Prudential Regulation Authority Business Plan 2023/24

Foreword by Chief Executive Sam Woods

Recent events in the banking sector emphasise the need for strong standards and robust supervision. The UK banking and insurance sectors are resilient. But this resilience cannot be taken for granted: it requires constant work by firms and the PRA to maintain it, and we need to remain vigilant to emerging risks or any risk of an erosion of the foundations of financial stability.

At the same time, the progress of post-Brexit reforms points to the positive contribution strong financial regulation can make to wider economic success. Most importantly, under the Financial Services and Markets Bill currently being considered in Parliament, we expect very shortly to get a new secondary objective to facilitate, subject to aligning with relevant international standards, international competitiveness and medium to long-run growth of the UK economy when we make policy. Like our existing secondary objective for competition, this will rank below our primary objectives of safety and soundness and policyholder protection – as you would expect for a prudential regulator. However, it is a significant change in our mandate, and we will take forward our new objective vigorously.

There is no contradiction between robust standards and economic growth. The best thing we can do for the UK economy is make sure that banks and insurers are safe and sound: as we learnt in the financial crisis of 2008, economic growth based on excessive leverage and weak regulation is ultimately unsustainable and self-defeating. Our reputation for alignment with internationally-agreed minimum standards is also central to our attractiveness as a global financial centre – though there is always the scope to fine-tune rules to UK circumstances while maintaining that alignment. This relationship works both ways: safety and soundness is most likely to be achieved in a growing, competitive economy.

Our business plan for 2023/24 reflects both points. Our first strategic priority reflects our primary objective: Maintain and build on the safety and soundness of the banking and insurance sectors, and ensure continuing resilience.

Much of this first priority is achieved through the painstaking day-to-day work of our supervisory teams both on individual firms and across multiple firms. Alongside that, we have a programme of important policy reforms and thematic work. On the policy side, one highlight this year will be the implementation of the Basel 3.1 standards. This is the first major international standard being implemented by the PRA post-Brexit, and we will be considering carefully the evidence submitted in response to our recent consultation. This year we will also be taking forward a major set of reforms to the Solvency II rules for insurers.

Stress testing remains a vital part of how we achieve our mission. We will publish the results of our latest annual cyclical scenario for the major UK banks in summer 2023, and later in the year we will publish a timetable for the next insurance stress test. We 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 behaviour in a severe but plausible market stress. We will also continue our work on operational risks and resilience, including for critical third parties that provide vital services to the financial sector. And we will continue to review trading book risk management in light of incidents like the failure of Archegos and events in the nickel market last year.

Of course, the environment in which we are operating is always changing, and regulation needs to adapt in order to respond to new risks and opportunities. Our second strategic priority: be at the forefront of identifying new and emerging risks, and developing international policy – is all about being ready to supervise the financial system of the future. This includes work on digitalisation and on the implications of AI and machine learning. It also includes work on cryptoassets, in coordination with UK and international authorities. And managing financial risks from climate change remains an important priority.

The new secondary competitiveness and growth objective, which if approved by Parliament will sit alongside our existing secondary competition objective, gives salience to the next priority: support competitive and dynamic markets, alongside facilitating international competitiveness and growth, in the sectors that we regulate.

A core part of this will be embedding competitiveness and growth in our policymaking processes, and looking for opportunities to improve our rules to support these objectives while still maintaining strong resilience. We will consult this year on our updated approach to rulemaking, and we have a long list of policy initiatives underway to enhance the financial sector’s contribution to growth. A particularly significant piece of work within this – which should support both secondary objectives – is our ‘Strong and Simple’ project for banks. By simplifying our rules for smaller banks, we should be able to achieve a material reduction in compliance costs for those firms. At the same time, we are clear that the ‘strong’ part of this project is just as important as ‘simple’, and we have no appetite to water down standards of resilience for small firms.

As CEO of the PRA, an important part of my job is ensuring that the PRA is set up to deliver on these substantial tasks. Our fourth strategic priority is all about this: run an inclusive, efficient and modern regulator within the central bank. This includes ensuring that we make best use of our resources – mindful of wider pressures on the public, we plan on maintaining our headcount broadly flat in the coming year, and our provisional budget and levy for 2023/24 is down a little on 2022/23 (in part reflecting fluctuations in pension costs).

Internally, a major focus this year will be improving the operational efficiency of processing regulatory transactions, in particular in relation to senior manager approvals where we have been too slow. We also have an ambitious programme of work on data and technology. We are paving the way for the Banking Data Review – a unique opportunity to modernise regulatory returns. More widely, we are improving how we collect data, and enhancing digital skills within the PRA. Ensuring we have the right skills and knowledge to support our evolving mission remains a key priority, as is our programme of work to strengthen our culture and promote diversity, equity, and inclusion.

So in summary, we have a lot to do in the coming year! But I’m very confident in the dedication, resilience, and talent of the PRA team, and look forward to working together with them in the year ahead.

Sam Woods

Deputy Governor and Chief Executive Officer

Overview of responsibilities and approach

The PRA has two primary objectives: a general objective to promote the safety and soundness of regulated firms, and an objective specific to insurance firms for the protection of policyholders. The PRA currently has a secondary objective to facilitate effective competition in the market for services provided by PRA-authorised firms. The Financial Services and Markets Bill 2022 (‘the FSM Bill’) implements the Future Regulatory Framework (FRF) review and, when enacted, will introduce a new secondary objective to act, where possible, to facilitate the UK economy’s international competitiveness and its growth over the medium to long term, subject to alignment with international standards.

In its December 2022 recommendations letter to the Prudential Regulation Committee (PRC), HM Treasury (HMT) set out aspects of the Government’s economic policy to which the PRA must have regard, while building on the important themes of openness and competitiveness; competition and innovation; delivering Net Zero, and energy security; and home ownership. The letter also set out that some sections of the Financial Services and Markets Act 2000 (FSMA) will be amended by the FSM Bill to include a new secondary competitiveness and growth objective.

The final details of the FSM Bill are currently being considered by Parliament, and will reform the financial services regulatory framework. The Bill had not yet been enacted by the date of publication for this year’s business plan. However, in anticipation of the passage of the FSM Bill, the PRA has made some changes to its strategic priorities and used them to inform its plan for 2023/24, subject to Parliament’s decision on the Bill. The changes continue from those made in 2022/23, where the PRA covered the introduction of the FRF and its expanded role as a rule-maker in the business plan.

