Foreword by Chief Executive Sam Woods
Sam Woods, Deputy Governor, Prudential Regulation
Chief Executive of the PRA
We have already completed some significant work on competitiveness and growth. For example, when designing the UK rules to implement the Basel 3.1 standard, we made important adjustments to capital requirements to support SME and infrastructure lending, and trade finance. We implemented Solvency UK for insurers, including a wide range of measures to make the regime more efficient and encourage investment. We removed the EU rule applying a ‘bonus cap’ to bankers’ pay in order to tackle the undesirable effect it had of inflating bankers’ fixed salaries which was damaging for competitiveness. And together with colleagues at HM Treasury and the FCA we reviewed the Senior Managers and Certification and Ring-fencing regimes and are working on changes. We have also improved handling of authorisation applications, which are now running consistently in line with service standards.
We also have a broad range of work underway in relation to competitiveness and growth over this coming year. For banks, I would particularly highlight our work to simplify capital requirements for small banks to enhance competition and competitiveness, without making the sector more fragile. We are already consulting on another major amendment to our remuneration requirements for banks, reducing the period for which bonuses must be deferred. And we plan to consult on initial proposals to simplify regulatory data reporting for banks, following steps we have already taken to cut reporting requirements for insurers. For insurers, we plan to consult shortly on a Matching Adjustment Investment Accelerator to reduce barriers to investment and support growth. We also expect to finalise measures to simplify and accelerate Insurance Special Purpose Vehicle authorisations. And across both sectors we are working with the FCA to assess the current landscape for mutuals and how we might further address issues these firms face.
These initiatives come on top of our broader work to embed competitiveness and growth within the organisation as explained in our recently published Approach to Policy document. Additionally, we are supporting HMT on the delivery of aspects of its regulatory Action Plan. The plan is intended to enable a regulatory system that supports innovation and economic growth. Taken together, these measures will support competitiveness and growth by helping ensure our regulatory requirements are proportionate, efficient and evolve with changing market practices, and by enabling innovation and greater competition in the financial sector.
All of this work is taking place alongside continuing efforts to deliver our primary objectives of safety and soundness and protecting policyholders.
This year we plan to run stress tests for both the banking and life insurance sectors, alongside the more business-as-usual work of supervision looking at the quality of assets, reserving practices, risk management and governance within firms. We will carry on with preparations for the implementation of the Basel 3.1 standards, and ensure that our new Solvency UK regime continues to function as intended. And we will shortly finalise our updated approach to supervising the UK subsidiaries and branches of international banks, where we remain fully committed to the principle of responsible openness towards international business.
Operational and cyber resilience will also be a focus for us this year. As part of delivering our strategy to identify new and emerging risks, we will work on firms’ operational risks, including by testing firms’ resilience to rapidly-evolving cyber threats through threat-led penetration testing. By 2025 H1 banks and insurers are required to show that they can remain within tolerance (or have contingency procedures) for the important business services they provide through severe but plausible disruptions. Alongside this, we intend to consult in 2025 on policy relating to the management of Information and Communication Technology (ICT), including risks arising from transformations of ICT infrastructure and the sector’s resilience in the event of ICT and cyber incidents. We will also publish thematic findings from our Cyber Stress Test. Finally, we will continue to take forward work on our new regime for Critical Third Parties, in line with legislative requirements.
Looking at our own processes and procedures, we will keep a strong focus on maintaining our recent performance on timeliness of authorisation applications. More broadly, we will also take further steps to increase our efficiency and productivity in order to ensure that the costs of the PRA, which are ultimately paid for by the users of financial services in the UK, are tightly managed.
I am very much looking forward to the challenges the next year will bring, and to collaborating with a team of very committed colleagues at the PRA to deliver on this business plan.
10 April 2025
Overview of responsibilities and approach
The PRA has two primary objectives:
- a general objective to promote the safety and soundness of PRA-authorised persons; and
- an objective specific to insurance firms for the protection of policyholders.
The PRA has two secondary objectives:
- a competition objective, to facilitate effective competition in the markets for services provided by PRA-authorised persons in carrying on regulated activities; and
- a competitiveness and growth objective, to facilitate, subject to alignment with relevant international standards, (a) the international competitiveness of the economy of the UK (including, in particular, the financial services sector through the contribution of PRA-authorised persons); and (b) its growth in the medium to long term.
In its November 2024 recommendation 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, including sustainable economic growth, proportionate and effective regulation, international competitiveness, and responsible risk-taking, alongside maintaining financial stability.
In December 2024, the PRC responded to the recommendations, emphasising the PRA’s commitment to supporting sustainable economic growth and responsible risk-taking. The response also highlighted ongoing efforts to promote the safety and soundness of firms, facilitate innovation, and embed the secondary competitiveness and growth objective (SCGO) into the PRA’s policymaking processes and approach to supervision.
In addition, the PRA's response to the Prime Minister's letter concerning regulation and sustainable economic growth outlines key initiatives in this area, including implementing the Basel 3.1 standards, implementing the Solvency UK regime for insurers, removing the 'bonus cap' for banks, reviewing the Senior Managers and Certification Regime (SM&CR) with the FCA and HMT, and enhancing the PRA’s operational efficiency to support regulated market activities.
