climate change. From 2022, PRA’s approach to climate-related financial risk will switch from assessing implementation, to actively supervising against the threats. During the year, PRA expects firms to refine, innovate, and integrate climate-related financial risk management practices, as regulators and firms collectively build their understanding of the risks, data, tools, and best practices. The business plan also highlights that the results of the 2022 Climate Biennial Exploratory Scenario will be published by the middle of 2022.
- London interbank offered rate (LIBOR) transition. During 2022, work will focus on monitoring actions to remove any remaining dependencies on LIBOR; these include synthetic LIBOR, transitioning away from USD LIBOR by June 2023, and the transition to the most robust alternative rates, including monitoring the use of credit-sensitive rates.
- Digitalization. During 2022, PRA will monitor developments in key products (such as the impact of buy now, pay later on unsecured lending) and the emergence of new banking business models with payments as a core component. To support further discussion about what an appropriate role for regulators in supporting and building on the safe adoption of artificial intelligence in UK financial services might look like, PRA will publish a discussion paper on artificial intelligence later this year.
The communication on joint data transformation program highlights that the phase one “discovery and design” stage ended at the end of March 2022 and is no longer going to be extended for the commercial real estate use case until the end of May due to a lack of resource. The recommendations based on the phase one stage and the response of BoE and FCA to the recommendations are expected to be published in July 2022. The start of phase two of the joint transformation program is being pushed back until September 2022. The selected phase two use cases are commercial real estate data; retail banking business model data; incident, outsourcing, and third party reporting; strategic review of prudential data collections from solo regulated firms; and asset reporting for insurers.
Keywords: Europe, UK, Banking, Climate Change Risk, Regulatory Capital, Basel, Operational Resilience, Reporting, Business Plan, ESG, LIBOR, Stress Testing, Regtech, Data Transformation, Commercial Real Estate, Benchmark Reforms, Operational Risk, Digital Regulatory Reporting, Leverage Ratio, FCA, BoE, PRA, Headline
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