In September 2022, the PRA published discussion paper (DP) 4/22 – The Prudential Regulation Authority’s future approach to policy describing how it intends to approach policymaking as it takes on additional responsibilities under the FSM Bill. The DP sets out the PRA’s ambition to be a strong, accountable, responsive, and accessible policymaker. This means that the PRA will continue to be driven by the pursuit of strong prudential standards, which are a cornerstone of UK financial stability and the international reputation of the UK as a safe and attractive place to do financial services business. The PRA will continue to shape, influence, and align with global standards. The move to a more British style of regulation based on the FSMA, with most of the technical rules made by independent regulators, will enable the PRA to be more agile and deliver policies that are better suited to the UK’s financial sector.

The PRA’s objectives and priorities are delivered through regulation and supervision, and by developing standards and policies that set out expectations of firms. The PRA’s approach to supervision is forward-looking, judgement-based, and focused on the issues and firms that pose the greatest risk to the stability of the UK financial system and policyholders. This approach is set out in the PRA’s approach to supervision of the banking and insurance sectors.

The PRA’s regulatory focus is primarily at the individual firm and sector level, with the most important decisions taken by the PRC. The PRC works with other areas of the Bank of England (the Bank), including in its role as supervisor of Financial Market Infrastructures (FMIs), the UK’s Resolution Authority, and its committees, including the Financial Policy Committee (FPC), which has responsibility for the stability of the entire UK financial system. The PRA also works closely with the conduct regulator, the Financial Conduct Authority (FCA), including through the Chief Executive of the PRA being a member of the FCA Board and the Chief Executive of the FCA being a member of the Prudential Regulation Committee (PRC).

The PRA regulates 1,420 firms and groups.^{footnote [1]} These consist of 773 banks, building societies, credit unions and designated investment firms (DIFs), and 647 insurers of all types (general insurers, life insurers, friendly societies, mutuals, the London market and insurance special purpose vehicles (ISPVs)).

Chart 1: PRA supervised deposit takers, as at January 2023

Chart 2: PRA supervised insurers, as at January 2023

The PRA’s strategy

Shaping the PRA’s strategy

Each year, the PRA is required by law^{footnote [2]} to review, and, if necessary, revise its strategy in line with its statutory objectives:

• the general primary objective to promote the safety and soundness of PRA-authorised firms;
• specifically for insurance firms, a primary objective to contribute to the securing of an appropriate degree of protection for those who are or may become policyholders;
• a secondary objective to act, so far as is reasonably possible, in a way which facilitates effective competition in the markets for services provided by PRA-firms; and
• under proposals in the FSM Bill, a new secondary objective to act, so far as reasonably possible, in a way which facilitates the UK economy’s international competitiveness and its growth over the medium to long term, subject to alignment with international standards.

In addition to the statutory objectives, the PRA’s strategy is shaped by other responsibilities, such as the requirement to implement legislation and other changes necessary to meet international standards, and to continue to adapt to market changes in areas such as climate change and FinTech. When considering how to advance its objectives, there are a set of regulatory principles to which the PRA must also have regard. This includes regulatory principles from FSMA, ‘have regards’ and considerations from HMT’s December 2022 letter to the PRC on the Government’s economic policy, the FSM Bill (as drafted) 2022, the Equality Act 2010, the Legislative and Regulatory Reform Act 2006, and the Natural Environment and Rural Communities Act 2006. When pursuing its objectives, the PRA will review all the regulatory principles, identify which are significant to the proposed policy, and judge the extent to which they should influence the outcome being sought.

Furthermore, as part of the Bank, the PRA contributes to the delivery of the Bank’s wider financial stability and monetary policy objectives.

Strategic priorities for 2023/24

This year’s business plan continues to be structured around the PRA’s four strategic priorities set out in 2022/23, which are interrelated and supportive of each other. The PRA’s 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;
• be at the forefront of identifying new and emerging risks, and developing international policy;
• support competitive and dynamic markets, alongside facilitating international competitiveness and growth, in the sectors that we regulate; and
• run an inclusive, efficient, and modern regulator within the central bank.

These updated priorities for 2023/24 reflect, among other things, the introduction of the FSM Bill which proposes to grant the PRA an expanded role as a rule-maker alongside the new secondary objective to facilitate international competitiveness and growth of the sectors it regulates.

PRA Business Plan 2023/24

Maintain and build on the safety and soundness of the banking and insurance sectors and ensure continuing resilience

Over the decade following the financial crisis of 2008-2009, the PRA designed and implemented extensive reforms, which materially improved the safety and soundness of firms, policyholder protection, and financial stability. The resilience of the banking and insurance sectors, and the importance of strong standards, were both apparent in recent interventions by the Bank, the PRA, and international counterparts. The PRA will continue to ensure that firms remain adequately capitalised and have sufficient liquidity and stable funding profiles.

The PRA will continue to be focussed on maintaining financial and operational resilience, consistent with its objectives and those of the FPC. The PRA promotes a risk-aware culture in regulated firms, in which risk-taking should be conscious and controlled, and supported by adequate financial and non-financial resources. The PRA continues to seek to ensure that firms are resilient operationally as well as financially.

As part of post-Brexit reforms, the PRA’s role as a rulemaker is expanded following the introduction of the FRF, which forms part of the FSM Bill, and will allow for more effective rules for UK markets and firms. Under this new framework, the PRA will aim to be a strong, accountable, responsive, and accessible policymaker.

These changes proposed in the FSM Bill will enable the PRA to advance its statutory objective of promoting the safety and soundness of firms through a more targeted and risk-based regulatory framework. The PRA intends to publish consultations which will seek to advance the safety and soundness of firms while implementing global standards and markets in the UK through targeted policy reforms.

Financial resilience – banking

Basel 3.1

On 30 November 2022, the PRA published consultation paper (CP) 16/22 – Implementation of the Basel 3.1 standards setting out its proposals for the implementation of the international Basel 3.1 standards in the UK. In making these proposals, the PRA sought to maintain the UK’s reputation for adherence to global standards, and support its international competitiveness while having regard to other jurisdictions’ implementation of the standards. Basel 3.1 is the final set of post-financial crisis Basel standards for banks. The proposals in CP16/22 would significantly change how firms calculate their risk-weighted assets (RWAs). The Basel 3.1 standards aim to strengthen the risk-sensitivity of RWA calculations and address the degree of variability observed by the Basel Committee on Banking Supervision (BCBS) in firms’ calculation of RWAs, especially those using internal models. The changes will improve the comparability and credibility of firms’ risk-based capital ratios.