Alongside the above, the PRA’s objectives and priorities are delivered through responsive, risk-based regulation and supervision, and by developing standards and policies that set out expectations of firms. The PRA’s approach to policymaking is set out in its approach to policy document, with the aim of being a strong, accountable, and accessible policymaker. Additionally, 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 to policyholders. This approach is set out in the PRA’s approach to supervision of the banking and insurance sectors. These documents serve as a standing reference and are updated in response to significant legislative changes and other developments.
The PRA’s regulatory focus
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 alongside the Bank of England’s (the Bank) other areas and 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 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 PRC.
Firms regulated by the PRA
The PRA regulates 1,292 firms and groups.footnote [1] These consist of 708 deposit-takers (banks, building societies, credit unions, and designated investment firmsfootnote [2] (DIFs)) and 584 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 2025
Chart 2: PRA supervised insurers, as at January 2025
PRA’s strategy
Each year, the PRA is required by section 2E of the Financial Services and Markets Act 2000 (FSMA 2000) to review, and if necessary revise, its strategy in line with its statutory objectives. In addition, 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 2025, the PRA revised its strategic priorities to reflect the maturity of its policy and supervisory approaches, as well as to demonstrate its continued commitment to facilitate innovation in key areas of its work. Looking ahead, the PRA will continue to enhance its regulatory framework to maintain and ensure the safety and soundness of the banking and insurance sectors and ensure continuing resilience. This forward-looking approach will support the PRA in advancing its statutory objectives.
PRA’s strategic priorities for 2025/26
Priority 1: Maintain and ensure the safety and soundness of the banking and insurance sectors and ensure continuing resilience
Since its launch in 2013, the PRA has implemented extensive reforms that significantly enhanced the safety and soundness of firms, insurance policyholder protection, and overall financial stability. These robust regulatory reforms alongside strong international collaboration have underpinned the resilience of the banking and insurance sectors and their ability to support the wider UK economy, aligning with the objectives of both the PRA and the FPC.
The PRA's role as a rulemaker has expanded with the introduction of FSMA 2023. Consistent with this, the PRA will continue to promote a risk-based approach tailored to the specific features of the UK financial services sector and will implement international standards in a manner that is appropriate for the UK.
Looking ahead, the PRA will aim to ensure that regulated firms remain adequately capitalised, maintain sufficient liquidity, have stable funding profiles, and have strong risk cultures.
The PRA will also continue to monitor and respond to business opportunities and threats arising from changes in the economic environment that could pose risks to the financial stability of the UK. For example, cyber resilience remains a critical focus as firms face increasing threats from malicious attacks and operational incidents.
The PRA outlines several regulatory initiatives to advance this priority in the banking, insurance, multi-sector and operational effectiveness sections of its business plan.
Priority 2: 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 affect its statutory objectives.
The PRA will continue to use its horizon-scanning programme with the aim to:
- identify emerging external risks, unintended consequences of regulations, and potentially dangerous practices;
- highlight features of the regulatory regime that are not delivering the desired outcomes;
- be alert to the emergence of risks to financial stability originating outside the banking and insurance sectors, working alongside colleagues in the Bank; and
- allocate supervisory and policy resources to tackle the highest-priority risks in a timely manner.
The PRA will continue to focus on identifying and addressing emerging risks, working closely with external stakeholders, including internationally at the BCBS on horizon scanning exercises and meetings on the banking sector, the IAIS on identifying key trends and developments in the insurance sector, and the Financial Stability Board (FSB).
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, including the use of artificial intelligence and machine learning. The PRA will continue to monitor trends in the area of new technologies, with specialist input from the Bank’s Financial Technology (Fintech) Hub, with relevance to risks such as fragmentation of the value chain, novel outsourcing arrangements, and concentration risks across and within firms. The Bank’s Fintech Hub has established an AI Consortium for public-private engagement on the use of AI in UK financial services.
The PRA outlines several regulatory initiatives to advance this priority in the banking, insurance and multi-sector sections of its business plan.
Priority 3: Support competitive, dynamic and innovative markets, alongside facilitating international competitiveness and growth, in the sectors that we regulate
This priority is closely linked to the PRA’s secondary competition objective (SCO), the secondary competitiveness and growth objective (SCGO), and how the PRA is facilitating innovation in its approach to policy. The PRA has recently consulted on and published its approach to policy, describing the PRA’s approach to policymaking to be a strong, accountable, and accessible policymaker under the new responsibilities introduced by FSMA 2023. This sets out the framework guiding the PRA’s actions to advance the SCGO, which is based on three transmission channels. These are: (i) affecting the allocation of capital in the economy; (ii) affecting how UK financial services firms are equipped to compete abroad; and (iii) affecting how attractive the UK is as a location for financial services firms to invest in and operate from.
The PRA aims to pursue its secondary objectives through these channels by ensuring its rules are proportionate and open to innovation, by maintaining efficient regulatory processes and external engagement, and by upholding trust in the PRA and UK prudential framework.
The PRA has introduced a range of reforms supporting competition, competitiveness, and growth. This includes reforms to the Solvency UK regime, which will facilitate productive investment in the UK economy, and the removal of the bonus cap, which has enhanced firms’ ability to offer reward packages that attract talent. It also includes ongoing Strong and Simple reforms, which will increase the ability of smaller firms to compete with larger firms.
Looking ahead, the PRA will introduce further reforms which simplify prudential requirements and reduce the burden for firms while still meeting the required standards. These are outlined in the banking, insurance and multi-sector sections of its business plan.
