What’s on the PRA’s agenda for 2017/18?
14 July 2017
The Prudential Regulation Authority (PRA) has set out its priorities for 2017/18 in its business plan. Brexit features heavily in the PRA’s priorities for the period as the regulator prepares to implement the UK regulatory framework following the UK’s departure from the European Union (EU). But it seems determined that Brexit does not crowd out other priorities and will press ahead full steam with a long list of other initiatives:
- Working to facilitate competition including reforms to Pillar 2 and standardised risk weights for low loan to value mortgages.
- Developing a supervisory framework to support operational resilience.
- Understanding the risks posed by credit risk and asset quality.
- Delivering and embedding the governance regime for banks and insurers.
- Continuing to implement ring-fencing.
- Refining its approach to insurance supervision.
- Continuing to contribute to the development of international standards for banks and insurers, including international capital standards for insurers and finalisation of Basel prudential standards.
- Ensuring the PRA has the right resources, technology, data analytics and tools, people and governance to deliver its objectives.
The PRA is constrained by a lack of clarity on the UK’s future relationship with the EU, but the Government’s intention to leave the European Economic Area (EEA) means the PRA is reviewing the UK’s regulatory regime in order to consider what amendments may be necessary to ensure it is fit for purpose post-Brexit. It is important for firms to engage with the PRA, the Treasury and the Financial Conduct Authority (FCA) to ensure industry views inform this process.
Despite Brexit, the PRA is clearly eager to continue to be active and influential internationally. In particular, on the banking side the PRA will focus on the negotiation of Capital Requirements Regulation (CRR II) at the EU level as well as the finalisation of Basel standards internationally. The PRA is also contributing to the development of international capital standards for insurers - with implementation still envisaged by 2020.
The PRA is also planning to sharpen its focus on firms’ operational resilience. It is understandably concerned by the threat from cyber-attacks and other operational risks. Firms, particularly larger systemically significant firms, should prepare to have their operational resilience and ability to continue to provide critical economic functions stress tested in the coming months. The PRA also plans to join the growing list of global regulators assessing the impact of FinTech on firms’ business models.
The PRA’s business plan gives insurers much to consider. It plans to continue embedding its judgement-based supervisory approach but it has also indicated that adjustments to its approach to insurers may be forthcoming if ‘appropriate and possible’. The business plan cites potential amendments to the risk margin in Solvency II (which would need to be delivered at the EU level), the matching adjustment and streamlining its approach to Solvency II authorisations. The PRA also plans to focus on the impact of ‘lower for longer’ interest rates on insurers and governance with the extension of the Senior Managers & Certification Regime (SMCR) to insurers being finalised.
The PRA’s busy agenda looks set to create a challenging list of tasks for firms in the coming year. Many of these initiatives, such as ring-fencing and the individual accountability agenda, represent continuity of focus. But other areas such as operational resilience will put new demands on firms. The ambitious list of priorities shows the PRA is reluctant to press pause on its forward agenda even in the context of the challenges posed by Brexit. The challenge for firms, and indeed the PRA, will be to ensure that attempting to deliver such an ambitious work plan whilst preparing for Brexit does not create an unmanageable burden.