In CP16/22, the PRA has welcomed views on areas where data can be incomplete or sparse, such as for small and medium-sized enterprises (SMEs) and infrastructure lending. Later in 2023, the PRA will review and consider the responses to the consultation, which ended on 31 March 2023, publishing the final Basel 3.1 rules in a policy statement (PS) in due course. This will include considering feedback on the proposed implementation date of 1 January 2025.

The PRA is also developing a simpler but equally resilient prudential framework for smaller, domestic-focused banks and building societies, known as the ‘Strong and Simple’ framework.^{footnote [3]} CP16/22 sets out the PRA’s revised proposed criteria (‘Simpler-regime criteria’) for determining which firms would be in scope of the ‘Strong and Simple’ prudential framework.^{footnote [4]}

Non-performing exposures

The PRA has published a consultation proposing to remove the Common Equity Tier 1 (CET1) capital deduction requirement for non-performing exposures (NPEs) that are treated as insufficiently provided for by firms. The CP also proposes to remove the associated NPE reporting requirements.

These proposals would enhance the definition of capital in a way that aligns with international standards. They would also increase the scope for the PRA to take a judgement-led approach to the prudential risks associated with NPE under-provisioning and remove a potential competitive disadvantage for UK firms compared to firms in jurisdictions that are not subject to the NPE deduction. The proposals to remove the associated reporting requirements will reduce the costs of compliance, monitoring, reporting, and data gathering for firms.

Securitisation

HMT has prioritised the securitisation regulation as an initial area of focus in the FRF process, supporting the delivery of policy changes in areas identified in HMT’s 2021 Review of the Securitisation Regulation. The PRA (in collaboration with the FCA) is considering these areas, including in relation to risk retention, due diligence, and disclosure. The PRA will consult (simultaneously with the FCA) on draft rules to restate, with modifications where appropriate, relevant firm-facing provisions in the securitisation regulation and related technical standards in 2023-24.

The PRA is reviewing the data and feedback received from firms and market participants, following its recent consultation on the application of the output floor to securitisation exposures in Chapter 9 – Output floor of CP16/22. The PRA may consider carrying out a further consultation to address any issues identified, and would aim to do so during the output floor transition period.

Bank stress testing

The Bank and the PRA has returned to the annual cyclical scenario (ACS) framework to test system-wide financial resilience, following two years of pandemic crisis-related stress test analysis. The ACS 2022 timeline was postponed following Russia's invasion of Ukraine, resulting in the ACS scenario being published in late 2022 and firms submitting their forecasts in January 2023. As a result, the Bank and the PRA expect to publish the results of the test in summer 2023. The 2022/23 ACS will test the resilience of the UK banking system to deep simultaneous recessions in the UK and global economies, large falls in asset prices and higher interest rates, and a separate stress of misconduct.

In addition, as flagged in the Q1 2023 FPC record, in collaboration with the Bank, the PRA will run, for the first time, a system-wide exploratory scenario exercise. This will investigate the behaviours of banks and non-bank financial institutions following a severe but plausible stress to financial markets. It will consider both what drives these behaviours and their consequences, and will focus on the potential for these actions to interact and to amplify shocks in ways that might cause adverse outcomes in UK financial markets core to UK financial stability. This will be an exploratory exercise focused on market resilience and its importance for financial stability; it will not be a test of individual firms’ resilience.

Model risk management, internal ratings-based approach/hybrid models and regulatory reporting

Banks’ use of and reliance on models and scenario analysis to assess future risks has increased significantly over the past decade, in part driven by new regulations and reporting requirements (eg IFRS 9) and regulatory expectations in respect of stress testing. The use of modelling extends beyond the scope of current PRA guidance and the Capital Requirements Regulation (CRR), and the introduction of new, sophisticated modelling techniques has highlighted the need for sound model governance and effective model risk management practices.

In 2022, the PRA consulted on a set of principles that provide an overarching assessment framework for model risk management, published in CP6/22 – Model risk management principles for banks. The PRA intends to publish the final supervisory statement (SS) on model risk management principles for banks during 2023. This will set out supervisory expectations for model development, validation and model governance practices across multiple model and risk types and modelling disciplines. The adoption of the principles will help banks to build capability and develop good practice to manage the risks associated with the use of all models, raising prudential standards at banks operating in the UK.

There will be increased attention on management’s understanding of complex models as the PRA’s model risk management principles for banks are embedded. The PRA will continue to work with banks as they develop and implement their model risk management practices. Though CP6/22 was primarily relevant to all firms in the wider banking sector and their external auditors, insurers were also asked to consider which elements of the policy for banks are relevant for them in the 2023 priorities letter, and the PRA will continue to assess the application of these principles to insurers.

The PRA has published a range of policy statements (PS) on changes to the internal ratings based (IRB) approach to credit risk over recent years. The PRA will continue to work with firms as they progress their model submissions in line with these requirements and expectations. The PRA will focus on the ‘hybrid’ approach to mortgage modelling, and the IRB programme, both carried forward from 2022.

The PRA will continue with its programme of skilled person reviews of controls over data, governance, and systems for regulatory reporting in 2023, and expects firms to take steps to address the thematic findings set out in its communications on regulatory reporting.

Financial resilience – insurers

Regulatory reforms

In November 2022, the government published a response to its consultation on the review of Solvency II. The response announced the intention to implement, through a combination of legislation and PRA rule changes, a package of measures needed to deliver the government’s objectives through a reformed UK regulatory regime for insurers, to be known as Solvency UK.

In 2023/24, subject to the decisions enacted by Parliament, the PRA will issue a series of consultations on rule changes and expectations that will implement the reforms outlined in HMT’s consultation response as quickly and transparently as is possible. The measures are intended to ease the flow of business and long term investment, and will include:

• a significant streamlining of the rules for internal model approvals;
• widening the range of assets that are eligible for the matching adjustment;
• reduction to the risk margin (RM);
• enabling firms to apply voluntary add-ons to the fundamental spread (FS) applied to the assets held in their matching adjustment portfolios;
• setting clear expectations on how the relevant senior manager(s) should approach making the required attestation concerning the adequacy of the FS and level of the resulting matching adjustment (MA); and
• raising the threshold at which firms are required to enter the Solvency UK regime.

The PRA also published a consultation paper on the second phase of changes to regulatory reporting requirements, with a proposed implementation date for all phases by 31 December 2024. A policy statement containing all reporting changes will be published this year, closely followed by the final taxonomy for firms to begin implementing the reporting changes.

Insurer Resolution Regime

The PRA is actively supporting the work being done by HMT to create an Insurance Resolution Regime, which would provide tools to the authorities enabling them to take prompt action to manage and stabilise an insurer that is failing or likely to fail. In January 2023, HMT published a consultation paper, which closed in April, and is now considering how best to take this work forward.