For example, in banking the PRA will deliver, with industry, a more streamlined approach to banking regulatory reporting, in line with its SCGO objective, as well as improving the quality, timeliness and safety of the data it collects to fulfil its primary objective to promote the safety and soundness of banks. The PRA will also continue to improve its regulatory processes, including firm authorisations, the SM&CR, and internal model approvals. The PRA will also progress further simplifications to the regime for small domestic banks and building societies through the Strong and Simple reforms (Phase 2), with the aim of enhancing competition and facilitating growth. It will continue its work on ease of entry/exit to enable a dynamic and competitive market which entrants can join and leave with minimal impact on the wider market and the PRA’s statutory objectives.
In insurance, the PRA intends to develop a Matching Adjustment Investment Accelerator, which will improve the ability of the sector to invest in the UK economy. The PRA will also continue work to make the UK a more attractive location for the establishment of ISPV.
Working with the FCA and HMT, the PRA will review the SM&CR, and it will continue to improve its operational effectiveness by handling authorisations applications in a timely fashion. Further examples of initiatives advancing competitiveness and growth can be found in the PRA’s response to a letter from the Prime Minister concerning regulation and sustainable economic growth.
In addition to developing a robust pipeline of initiatives, the PRA has made significant changes internally to embed the SCGO in its processes. In 2024, the Bank’s Independent Evaluation Office (IEO) assessed whether the PRA is set up for success with respect to the SCGO. Work to embed the SCGO will continue in 2025/26 including the implementation of the recommendations made by the IEO. Finally, the PRA will continue engaging the new Cost-Benefit Analysis (CBA) Panel, which has been established to provide independent scrutiny of the PRA’s CBAs. The PRA will report its progress on engagement with the CBA Panel in the annual report on secondary objectives, to be published in 2025 H1.
The PRA outlines several regulatory initiatives to advance this priority in the banking, insurance and multi-sector sections of its business plan.
Priority 4: Run an inclusive, efficient, and responsive regulator within the central bank
The PRA considers that efficient regulation, including regulatory transactions, benefits both regulated firms and the broader economy in a number of areas. This includes streamlined processes to reduce unnecessary burden and facilitates smoother interactions between the industry and the PRA.
As a responsive regulator, the PRA will continue to focus on its approach to proactive engagement with firms and other relevant stakeholders, including using industry roundtables and feedback from its yearly firm feedback survey to improve interactions and adapt to changes in its operating environment.
Looking forward, the PRA will continue to seek to improve the efficiency of its operations, infrastructure and processes to boost productivity and enhance effectiveness. This work will be aligned with the broader Bank-wide programme to tackle technology obsolescence. The PRA will also continue to invest in developing its committed workforce to ensure the delivery of its strategy, including through inclusive recruitment and ongoing training. The PRA will take forward work to improve ethnic and gender representation and will engage with the Bank's employee networks to help ensure that the organisation provides an inclusive and supportive working environment for all staff.
The PRA outlines several regulatory initiatives to advance this priority in the multi-sector and operational effectiveness sections of its business plan.
1: Banking
Implementing the Basel 3.1 standards
During 2024/25, the PRA continued work to finalise its policy and rules for the parts of the Basel III standards that remain to be implemented in the UK (‘the Basel 3.1 standards’). In September 2024, the PRA completed work on near-final rules, publishing the second and final near-final policy, PS9/24 – Implementation of the Basel 3.1 standards near-final part 2 covering the elements of the Basel 3.1 standards that had not been included in PS17/23 published in December 2023. Changes to the PRA’s accountability framework under FSMA 2023, introducing the SCGO, do not formally apply to the near-final policies and rules in PS17/23 and PS9/24.footnote [3] Nevertheless, competitiveness and growth considerations and alignment with international standards are factors the PRA must ‘have regard’ to. These factors, alongside the standing of the UK as a place for internationally active firms to operate, were fully considered by the PRA in developing its near-final policy and rules on the Basel 3.1 standards.
Under this work, the PRA tailored international rules to better suit the UK market, making significant adjustments based on industry feedback to enhance competitiveness and growth. The most notable changes include lowering capital requirements to support lending to SMEs, infrastructure projects, and trade finance. Additionally, the PRA has ensured that these reforms do not significantly increase the overall capital requirements for the UK banking system.
In January 2025, the PRA announced that, in consultation with HMT, the implementation date for the Basel 3.1 standards would be delayed to 1 January 2027 to allow time for greater clarity around plans for implementation in the US. The transitional arrangements in the rules will be reduced to 3 years to ensure full implementation remains at 1 January 2030, as set out in the original proposals.
The PRA intends to publish the Basel 3.1 standards final rules, once Parliament has revoked the relevant parts of the Capital Requirements Regulation (CRR).
Finalisation and implementation of the strong and simple framework for small domestic deposit takers (SDDTs)
The PRA’s strong and simple initiative seeks to simplify the prudential framework for small, domestic-focused banks and building societies, while maintaining their resilience. The PRA implemented simplifications to liquidity and disclosure requirements for SDDTs in 2024. footnote [4]
As of 18 March 2025, there were 50 SDDTs and 10 SDDT consolidation entities. In September 2024, the PRA published proposals for a simplified capital regime and additional liquidity simplifications for SDDTs and SDDT consolidation entities. The proposals included simplifications to all elements of the capital stack for SDDTs, including Pillar 1, Pillar 2A and buffers, simplifications to the Internal Capital Adequacy Assessment Process (ICAAP) and Internal Liquidity Adequacy Assessment Process (ILAAP), and simplifications to the calculation of regulatory capital and capital reporting. The consultation also included proposals for the implementation of the simplified capital regime. In November 2024, the PRA published its rules for firms that are eligible to be SDDTs to join the Interim Capital Regime. This means these entities do not need to follow the Basel 3.1 standards until the SDDT capital regime starts.
