PRA published the Business Plan for 2021-22. The plan covers each strategic goal of PRA and details the highest-level actions to mitigate the impact of COVID-19 on the regulated firms and the economy. The strategic goals include establishing robust prudential standards, adapting to market changes, ensuring firms are adequately capitalized, developing supervision of operational resilience, and ensuring that banks and insurers have recovery and resolution plans. PRA also announced the intent to publish, in June 2021, the Annual Report for 2020-21, which will focus on the progress of PRA toward implementing the 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:
- Robust prudential standards and supervision. PRA plans to publish the final policy on the revised Capital Requirements Regulation (CRR2) in the second half of 2021 and consult on the implementation of Basel 3.1, by working with HM Treasury to update the rules in time for firms to be able to make the necessary changes by the BCBS-specified implementation date of January 01, 2023.
- Work on climate risks. PRA expects to continue its work to set climate-related expectations for firms; build internal expertise on climate change, including climate disclosures and climate-related policy; ensure delivery of the Climate Biennial Exploratory Scenario; and act on the 2019 Insurance Stress Test climate scenario outcomes. The plan is to further embed supervision of the financial risks from climate change into routine supervision, making it part of the "business as usual" and ensuring that firms see it as a priority. PRA will also continue to actively engage domestically with firms and other stakeholders through the Climate Financial Risk Forum and internationally through its leadership of the Sustainable Insurance Forum, the IAIS, and the Network for Greening the Financial System.
- Financial resilience. Through core supervision, delivering workplans following periodic meetings, technical risk reviews, and maintaining minimum requirements, PRA plans to ensure that firms are adequately capitalized and have sufficient liquidity for the risks they are planning to take. PRA will help to shape the BoE response to the impact of COVID-19 crisis while analyzing and adopting lessons learned from other jurisdictions and continuing to closely monitor any capital challenges that arise for firms. PRA will drive consistent adoption of IFRS 9 and focus on PRA110 liquidity reporting, along with the other work on regulatory reporting and data collection.
- Operational resilience. PRA plans to assess whether firms can meet the operational resilience policy expectations by the time they come into force on March 31, 2022. The operational resilience policy was published in March 2021.
- Recovery and resolution. PRA is planning to take forward implementation of the Resolvability Assessment Framework by publishing the final policy jointly with BoE in the first half of 2021, which will set out how the resolvability of UK banks and building societies will be assessed. PRA will work to ensure that banks and insurers put in place credible plans 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.
- Brexit. PRA plans to implement changes to the approval regime for holding companies and for the designation of investment firms and to set out the approach to supervising international banking groups operating in the UK. PRA plans to work with the UK government and other regulatory authorities to understand the new regulatory environment and establish processes to develop a revised regulatory approach. PRA also expects to adopt its new responsibilities as rule-maker, which will require changes to its policymaking operating model.
- Transformation of data collection. PRA plans to advance its work with firms and FCA to transform data collection from the UK financial sector over the next decade. PRA will seek ways to decrease the burden on industry and to increase the timeliness and effectiveness of data in supporting supervisory judgments. The latest step in this area was the publication of the transformation plan for data collection in February 2021. The transformation plan lays out three long-term reforms needed for better data collection: developed and adopted common data standards, modernized reporting instructions, and integrated reporting. As part of the first phase of the plan, a joint work program is being set-up with industry and the FCA. The work program will design solutions that will hopefully be fully developed and adopted as part of the future data collection process.
Keywords: Europe, UK, Banking, Insurance, Climate Change Risk, Brexit, Regulatory Capital, Operational Resilience, Basel, Reporting, Resolution Framework, Business Plan, ESG, PRA
The European Banking Authority (EBA) proposed implementing technical standards on the interest rate risk in the banking book (IRRBB) reporting requirements, with the comment period ending on May 02, 2023.
The U.S. Federal Reserve Board (FED) set out details of the pilot climate scenario analysis exercise to be conducted among the six largest U.S. bank holding companies.
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.