Insurance stress testing

Following publication of the results of the 2022 Insurance Stress Test, the PRA will work on the design of the longer-term strategy for insurance stress testing, and will announce a timeline for the next insurance stress test during H2 2023. This will also include work on the Bank’s system-wide exploratory scenario, which will investigate the behaviours of non-bank financial institutions following a severe but plausible stress to financial markets.

One of the supervisory measures announced by the Government in November 2022 was to require firms to participate in regular stress testing exercises prescribed by the PRA and to allow the PRA to publish individual firm results. The PRA will engage with firms in scope of the development of the insurance stress testing regime needed to provide a robust test of resilience and to deliver results suitable for publication at individual firm level.

Reinsurance risk

The PRA is paying close attention to the impact of the continued high level of reinsurance of longevity risk in new annuity business, and the emergence of the more complex ‘funded reinsurance’ in the UK life market, on the protection that UK policyholders enjoy.

In particular, the potential offshored counterparty concentration risk arising from rapidly growing levels of reinsurance could impact individual firms and the sector. The PRA’s review of risks will consider compliance of reinsurance strategies with the Prudent Person Principle (PPP). This will include the impact of and resilience to recapture risk where large concentrations to a small number of counterparties or to correlated counterparties exist. The PRA will also assess the need for further policy proposals or guidance on use of and risk management of these reinsurance structures and limits.

Impact of claims inflation in general insurance

Inflation of the amounts needed to settle claims under general insurance policies such as motor and home insurance was identified as a key risk in 2022, and the PRA wrote to firms in October 2022 setting out insights from a review of the risks posed to the sector. The PRA will maintain its focus on the impacts of inflation of general insurance claims, including through assessing how firms have responded to the recommendations made in the October 2022 letter. Firms are expected to have assessed the potential impact of claims inflation and reflected this in their year-end reserves and any implications on dividend proposals, and claim settlement costs.

The focus for this year will be on assessing the impact that claims inflation has had on 2022 year-end claim and premium provisions, and whether firms are set up to monitor and assess the continuing impact of claims inflation and to incorporate the factors that drive that inflation into their underlying pricing, reserving, and capital modelling.

The PRA will also monitor the impact of claims inflation that may present in the settlement process for businesses where claims are slower to emerge, for example those where costs are linked to wages and legal expenses. The PRA will continue to monitor that firms are assessing how expectations around the inflationary impacts of the cost of goods and services are feeding through into their business, and to inform setting reserves at the end of 2023.

Operational risk and resilience (including critical third party policy and cyber stress testing)

Operational disruption can impact financial stability, threaten the viability of individual firms and financial market infrastructures, or cause harm to consumers, policyholders, and other parts of the financial system. The PRA defines operational resilience as the ability of firms and the financial sector to prevent, respond to, recover, and learn from operational disruptions, including cyber threats.

The FCA’s, the Bank’s and the PRA’s operational resilience policies came into force in March 2022. Firms should have now identified important business services and set impact tolerances, and commenced a programme of scenario testing. The PRA has conducted an initial assessment of firms’ implementation of the policy and provided feedback of the results. In 2023, the PRA will work closely with the FCA to assess firms’ progress, with a particular focus on their ability to deliver important business services within impact tolerances through severe but plausible scenarios within a reasonable time frame and by no later than March 2025. Ensuring a more consistent approach in policy implementation will also be a key focus during 2023.

The PRA will also continue to monitor threats to firms’ resilience, including their growing dependency on third parties. The FSM Bill, currently going through Parliament, will give HMT the ability to designate certain third party service providers as ‘critical’ following consultation with the Bank, the PRA and the FCA (supervisory authorities). The Bill will also give the supervisory authorities new powers to oversee the services provided by critical third parties (CTPs) to regulated firms. In 2022 the PRA and the FCA published a joint discussion paper on how these proposed powers could be used to assess and strengthen the resilience of services provided by CTPs to firms and FMIs, thereby reducing the risk of systemic disruption. The PRA will continue to work with HMT to develop the policy and oversight approach in 2023.

Alongside this, the PRA will continue to monitor and assess firms’ ability to manage cyber threats through ongoing use of CBEST and the cyber questionnaire (CQUEST). The PRA will collaborate with the FCA, including in response to known technology and cyber incidents, and will continue to monitor and engage with firms on their execution of large and complex IT change programmes. The FPC’s recent cyber stress test has broadened the PRA’s understanding of how operational disruptions such as cyberattacks may impact financial stability. Throughout 2023 the PRA will continue to deliver this work through a broad range of industry, sector focussed and international engagement including the Authorities Response Framework, the Cross Market Business Continuity Group, the Cross Market Operational Resilience Group and the G7 Cyber Expert Group. This will focus on strengthening the sector’s resilience capabilities and its ability to respond to an operational disruption.

Governance and risk management (including remuneration reforms)

The PRA places great importance on effective governance, strong risk management and appropriate incentive setting from remuneration, individually and collectively, in supporting sound decision-making to achieve desired prudential outcomes. These aims are met both through policy development and day-to-day supervision of firms.

The PRA’s governance and remuneration regimes for banks and insurers are a combination of EU and domestic policies at present. While evaluation work carried out in recent years has indicated that these regimes are effective at achieving their aims, now that the UK has left the EU, there is scope to streamline some elements of the regimes to make them more effective and proportionate for the UK market. Rules around remuneration are an important tool to ensure decision-makers and risk-takers have the right incentives. In December 2022 the PRA, jointly with the FCA, published CP15/22 – Remuneration: Ratio between fixed and variable components of total remuneration (‘bonus cap’) on removing the fixed limits on the proportion of variable to fixed remuneration (known as the ‘bonus cap’).

In CP5/23 – Remuneration: Enhancing proportionality for small firms, proposals were published aiming to make the remuneration regime more proportionate for smaller banks, building societies, and designated investment firms. Final policy will be issued during 2023.

Senior Managers and Certification Regime (SM&CR) reforms

In March 2023, the PRA, jointly with the FCA, published a discussion paper DP1/23 – Review of the Senior Managers and Certification Regime (SM&CR); the Government launched a Call for Evidence on the regime at the same time. These reviews will collect information on the regime's effectiveness, scope, and proportionality, and seek views on potential improvements and reforms. After collating the responses to DP1/23, the PRA and the FCA will assess the need for further policy proposals.