During 2025/26, the PRA will finalise the simplified capital regime and the additional liquidity simplifications. It intends to publish a policy statement on these in Q4 2025. The PRA will then implement the simplified capital regime.
Bank stress testing
Banking sector stress tests examine the potential impact of a hypothetical scenario on individual banksfootnote [5] and the banking system. It is a key tool used by the PRA and the Bank to support microprudential and macroprudential objectives. As set out in the updated approach to stress testing the UK banking system, the PRA and the Bank runs three types of banking stress test – a Bank Capital Stress Testfootnote [6] in which firms participate, other exercises to assess cyclical risks in a less burdensome way such as desk-based stress tests, and exploratory exercises.
The PRA and the Bank will run a Bank Capital Stress Test in 2025 in which the largest and most systemic UK banks will participate. This will be a test of risks related to the financial cycle. The results of the stress test will be informed by both participating banks’ submissions on the impact of the stress scenario and the Bank’s own estimates, and will be used to inform the setting of capital buffers for the banking system and individual participating banks.
The Bank and PRA expect to carry out a Bank Capital Stress Test every other year. In intervening years, the Bank expects to use stress testing when appropriate to support the FPC and PRC in achieving their objectives, but in a way that is less burdensome for banks.
Capital Requirements Regulation (CRR)
HMT has prioritised the CRR as one of the initial areas of focus in the process of transferring assimilated law into the supervisory authorities’ rules and legislation following the enactment of FSMA 2023. The latter granted the PRA expanded rulemaking powers to replace assimilated law with PRA rules.
In 2024, the PRA consulted in CP8/24 – Definition of Capital: restatement of CRR requirements in PRA Rulebook and CP13/24 – Remainder of CRR: Restatement of assimilated law on the proposed PRA rules to replace, with modifications where appropriate, the relevant firm-facing provisions in the CRR.
The PRA intends to publish its final rules once Parliament has revoked the relevant parts of the CRR.
Securitisation
As part of the transfer of assimilated law, most firm-facing provisions of the UK Securitisation Regulation are now set out in the FCA and PRA rulebooks, while other provisions are restated in domestic legislation by HMT. The FCA and PRA intend to consult in 2025 H2 on further changes to the securitisation rules to make the existing framework more proportionate.
In CP13/24 – Remainder of CRR: Restatement of assimilated law, the PRA consulted on draft rules to replace the CRR securitisation capital requirements. The PRA proposed substantive policy changes, for example, to the securitisation standardised approach and to the capital treatment of residential mortgages under the Government’s mortgage guarantee scheme.
The PRA intends to publish its rules in during 2025, taking into account the feedback received, and once Parliament has revoked the relevant parts of the CRR.
Internal ratings based (IRB) models & model risk, liquidity, and credit risk management
Banks’ reliance on models and scenario analysis to assess future risks has increased significantly over the past decade.
The PRA has published a range of policy statements on changes to the IRB approach to credit risk over recent years and will continue to work with firms as they progress their model approval and review submissions in line with these requirements and expectations. Where relevant, the PRA will continue to engage via roundtables with the industry to ensure that the PRA’s standards and expectations on IRB models are understood. The PRA will continue to focus on the ‘hybrid’ approach to mortgage modelling, and the IRB repair programme, both carried forward from previous years.
Firms use post-model adjustments (PMAs) as extra risk-weighted assets (RWAs) to avoid underestimating needed capital while improving their models. During 2025, the PRA will continue to assess the adequacy of the PMAs to ensure that any potential capital underestimation is addressed promptly.
In 2023, the PRA published a supervisory statement (SS)1/23 – Model risk management principles for banks, which applies to firms with internal model approval to calculate regulatory capital requirements. The new policy became effective on 17 May 2024. The policy required banks in scope to have conducted an initial self-assessment against these principles, and to have prepared remediation plans to address any identified shortcomings.
The PRA began engaging with a sample of firms during 2024 to assess progress made in implementing SS1/23 and to identify any challenges firms are experiencing. During 2025/26, the PRA will continue to focus on how banks are embedding and implementing the expectations set out in SS1/23. The PRA will continue to engage with firms on their progress in adopting the principles and promoting the management of model risk as a risk discipline in its own right.
Liquidity lessons learnt from the events of March 2023
The events of March 2023 brought a further focus on the liquidity and funding risks faced by deposit takers in the UK. In particular, Silicon Valley Bank (SVB) and Credit Suisse (CS) experienced significant deposit outflows leading up to their respective failure and acquisition.
In 2025, the way in which firms access sterling central bank reserves will change. The Bank’s operating framework for supplying sterling reserves will transition to a demand-driven repo-led framework. The stock of sterling reserves will be determined by firms’ borrowing, rather than by extraordinary monetary policy operations. In 2024, the PRA published a statement to support the change.
