The Prudential Regulation Authority (PRA) set out the business plan for 2023-24, which sets out its strategic priorities. The Bank of England (BoE) published the 2023 external minimum requirements for own funds and eligible liabilities (MREL) for all firms with a resolution entity incorporated in the UK and a statement on improving depositor outcomes in the event of bank or building society insolvency. The Financial Conduct Authority (FCA) published the policy statement PS23/3 on the creation of a baseline financial resilience regulatory return and is consulting, until June 06, 2023, on the proposal to change the scope of firms required to provide the baseline financial resilience data to include full permission consumer credit firms. BoE, PRA, and FCA published a joint Discussion Paper DP22/3 and sought views, until May 17, 2023, on the proposed requirements and expectations for critical third parties.
The business plan of PRA continues to be structured around the four strategic priorities PRA has set out. The strategic priorities reflect, among other things, the introduction of the Financial Services and Markets Bill 2022 (FSM Bill), which proposes to grant PRA an expanded role as a rule-maker alongside the new secondary objective to facilitate international competitiveness and growth of the sectors it regulates. The strategic priorities for 2023-24 are to:
- Maintain and build on the safety and soundness of the banking and insurance sectors and ensure continuing resilience. On the policy side, PRA plan to publish final Basel 3.1 rules in a policy statement later in 2023, including feedback on the proposed implementation date of January 01, 2025. PRA will publish the results of its latest annual cyclical scenario for the major UK banks in summer 2023, and later in the year, will publish a timetable for the next insurance stress test. PRA will also work with colleagues in the wider bank to run a system-wide exploratory scenario exercise to consider bank and non-bank financial institution behavior in a severe but plausible market stress. PRA will also continue the work on operational risks and resilience, including for critical third parties that provide vital services to the financial sector.
- Be at the forefront of identifying new and emerging risks and developing international policy. This includes work on digitalization and on the implications of Artificial Intelligence and machine learning. It also includes work on crypto-assets, in coordination with the UK and international authorities and managing financial risks from climate change.
- Support competitive and dynamic markets, alongside facilitating international competitiveness and growth, in the sectors that we regulate. In 2023-24, PRA will progress key components of the Strong and Simple framework, transferring the framework into PRA rules as well as developing proposals for simpler but robust capital requirements for non-systemic, domestic-focused, banks and building societies.
- Run an inclusive, efficient, and modern regulator within the central bank. PRA plans to improve the operational efficiency of processing regulatory transactions, in particular in relation to senior manager approvals. PRA expects to have returned to a position of reliably determining applications under the Senior Managers Regime within three months by mid-2023. PRA is also progressing its ambitious program of work to strengthen and transform its data-related capabilities, including keeping pace with technology as well as economic and social changes regarding innovation. PRA launched a Banking Data Review, in the context of changes to the regulatory framework post-Brexit and its evolving needs for data in the light of experience and market developments. Alongside the Banking Data Review, BoE continues its work to improve how it collects data, through the Transforming Data Collection Program. The 2023 work plan of BoE includes redesigning the way PRA collects Commercial Real Estate data and design work on Incident, Outsourcing, and Third-Party Reporting (IOREP).
Additional highlights of the recent developments follow:
- The BoE approach to MREL disclosure includes supporting assumptions and firm-specific information for bail-in and partial transfer preferred resolution strategy firms. BoE has updated the format of the disclosure to reflect the fact that as of January 01, 2023 most firms have reached their end-state MRELs and that, in future, firms that become newly subject to a preferred resolution strategy involving the use of stabilization powers will be subject to the transition arrangements set out in the BoE's revised Statement of Policy on its approach to setting MREL.
- The BoE statement on improving depositor outcomes in the event of a bank or building society insolvency outlines three initial areas that could better support timely payout of eligible depositors’ covered balances and improve continuity of payments and other banking services. The three areas include an online portal enabling depositors to provide alternative account details, utilizing the infrastructure to support the sharing of payment information and redirection of payments made to/from the insolvent institution when a customer moves banks, and opening a new bank account to achieve continuity. UK authorities are expected to make meaningful progress towards a solution in 2023.
- FCA introduced a new financial resilience regulatory return for solo-regulated firms. The new return will be referred to as "FIN073 - Baseline Financial Resilience Report." This will replace the FCA Financial Resilience Survey data collection (formerly Covid-19 Impact Survey). Firms that will be brought into scope of FIN073 will need to be prepared to submit the return when it is due, from January 2024. Firms will receive an automated reminder via RegData when the return is available for submission.
- FCA is also consulting simultaneously on changing the scope of FIN073 to include full permission consumer credit firms. These firms are currently excluded from the rules considering that they are captured under the definition of Credit Brokers. FCA will publish the final position in relation to the scope in Summer 2023, following the closure of CP23/9 in June 2023.
Keywords: Europe, UK, Banking, Business Plan, Basel, Consumer Credit, MREL, Stress Testing, Operational Risk, Critical Third Parties, Operational Resilience, Climate Change Risk, Regtech, Reporting, FIN073, CP23/9, PS23/3, PRA, FCA, BoE
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