Trading book controls

The default of Archegos Capital Management in March 2021 resulted in global losses for regulated firms of over US$10 billion. In response, the PRA (in conjunction with the FCA and other regulators) undertook cross-jurisdictional reviews which revealed deficiencies in firms’ risk management frameworks and the PRA has communicated its findings to industry. Regulatory responses are being considered internationally and, in addition, in 2023 the PRA will commence a review of regulatory policies in light of these findings to assess whether the policy framework for trading book risk management, controls and culture is adequate, robust, and accessible.

Diversity and inclusion in firms

The PRA considers diversity and inclusion in firms to be an important part of corporate culture, with a direct impact on the way a firm manages its risk. As set out in the joint Bank, PRA, and FCA discussion paper published in 2021 (DP2/21 – Diversity and inclusion in the financial sector – working together to drive change), diversity can bring different perspectives and experiences to the workplace, while inclusion facilitates these views being expressed, contributing to more balanced discussions, constructive challenge, and debate. That in turn can help reduce the risk of ‘groupthink’, leading to better, more prudent decision-making and risk management. A firm with a diverse and inclusive culture is also likely to benefit from a wider talent pool, potentially making them more competitive in the labour market. Diversity among employees can also support greater innovation, enabling firms, particularly new entrants, to be more competitive.

Building on feedback to DP2/21 and a data survey, the PRA and the FCA will publish a consultation paper in 2023 with proposals on diversity and inclusion in the firms that we regulate, with the final policy expected to be published in 2024.

Be at the forefront of identifying new and emerging risks, and developing international policy

The PRA maintains flexibility to adapt and respond to changes in the external environment, economic and market developments, and any other risks that may impact its statutory objectives or priorities. The PRA has a horizon-scanning programme to identify emerging external risks, regulatory arbitrage, potentially dangerous practices, and to highlights features of the regulatory regime that are not yet delivering the desired results, and allocate supervisory and policy resources to tackling the highest priority risks. Consistent with its mission, the PRA will continue to contribute to lessons learned internationally, to promote the safety and soundness of the firms that it regulates.

Influencing international change

The PRA plays a leading role in influencing international regulatory standards, and will continue to participate actively in global standard-setting bodies, such as the BCBS and the International Association of Insurance Supervisors (IAIS). Where required, it will also continue supporting the Bank’s work at international policy fora, such as the Financial Stability Board. Over the coming year, the PRA’s engagement will continue to focus on identifying and addressing emerging risks in priority areas (eg climate change, bank-issued stablecoins and operational resilience). There will also be a focus on promoting consistency in the implementation of Basel 3.1, the development and monitoring of the IAIS’s Insurance Capital Standard, the implementation of a holistic framework for assessing and mitigating systemic risk in the insurance sector, and work at IAIS on private equity and risk transfers.

Effective international collaboration remains crucial to addressing global risks, and is central to maintaining UK financial stability, the safety and soundness of internationally active firms, and reducing regulatory arbitrage. The PRA will continue to expand the list of jurisdictions with which it has a memorandum of understanding (MoU), to facilitate the supervision of international groups and enhance the safety and openness of the UK for financial services activities. More broadly, the PRA will continue to promote international collaboration through supervisory colleges, and by supporting HMT on trade agreements, mutual recognition agreements (MRAs), and equivalence assessments as required.

Digitalisation

The PRA aims to be at the forefront of identifying and responding to opportunities and risks faced by PRA regulated firms as they seek to use technology in innovative ways to attract and retain customers, reduce costs, and increase efficiencies.

External context and business risk remains at the heart of the PRA’s approach to supervision. Developments are monitored, with specialist input from the Bank’s Fintech Hub, to identify evidence of fragmentation of the value chain, novel outsourcing arrangements and the potential risks from non-banks using technology to disrupt financial markets or generate unacceptable levels of concentrations. The PRA will continue to monitor firms’ involvement in new technologies and asset tokenisation. Relatedly, the potential for capital and profit erosion for firms that are slower to adopt new technologies, is also a supervisory concern.

The PRA will continue to work closely with domestic and international regulatory partners, and through engagement with industry and stakeholders, to take a pro-active approach to digital innovations within the financial sector. The PRA will continue to consider policy proposals to respond to digitalisation and adapt its supervisory approach accordingly, while working closely with PRA horizon-scanning teams and other parts of the Bank to exchange information and escalate issues arising from digitalisation to senior committees. Through the new bank and insurer start-up units, the PRA will continue to engage with applicant firms that have novel uses of technology.

The PRA is a significant contributor to discussions on digitalisation in international banking and insurance forums, and will continue to input to the Basel Committee on Banking Supervision’s (BCBS) work on the digitalisation of finance and the deep dive analysis on the supervisory implications of Banking as a Service. The PRA will also continue be an active part of the IAIS Fintech Forum.

Artificial intelligence and machine learning

Artificial intelligence (AI) and machine learning (ML) are rapidly developing technologies that have the potential to transform financial services and markets by making them more efficient, accessible, and tailored to users’ needs.  This may bring important benefits to consumers, financial services firms, financial market functioning, and the wider economy.

However, AI and ML can pose novel challenges including creating new regulatory risks, or amplifying existing risks to consumers, the safety and soundness of firms, market integrity, and financial stability. The PRA and other UK supervisory authorities are interested in the safe and responsible adoption of these technologies in UK financial services, including considering the appropriate role of policy and regulation.

One of the most significant questions is whether AI and ML can be managed through clarifications of the existing regulatory framework, or whether a new approach is needed. There is a wide-ranging debate, both in the UK and other jurisdictions around the world, about how to regulate these technologies to ensure they deliver in the best interests of consumers, firms, and markets.

To further the supervisory authorities’ understanding, survey results on machine learning in UK financial services and a discussion paper on artificial intelligence and machine learning were published in 2022. Responses to the discussion paper will allow the supervisory authorities to explore how best to address the above issues in a way that is aligned with our statutory objectives, provides clarity, is actionable, and makes a practical difference for consumers, firms, and markets.

The supervisory authorities are also considering the evolving wider national and international policy debate on AI, including the UK Government’s policy paper ‘Establishing a pro-innovation approach to regulating AI’, joint work between UK regulators through the Digital Regulation Cooperation Forum (DRCF), and international developments from other regulators and authorities.

Cryptoassets

The PRA will continue to contribute to the Bank’s cross authority work on cryptoassets, including through the Cryptoassets Taskforce, which was announced in March 2018 by the Chancellor of the Exchequer, as part of the Government's FinTech Sector Strategy. In February 2023, HMT published a consultation and Call for Evidence on the future financial services regulatory regime for cryptoassets focused on enhancing market integrity, custody requirements and transparency. Work will also continue domestically in developing a regulatory framework that is ready for technological innovations, such as stablecoins and tokenised deposits.