The PRA will continue its close supervision of firms’ liquidity and funding risks in light of the lessons learnt from the events of March 2023 and as the Bank’s operating framework transitions.footnote [7] In addition, the PRA intends to review the liquidity supervisory framework and consider changes, including regulatory reporting. Any proposed changes will be open for consultation in 2026.
Building on the BCBS’s progress report on the 2023 banking turmoil and liquidity risk, the PRA will work with international stakeholders, including the BCBS, to strengthen supervisory effectiveness and identify issues that could merit additional guidance at a global level. The PRA will work with the BCBS to pursue additional follow-up analytical work based on empirical evidence to assess whether specific features of the Basel Framework, including liquidity risk, have performed as intended, and whether policy options are warranted over the medium term.
Responsible openness to international branches
The PRA consulted in 2024 on targeted refinements to its approach to banks branching into the UK, reflecting lessons from the failure of SVB to ensure that the PRA’s framework for assessing whether branches should subsidiarise captures activities of potential concern. The consultation also covered clarifications to expectations around booking arrangements and liquidity reporting for branches.
The PRA is committed to the UK remaining a responsibly open jurisdiction for branches and expects the vast majority of branch business to be unaffected by any changes. Updates to the approach will be finalised in 2025 H1.
Future of payments
The PRA has continued to contribute to the Bank’s work on innovation in money and payments, including through monitoring developments in deposit takers’ innovation in deposits, e-money, and stablecoins, consistent with the Dear CEO letter published in 2023. This work will continue in 2025.
In 2025/26, the PRA will develop its proposed policy to implement the BCBS standard on banks’ cryptoassets exposures in the UK. Alongside this, the PRA will continue to engage with international partners, including the BCBS, to assess bank-related developments in digital money and cryptoassets markets.
Future banking data (FBD)
FBD is a new project combining the Banking Data Review (BDR) and aspects of the Bank’s collaborative work with industry and the FCA on Transforming Data Collection (TDC). By clearly integrating and focusing the scope of these two strands of work, FBD aims to deliver tangible cost reduction in banking regulatory reporting, in line with the SCGO, and improvements to the relevance, quality and timeliness of data collected to fulfil its primary objective to promote the safety and soundness of banks. The project will draw on work carried out between 2021 and 2024 to streamline data collections for insurers.
To achieve this, FBD will build on the strong foundations of BDR and TDC to deliver the following focused programme of work in 2025/26:
- Consult on proposals for the deletion of underused or duplicative whole templates.
- Develop a firm facing portal to facilitate interactions with the PRA, focusing on improving firms’ experience with data collections. Initially, the portal will provide the foundations to automate how we collect data for authorisation purposes bringing benefits and unlocking efficiencies for all involved. We plan to extend the portal’s capabilities in due course.
- Work together with industry and the FCA, at both senior and working level, to shape the future strategy for FBD. Recognising the lessons learned so far across both BDR and TDC, the PRA will work closely with industry in developing a coherent approach to collections that can be maintained and evolve as risks emerge.
The intended outcome will be a shared vision on priorities and approach to future reform to streamline and modernise regulatory collections from banks, including on the best approach to standardise and simplify the link to the data held in firms’ financial and risk systems.
Remuneration reforms
The PRA’s remuneration rules ensure that key decision-makers and material risk-takers at PRA-regulated firms have the right incentives and can be held accountable. Following the removal of the bonus cap and changes to enhance proportionality for small firms in 2023, in November 2024, the PRA and FCA published CP16/24 on further remuneration reforms which set out proposals to streamline the UK remuneration regime.
The proposals seek to support UK competitiveness and growth by reducing bureaucracy and supporting responsible risk taking, without undermining the PRA’s primary objective of safety and soundness. During the course of 2025, the PRA and FCA will consider the feedback received, with the aim of publishing the final policy in 2025 H2.
2: Insurance
Solvency UK: Accelerating innovation, and investment
In 2024, the PRA implemented the new Solvency UK prudential regime for insurers. This included material changes to the capital regime for insurers by reforming the Matching Adjustment rules in line with the legislative framework set by the Government, with the goal of enabling the life insurance sector to play a bigger role in investing in the UK economy across a wider range of assets. As part of the implementation of the Solvency UK MA reforms, the PRA established both a new MA application process and a dedicated MA permissions team which has been successful in to improving the speed and efficiency of processing new MA applications, in particular those involving newly eligible assets.
In 2025, the PRA will continue to focus on the successful embedding of the new regime, and on continuing to make decisions efficiently within the timelines to which it has committed.
The PRA consulted in April 2025 on establishing a Matching Adjustment Investment Accelerator. This innovation would further reduce barriers to investment by insurance firms, enabling them to deliver more quickly on their commitments to make additional investments in the UK and so support economic growth.
The PRA will also continue discussions started in 2024 with HMT, the National Wealth Fund (NWF) and the insurance industry to help unlock new opportunities for productive investment by insurers in the NWF’s target sectors.
Growth in the bulk purchase annuity (BPA) market, including funded reinsurance (Funded Re)
The rapid growth of the BPA market (where life insurers take on the liabilities of private defined benefit pension schemes) is expected by many commentators to continue or to accelerate in 2025/26. Where UK insurers are engaged in BPA business the PRA will continue to assess the arrangements insurers have in place to manage the risks involved.
UK insurers that write BPAs are increasingly engaging with offshore reinsurers through Funded Re.