The PRA will continue to work with international partners to establish a common, international standard for the treatment of banks’ cryptoassets exposures. In December 2022, the BCBS published prudential banking standards on this topic. In 2023, the PRA will start work on changes to PRA rules to implement the standards and continue working with international partners on a set of specific follow up issues that will be subject to monitoring and review. The PRA will also work with international partners, including the BCBS, to assess bank-related developments in cryptoassets markets, the role of banks as stablecoins issuers, custodians of cryptoassets and broader potential channels of interconnections with the cryptoassets ecosystem.

Climate change

Climate change presents a source of material and increasing financial risk to firms and to the financial system. Managing the risks to firms’ safety and soundness from climate change requires action and remains a key PRA priority. Expectations around enhancing banks’ and insurers’ approaches to managing the financial risks from climate change were first set out in April 2019, in SS3/19 – Enhancing banks’ and insurers’ approaches to managing the financial risks from climate change. The PRA has since provided further guidance via two Dear CEO letters,^{footnote [5]} incorporating observations from supervisory processes and the 2022 Climate Biennial Exploratory Scenario exercise. The PRA, alongside the FCA, also worked with industry through the Climate Financial Risk Forum to produce practical guides and tools.

The PRA will continue to expect firms to take a forward-looking, strategic, and ambitious approach to managing climate-related financial risks. This approach is proportionate to the complexity, scale, or concentration of a firm’s operations – noting that geographic or sectoral concentrations may present greater climate-related financial risks regardless of size or complexity of the firm. This approach also observes that both regulators and firms need to build their understanding of risks, data, tools, and best practices. This necessitates the use of judgement, expertise, and existing tools to quantify climate-related risks and incorporate those risks into risk frameworks and business strategies.

The assessment of a firm’s management of climate-related financial risks is now included in the relevant elements of the supervisory cycle, as outlined in the Climate Change Adaptation Report 2021.

Overall, the PRA has observed that banks and insurers across the sector have taken concrete and positive steps to implement the PRA’s supervisory expectations. While some firms have made considerable progress, the level of embedding varies, and the PRA’s assessment is that further progress is needed by all firms.

The PRA will assess firms’ ability to meet supervisory expectations in a proportionate way, through its supervisory engagement. The PRA expects firms to be able to demonstrate how they are responding to its supervisory expectations and to set out the steps they are taking to address barriers to progress.

Support competitive and dynamic markets, alongside facilitating international competitiveness and growth, in the sectors that we regulate

The PRA advances its primary and secondary statutory objectives through regulation to support competitive and dynamic markets in the sectors that it regulates. Under the FRF, the PRA is likely to have greater freedom to design and implement regulation in a way that is driven by its objectives and is better suited to the requirements of the UK market. Alongside this, the FSM Bill proposes a new secondary objective for the PRA focused on facilitating competitiveness and growth in the medium to long term. This would allow the PRA to go further in developing proportionate and agile prudential requirements, reducing the burden on firms where appropriate, and pursuing its existing secondary competition objective. The PRA is working on a number of initiatives to take advantage of those opportunities, while maintaining high and consistent prudential standards. This also includes maintaining the UK’s position as a leading global financial centre. The PRA remains committed to playing an active role in international standard-setting, given the important role of global rules in safeguarding the UK’s open economy through ensuring safe financial markets.

Regulatory change – developing the PRA’s approach to rulemaking

As Parliament reaches the final stages of the legislative process, the PRA expects the FSM Bill to receive Royal Assent after this plan is published.

The FRF that forms part of this Bill will allow the PRA to be more responsive and proactive in how it advances its objectives, and to ensure rules are appropriately tailored to the circumstances of the UK. The PRA will also take this opportunity to enhance transparency and improve its engagement with stakeholders.

In September 2022, the PRA published DP4/22 setting out its intended approach to policymaking. The DP covered topics such as the new secondary competitiveness and growth objective, international engagement, and plans to deliver a more user-friendly website for the PRA Rulebook and supervisory material, with increased functionalities, hosted on the Bank’s website. A consultation paper will be published during 2023.

In the meantime, the PRA is continuing to make progress in preparing for its new role under the FRF, including its new competitiveness and growth objective and its approaches to Cost Benefit Analysis (CBA) and rule review. It is also working closely with HMT on the transfer of a number of direct firm-facing rules to the PRA Rulebook.

Competitiveness

The PRA will look more broadly at the ways in which it can facilitate competitiveness and growth, taking advantage of the additional opportunities from the FSM Bill to review areas of policy that have previously been fixed in UK legislation. This will include providing firms with predictability over potential changes; considering the market impact of our proposals on UK competitiveness and growth relative to approaches taken in other jurisdictions; and making our regulatory framework more accessible and user-friendly. As set out in a speech in February by Victoria Saporta (Executive Director, Prudential Policy Directorate), the PRA already has plans to take action to facilitate competitiveness and growth in a range of areas, including remuneration and CTPs.

The PRA will fully integrate the new competitiveness and growth objective into its internal processes, including embedding it through the policy cycle and explaining how the judgements made are expected to advance the new secondary objective in CPs and PSs. In addition, the PRA will also undertake research to understand the impact that its actions have had on UK competitiveness and growth, and policy will be evaluated to explore ways to advance it further. The PRA will also be holding an international conference in September to deepen its understanding of the links between prudential regulation, international competitiveness, and growth.

These changes will enable the PRA to tailor its regime to the needs of the UK and respond faster to emerging risks and opportunities in the UK financial sector. The PRA will report yearly as part of its Annual Report on how it has advanced this new objective.

Developing the PRAs approach to rule making – rule review

The FSM Bill will also make amendments that require the PRA to keep its rules under review, publish a statement of policy with respect to its review of rules and carry out rule reviews. The purpose of these requirements is to increase the transparency and accountability as it takes on new rule-making responsibilities.

The PRA will publish a consultation paper on its approach to rule review this year.

Repealing and replacing direct regulatory requirements in the PRA Rulebook

The FSM Bill returns responsibility for designing and implementing most direct firm-facing regulatory requirements to the PRA. To do so, the FSM Bill creates a framework for HMT to commence the deletions of retained Financial Services EU laws repealed by Parliament, and for the regulators to replace most of those retained EU laws. The PRA is working closely with HMT to support this transfer process and is aiming to make significant progress on both banking and insurance policies throughout the next year.

Strong and Simple regime

As explained in the PRA Business Plan for 2022/23, the PRA is working on creating a simpler but equally resilient prudential framework for smaller, domestic-focused banks and building societies, known as the Strong and Simple framework. This framework is being designed to maintain the financial resilience of banks and building societies operating in the UK, while reducing costs associated with prudential requirements for non-systemic banks and building societies.

The PRA published several CPs on key components of the Strong and Simple framework during 2022/23. The CPs covered the proposed criteria for determining whether a bank or building society would be in scope of a simpler prudential regime, proposals for a transitional capital regime so that eligible firms would not have to implement the Basel 3.1 standards before moving onto the simpler-regime capital framework and proposals for simplified liquidity and disclosure requirements for that regime.

In 2023/24, the PRA will progress these 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.

Ease of entry and exit

The PRA will continue to support potential market entrants in navigating the authorisation process though the work of the New Bank Start-up Unit and New Insurer Start-up Unit. This includes providing clear online guidance and industry engagement to build awareness of expectations and seek feedback on firms’ experience of the process. The PRA offers potential applicants the opportunity to meet with staff through a structured pre-application stage, allowing firms to iterate and develop their proposition to support a better-quality application.

The PRA will continue to make use of the mobilisation stage for newly authorised banks, where appropriate, to allow them to operate with restrictions while they complete their set up before starting to trade fully. The PRA is also planning to introduce a mobilisation option for new insurers as part of the Solvency II review, which will be considered in parallel with the revision to the Solvency II thresholds.

The PRA will work with applicants to apply the changes to the authorisation of insurance special purpose vehicles made in 2022, and will embed an accelerated authorisation pathway for participants in the wholesale insurance market with a highly credible track record.

The PRA will consult on a proposed new policy on solvent exit planning for non-systemic banks and building societies, offering an orderly exit route that does not rely on the backstop of insolvency and resolution. The work is a key element of the PRA’s strategic focus on increasing ease of exit. Greater ease of exit is a vital corollary to greater ease of entry, enabling a dynamic and competitive market where entrants can join and leave with minimal impact on the wider market and the PRA’s statutory objectives.

Industry and the public will be invited to provide their views on the solvent exit policy proposals in a consultation during 2023. The PRA will also consider its policy on solvent exit for insurers, and will consult on requirements for insurers to prepare exit plans during the second half of the year.

Ring-fencing regime

The Bank and the PRA continue to work closely with HMT on the recommendations from the Independent Review of Ring-Fencing and Proprietary Trading, carried out by Sir Keith Skeoch. On 9 December 2022, the Government set out its plans on the near-term reforms, the issuance of a Call for Evidence on the longer term benefits of the ring-fencing regime considering developments in the resolution regime and relevant advances in the wider regulatory framework, and reviewing the deposit threshold.

The Bank and the PRA support, and continue to work on the proposed near-term reforms and other, more technical recommendations. The main recommendation in the near term is a change to the scope of which groups need to be ring-fenced - the review suggested introducing a threshold that could be used to exempt groups from ring-fencing if they are largely focused on retail banking and undertake only a small amount of investment banking.

Additionally, the PRA is required to carry out a review of its ring-fencing rules every five years. The first of these reviews will be submitted to HMT by 31 December 2023, and will be subsequently laid before Parliament and published. This will be a technical review, separate to the PRA's work on the Skeoch review.

Cost benefit analysis panel

The PRA is continuing to make progress in preparing for its new role under the FRF, including on the implementation of its new competitiveness and growth objective and its approaches to cost benefit analysis (CBA) and rule review.

One of the key elements of enhancing the PRA’s scrutiny and accountability mechanisms relates to its approach to the establishment of a new CBA panel introduced by the FSM Bill. This will mean that the PRA need more data from its stakeholders to inform its policymaking. This will help us better understand the anticipated costs and benefits of our proposals, and enable it to calibrate its approach to reflect the UK financial system.

The PRA has started work on how the CBA panel will be structured and on the appointment procedures. The PRA will publish a statement of policy on panel members’ appointments later this year, and then set up the CBA panel. Following the establishment of the CBA panel, the PRA will publish a consultation paper on the CBA framework, which will set out how the PRA conducts its CBAs and how it engages with the CBA panel.

Authorisation of EU branches: banks and insurers

In 2022, the PRA authorised a number of bank and insurance branches that previously operated in the UK under EU passporting rules. Throughout 2023, the PRA will determine the applications of the remaining EU bank and insurance branches in the temporary permissions regime (TPR) which have applied for authorisation, working with the FCA and EU authorities to ensure that firms that meet relevant standards are fully authorised and can continue to operate safely in the UK when the TPR comes to an end.

Branches that entered the TPR, but are not seeking authorisation, or whose Part 4A authorisation application is rejected, will leave the TPR before the end of 2023 and, upon their exit from the TPR, may enter supervised run-off if they are required to do so.

Run an inclusive, efficient, and modern regulator within the central bank

Operational efficiency on regulatory transactions

Maintaining a high level of regulatory operational effectiveness in authorisations plays an important part in the UK’s success as a global financial centre. The PRA remains committed to being an effective, transparent, and accountable regulator. To enhance transparency, the PRA will introduce quarterly reporting of performance metrics for a range of regulatory transactions, including on the time taken to determine cases. The PRA expects to have returned to a position of reliably determining applications under the Senior Managers Regime within three months by mid-2023, through continuation of additional resourcing and close work with the FCA to coordinate and streamline reviews of transactions.

Diversity, Equity, and Inclusion at the PRA

The PRA continues to take action to strengthen its culture and working environment. The Bank’s Court review into ethnic diversity and inclusion reported its findings in July 2021. The PRA is implementing the recommendations of this review and has made considerable progress across embedding inclusive recruitment, investing in talent support and development.

Data and technology

The PRA, along with the FCA and the Bank, will continue to work on its transforming regulatory data collection programme. The PRA will continue to implement its digital skills strategy. This strategy includes the PRA’s own use of technology to enhance supervision as well as the development and hiring of data scientists and specialists.

The PRA is progressing its ambitious programme of work to strengthen and transform its data-related capabilities, including keeping pace with technology, economic and social changes regarding innovation. The PRA will further develop its data culture, enabling it to apply new tools across front-line and specialist teams in support of efficient and effective supervision. This work will take the PRA towards its goals for 2026 to ensure that:

• all supervisors have access to the data they need via a single customisable dashboard;
• the PRA has the data and tools it needs to rapidly identify and probe emerging issues, risk and policy questions; and
• the PRA only collects data that it needs from firms, thereby reducing unnecessary burdens on firms.