In July 2024, the PRA published SS5/24 – Funded reinsurance, setting out its expectations on UK insurers’ use of Funded Re. Its recent review indicated that firms are not yet fully meeting supervisory expectations in this regard. A Funded Re recapture scenario will also be included in the Life Insurance Stress Test (LIST 2025). The PRA will assess whether firms are achieving the risk management standards needed to mitigate the risks Funded Re poses to the PRA’s objectives and to the financial system, and if necessary to achieve these goals it will consider the further use of its powers under FSMA 2000.
Insurance stress testing
In January 2025, the PRA launched the LIST 2025. This exercise will provide valuable insights into the financial resilience of the largest UK life insurers. For the first time the PRA intends to publish individual firm results. The PRA also intends to publish aggregate results and provide additional context to support transparency and enhance its understanding as to how firms’ financial positions evolve in stress. Before publication (expected in 2025 Q4), the PRA will continue to engage with industry and other relevant stakeholders to support market education on the exercise.
For general insurers, the next stress test will be a dynamic stress, designed to play out over the course of three weeks. The exercise is expected to commence in May 2026. Given the novel nature and to support firms in preparing for this exercise the PRA intends to provide further details on the logistics and to engage with industry from September 2025 onwards.
Insurance special purpose vehicles (ISPVs)
ISPVs are specialised vehicles that allow investors to provide capital to insure a variety of risks, often used to cover losses from major catastrophes such as hurricane damage (sometimes called ‘catastrophe bonds’). While the Lloyd’s insurance and reinsurance market has seen over $1.9 billion of capital deployed through two multi-arrangement UK ISPVs to date, the UK ISPV regime has not seen the levels of activity that were originally envisaged.
Following consultation, this year the PRA intends to finalise changes to the UK framework for ISPVs targeted to:
- make it easier for a wider range of current global market practices to be undertaken in the UK;
- streamline and speed up the application and approval processes; and
- clarify the PRA’s expectations of UK insurers who cede risks to ISPVs, wherever they are established.
These changes aim to contribute to the UK’s international competitiveness and growth by making it more desirable to establish UK ISPVs, supporting UK market innovation and providing more diversification opportunities for investors and additional sources of capital and reinsurance capacity.
General insurance (GI)
Alongside opportunities for growth in the UK GI market, market conditions may become more challenging for some lines of business in 2025/26 given their varying points in the underwriting cycle. The PRA will monitor how GI firms use underwriting strategies and pricing actions to navigate the cycle and will work with the Society of Lloyd’s to coordinate its oversight of Lloyd’s managing agents. The PRA will also challenge firms that have a history of projecting overly optimistic underwriting profits in their business plans and internal models.
The PRA will also continue to focus on cyber underwriting risk as both the levels of risk and size of the market grow and evolve. The PRA’s work will be informed by analysis of the cyber underwriting risk reporting template (see PS3/24 – Review of Solvency II: Reporting and disclosure phase 2 near-final) which came into effect on 31 December 2024.
The PRA also intends to review the existing supervisory expectations for cyber underwriting risk set out in SS4/17 – Cyber insurance underwriting risk, to consider whether further work is required to reflect market developments.
3: Multi-sector
Review of the current mutuals landscape in the UK
In response to a request from the Economic Secretary to the Treasury contained in a letter to the PRA on mutuals reporting, the PRA and FCA will produce a report by 2025 H2 assessing the current mutuals landscape to aid the Government and regulators’ consideration of how best to support this sector to drive inclusive growth in the UK.
The PRA understands the important role that mutual deposit-takers and insurers play in the wider financial system, providing financial services to households and businesses, particularly in areas where these services might not otherwise be available. Mutuals have long been a key part of the PRA’s work in advancing its objectives, including the SCGO. The report will cover building societies, credit unions, friendly societies and other mutual insurers. Together these entities represent approximately £740 billion in assets and serve around 30 million members.footnote [8]
The report will provide an overview of the current landscape, outline potential challenges and opportunities, and highlight actions that are already in progress or could be taken to further advance the health of these important sectors. The findings will be informed by ongoing regulation and supervision and by engagement with mutuals and the relevant trade associations.
Ease of entry and exit
Ease of exit is a vital corollary to greater ease of entry into UK markets. It enables a dynamic and competitive market which entrants can join and leave with minimal impact on the wider market and the PRA’s statutory objectives.
The PRA’s ease of exit policy for banks set out in PS5/24 – Solvent exit planning for non-systemic banks and building societies will come into force on 1 October 2025, and the policy for insurance set out in PS20/24 – Solvent exit planning for insurers will come into force on 30 June 2026. The PRA will continue to engage with relevant industry bodies to support firms’ preparations before the rules and policies come into force.
These policies are designed to increase confidence that firms can exit the market while solvent, and in an orderly way, without having to rely on the backstop of an insolvency or resolution process.
In the lead up to implementation the PRA will be updating its internal processes and providing support to firms as appropriate.
Implementation of the critical third party (CTP) regime
The Financial Services and Markets Act 2023 gave HMT the power to designate certain third-party service providers as ‘critical’ to the financial system of the UK (referred to as ‘CTPs’). HMT may exercise its designation power if, in its opinion, a failure in or disruption to the provision of the services that the third party provides to firms could threaten the stability of, or confidence in, the UK financial system. Prior to designating these third parties, HMT must consult with the PRA, Bank, and FCA, as the authorities that the Act appoints as regulators of the new regime.
The PRA, Bank and FCA are reviewing third party service providers with a view to recommending to HMT those which could be designated as critical, and to support HMT as needed with their designation process thereafter.
In November 2024 the regulators jointly published a package of documents on the CTP regulatory regime setting out their rules and final policy, guidance and approach to the oversight of CTPs. The PRA will continue to work with the other regulators to roll out and embed its oversight approach in readiness to oversee CTPs, once designated by HMT. To support this, a cross-authority governance forum will be established – joint CTP Consultation and Coordination Forum – that will help the regulators to co-ordinate their CTP functions and activities.
The PRA, alongside the Bank and FCA, is also working to strengthen domestic and international coordination due to the cross-sector and cross-jurisdictional nature of CTP’s operations.
Operational risk and resilience
Operational disruption can impact financial stability, threaten the safety and soundness of firms and financial market infrastructures, or harm consumers, policyholders and the financial system. Operational resilience is the ability of firms and the financial sector to prevent, respond to, recover, and learn from operational disruptions including cyber incidents.
The FCA, Bank, and PRA operational resilience policies came fully into force in March 2025. Firms should now be able to deliver important business services (IBS) within defined impact tolerances. The PRA will continue to work closely with the FCA to assess firms’ operational resilience capabilities.
Some firms have started multi-year digital transformation programmes which will significantly change the resources supporting firms’ IBS and operating models. These programmes can introduce significant risks such as execution risk and concentration risk. The PRA will continue to monitor and assess firms’ digital transformations and engage with selected firms on their adherence to SS2/21 – Operational resilience: Impact tolerances for important business services.
The PRA will continue monitoring sector-wide risks and building firm and sector-level resilience to enhance the sector’s ability to respond to system-wide disruption. This will include engagement through the Cross-Market Operational Resilience Group (CMORG) and the G7 Cyber Experts Group (CEG). The PRA will coordinate additional sector-wide simulation exercises in collaboration with industry and financial authorities to rehearse resilience capabilities. The PRA will continue developing its ability to respond to sector operational incidents through the Authorities Response Framework and Cross Market Business Continuity Group and Sector Response Framework.
In the December 2024, the PRA also published CP17/24 – Operational resilience: Operational incident and outsourcing and third-party reporting and aims to finalise this policy in 2025. The policy aims to monitor and proportionately respond to risks from operational incidents, and align with the FSB’s Format for Incident Reporting Exchange to minimise the burden on international firms.
Cyber resilience
The PRA will continue to monitor and assess firms’ ability to manage cyber threats through the ongoing use of threat-led penetration testing (CBEST and STAR-FS) and the cyber questionnaire (CQUEST). The PRA will continue focusing on the critical cyber-hygiene issues highlighted in the 2024 CBEST thematic publication. In collaboration with the FCA, including in response to known technology, cyber and third-party incidents, the PRA will continue to monitor and engage with firms on their execution of large and complex IT transformation programmes. Furthermore, the FPC’s stress testing of operational resilience and mitigations has broadened the PRA’s understanding of how operational disruptions such as cyber-attacks may affect financial stability.
The PRA engages internationally on operational and cyber resilience, in support of its supervisory objectives and to raise international standards. The PRA co-chairs the G7 Cyber Expert Group, which works to coordinate cyber resilience strategy development and management across G7 jurisdictions. The PRA also co-chairs the European Systemic Cyber Group, which helps European authorities develop systemic capabilities to prevent and mitigate risks to the financial system that might emanate from cyber incidents.
To further enhance the sector’s resilience capabilities, the regulators intend to start consulting in 2025 H2 on expectations on the management of ICT and cyber resilience risks. This includes risks arising from IT transformations, and the sector’s ability to detect, withstand and recover from disruptions in the event of ICT and cyber incidents. This strategic work will help the sector achieve higher standards of operational and cyber resilience.
During 2025, the PRA will continue to engage with standard-setting bodies and other international jurisdictions on cyber, ICT risk management, third-party risk management and CTPs.
Implementing changes to the Senior Managers & Certification Regime (SM&CR)
The SM&CR aims to ensure individual accountability within all PRA-regulated firms, with a view of supporting good governance and risk management.
Following the publication of discussion paper (DP)1/23 – Review of the Senior Managers and Certification Regime, the PRA and the FCA intend to consult on proposed changes to the SM&CR which are aimed at improving the clarity, efficiency, and proportionality of the regime. These changes will help reduce administrative burden, lower compliance costs and support the flow of international talent to the UK, while maintaining the fundamental components of the regime. In parallel, the PRA will continue its engagement with industry on the approach to senior manager approvals, reaffirming its commitment to improving processes for greater efficiency, proportionality and consistency, and reducing uncertainty for applicant firms.
In addition, and in line with the Chancellor’s announcement in November 2024, the PRA will work alongside HMT and the FCA to replace the certification regime with a more proportionate approach.
Climate change
In January 2025, the PRA published the Climate Change Adaptation Report (CCAR) 2025 setting out its work on climate-related risk since its previous CCAR published in 2021, and the next steps.
The PRA continues to assess firms’ progress in managing climate-related risks and in 2025 intends to consult on its update to SS3/19 – Enhancing banks’ and insurers’ approaches to managing the financial risks from climate change. This will update the existing expectations to provide further clarity and detail to support firms’ progress. In doing so, the PRA seeks to consolidate published PRA climate-related guidance in one placefootnote [9],footnote [10]. The guidance will also be updated to reflect both the PRA and international standard setters’ increased understanding of the impact of climate risks.