The PRA has launched a Banking Data Review (BDR), 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. Our vision for Transforming Data Collection is that we ‘get the data we need to fulfil our mission at the lowest possible cost to industry’. The BDR is looking at which data the PRA collects from banks. The BDR aims to: better align collections to the needs of supervisors day-to-day; better integrate and streamline data collections; and ensure that the data needed to carry out any future responsibilities is available. The PRA will continue this work considering the implementation of the Basel 3.1 standards.

Alongside the BDR, the Bank continues its work to improve how it collects data, through the Transforming Data Collection Programme. The Bank’s 2023 work plan includes redesigning how the PRA collects Commercial Real Estate data, and design work on Incident, Outsourcing and Third-Party Reporting (IOREP).

Financial sector assessment programme

In February 2022, the International Monetary Fund (IMF) delivered its five yearly financial sector assessment programme (FSAP). The scope and high level findings of the review were outlined in our 2021/22 Annual Report. The PRA will continue to address the key recommendations made by the IMF during 2023.

Supervisory approach

In 2022 the PRA reviewed its supervisory approach^{footnote [6]} to make it more risk-based and flexible in the way it is resourced. As part of this, the PRA deployed its confident and consistent supervisory approach and has adopted an updated approach to categorising firms according to their ‘potential impact’ on financial stability, reducing the number of categories from five to four. Alongside this, the PRA has refined its risk assessment framework to identify the risks firms pose more clearly to the PRA's objectives. The PRA will continue to focus on those risks that are outside tolerance and on firms that have the largest potential impact, whilst ensuring consistency in approach through core assurance. The PRA’s published supervisory approach documents will be updated during 2023.

Risks to delivery of business plan

Operating in a complex and fast-moving environment gives rise to risks to the delivery of this business plan. These risks are monitored, managed, actively mitigated (where possible), and reported to the PRC and relevant Bank forums on a regular basis.

People

The impact of competing priorities on staff and delivery of the PRA’s priorities is a key challenge for 2023/24 and beyond, as all areas face significant demand, particularly given uncertain economic conditions. The PRA increased headcount over 2022/23 to reflect additional responsibilities and/or increased scope, such as changes to its work following the UK’s withdrawal from the EU. The PRA expects headcount to stay broadly flat over 2023/24. However, increased policymaking responsibilities and other provisions in the FSM Bill will require continued focus in order to achieve the PRA’s vision of being a strong, accountable, responsive and accessible policymaker. This is delivered alongside providing high quality, risk-based and forward-looking supervision of the banking and insurance sectors. The PRA is pursuing these strategic priorities whilst training and embedding a significant number of new staff.

The PRA will continue to need to impose discipline on how it deploys its budget to ensure resources are allocated appropriately, and may need to reprioritise during the year in response to changes in the external environment. The PRA’s focus will remain on managing its operational risks and strengthening its horizon scanning capabilities so that it can respond quickly to changes in risk including to drive decisions on prioritisation, business planning and resourcing. The PRA continues to implement other initiatives to increase efficiency and productivity, such as the data and technology programme, and strengthening of its supervisory approach.

Technology

Having access to the right technology and data remains a key area of focus in 2023/24 as part of a multi-year investment across the PRA and the Bank to ensure that the PRA’s technology capabilities support its strategic priorities. This is done by taking account of developments in regulatory technology, addressing inefficiencies, and leveraging the benefits of being a regulator within the UK’s central bank. There is a risk that the PRA may be unable to deliver its intended technology capability to support these projects because of availability of technology resources given the congested change agenda across the Bank. This challenge is being managed through careful prioritisation and scoping of key projects, including delaying some lower priority projects.

Dependencies

Dependencies on external parties, such as the FCA, HMT, and other overseas regulators could presented be a risk for the PRA, as a number of projects, authorisation processes, and supervision activities are contingent on maintaining relationships and co-operation with these parties. The PRA continues to strengthen its relationships with external parties as it adapts to its increased responsibilities and scope.

PRA Budget 2023/24

The PRA’s provisional budget for 2023/24, which is subject to finalisation of pension costs and year-end adjustments, is estimated at £312.0 million. This is a decrease of £8.9 million (3%) on the 2022/23 budget.

The PRA’s costs have decreased primarily due to a reduction in pension costs. This is partially offset by inflation and a share of the increase in the Bank’s central and other support services including technology and legal costs.

On a like for like basis, budgeted headcount for the PRA will decrease slightly from 1,440 in 2022/23 to 1,427 in 2023/24. The reduction in staff costs will help fund further investment in RegTech. Separately, a number of staff will be transferred from the Bank’s central functions to the PRA. After this transfer, the PRA’s headcount will be restated to 1,465 in 2023/24. These staff were already funded by the PRA and so there is no net change to the PRA’s budget as a result.

More details on how the PRA proposes to fund its budget can be found in the annual fees consultation paper. It includes proposals for allocating costs of the PRA’s 2023/24 ongoing regulatory activities across PRA fee payers.

Abbreviations

ACS – Annual Cyclical Scenario

AI – Artificial Intelligence

Bank – Bank of England

BCBS – Basel Committee on Banking Supervision

CBA – Cost Benefit Analysis

CBES – Climate Biennial Exploratory Scenario

CEO – Chief Executive Officer

CET1 – Common Equity Tier 1

CFRF – Climate financial risk forum

CP – Consultation Paper

CRE – Commercial Real Estate

CRR 2 – Capital Requirements Regulation 2

CTP – Critical Third Party

DEI – Diversity, Equity, and Inclusion

DP – Discussion Paper

EL – Eligible liabilities

EU – European Union

EUWA – European Union Withdrawal Act 2018

FCA – Financial Conduct Authority

FinTech – Financial Technology

FMI – Financial Market Intermediary

FPC – Financial Policy Committee

FRF – Future Regulatory Framework

FSAP – Financial Sector Assessment Programme

FSB – Financial Stability Board

FSMA – Financial Services and Markets Act 2000 (as amended)

HMT – HM Treasury

IAIS – International Association of Insurance Supervisors

ICS – Insurance Capital Standard

IMF – International Monetary Fund

IRB – Internal rating based

ISPV – Insurance special purpose vehicle

IST – Insurance Stress Test

IT – Information Technology

MA – Matching Adjustment

MoU – Memorandum of understanding

PPP – Prudent Person Principle

PRA – Prudential Regulation Authority

PRC – Prudential Regulation Committee

PS – Policy Statement

RegTech – Regulatory Technology

RM – Risk Margin

SM&CR – Senior Managers and Certification Regime

SS – Supervisory Statement

Contacting the Bank of England and the PRA

Please send any enquiries related to this publication to
PRA.Communications@bankofengland.co.uk.