Alongside the FCA, the PRA will continue to support industry through the Climate Financial Risk Forum which produces guidance, best practice, case studies and tools to help financial services firms identify, assess and respond to climate-related risks and opportunities.
As part of this, and as appropriate to the PRA’s objectives, the PRA will continue to support the UK Government’s action to deliver the UK Sustainability Reporting Standards, based upon the global baseline of IFRS Sustainability Disclosure Standards.
4: Operational effectiveness at the PRA
Effective authorisation processes
The PRA handles over 1,800 regulatory transactions a year, including new firm authorisations, approvals of senior managers, changes in control and variations of permissions. The PRA’s quarterly publication of metrics on timeliness of authorisation decisions showed sustained high levels of operational effectiveness throughout 2024 with 99.7% of statutory cases handled within its deadlines, supported by work to streamline internal processes, improvements to case handling technology platforms and close collaboration with the FCA. The PRA will continue these initiatives in pursuit of delivering further efficiencies and will continue to handle these transactions in a streamlined, efficient, transparent, and accessible way while maintaining strong risk controls. The PRA will continue to promote open dialogue with industry to help firms navigate authorisation processes and identify further areas for potential improvement.
The PRA will continue working with other stakeholders to deliver a ‘concierge service’ to help international firms navigate the UK when thinking about locating new businesses here.
Enhancing the PRA’s productivity, data and technology
Over 2024/25, the PRA completed an exercise to identify and prioritise a list of operational initiatives to improve its productivity and efficiency. This includes removing duplication in operational processes and making increased use of automation for repeatable tasks. The PRA began implementing these initiatives, which cover areas of supervision, authorisation and policymaking, in 2024/25 and will continue to do so over 2025/26. Some of these initiatives will support the PRA’s delivery of its secondary objectives.
Broader work across data and technology will also support the PRA’s focus on productivity as well as improve effectiveness. This includes the initial design of a new supervisory platform, providing staff with access to a range of new tools and training opportunities to enable them work more efficiently and improving capabilities in text analytics to generate key insights from unstructured data more quickly.
The PRA will continue to foster innovation through horizon scanning, industry engagement, and research and development to identify emerging technologies and opportunities that may further enhance its productivity and analytical capabilities. Examples include driving the adoption and wider roll out of AI-enabled tools.
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, alongside the rest of the Bank, continues to implement the recommendations of this review and has made considerable progress in embedding inclusive recruitment, investing in talent development, and advancing an inclusive culture.
The PRA recognises the importance of all staff being able to reach their full potential. Key focus areas for 2025/26 include progressing initiatives to promote employees’ ability to voice their opinions in an open way, ethnic and gender representation, and disability inclusion. The PRA continues to benefit from the Bank’s employee networks that cater to a wide range of diverse groups.
PRA Research activities
The PRA’s long-term research priorities are captured in the PRA Research agenda below (Table 1) which complements the Bank’s Agenda for Research for the period 2025-28. PRA Research will continue to deliver research, analysis and publications in these areas, including to support the PRC, FPC, and other senior decision-making committees. Updates on this work will be provided in the PRA Research Annual, available on the PRA website.
In pursuit of its research agenda, during 2025, the PRA intends to introduce academic networks on core PRA research themes including competitiveness and growth, and insurance, complementing those already existing networks on agent-based modelling, and behavioural macro and finance. It will also host a two-day meeting with heads of research from other central banks to discuss research-and data strategies and share best practices on nurturing world-class research in public institutions.
Table 1: PRA Research agenda 2023+
Priority theme | Focus and questions |
Capital and Complexity | Balance of minimum requirements and capital buffers (modelling) |
Capital framework complexity (impact on funding costs) | |
Effective and efficient capital conservation (costs for bank funding & benefits for lending) | |
Usability of capital buffers (impact of MDAs on incentives to use buffers) | |
Impact of Basel 3 on wholesale activity / financial market intermediation (empirical) | |
Operating capital buffers during stress periods | |
Competition, Competitiveness and Growth | Barriers to entry in banking and insurance, and implications for fintech and financial stability |
How can effective competition in banking and insurance support the rest of the economy (ie efficiency of capital allocation). | |
Measuring contribution of financial services sector to GDP and growth | |
Impact of prudential regulation on success of a global financial centre | |
Insurance | Optimal capital (firm behaviour): effect of regulation on capital buffers, price/supply, asset allocation and risk of failure |
Optimal capital (insurance and financial market outcomes): effect of regulation on the supply of risk transfer and finance | |
Optimal capital (real economy): effect of regulation on consumption (smoothing), investment and crises | |
Specific risks to the prudential framework (eg annuity valuation without government intervention that have benefited credit markets, insurers' exposure to liquidity risk, climate risk) | |
Climate | Macroprudential (green) framework |
Modelling and measuring climate risk | |
Insurance and climate risk | |
Other fundamental modelling aspects in climate |
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. The PRA monitors, manages, actively mitigates, and reports these risks to the PRC and relevant Bank fora on a regular basis.
People
Over the course of 2024/25, overall attrition levels reduced, and headcount was on target at the end of the year. Looking ahead to 2025/26, the PRA’s total headcount is forecast to reduce slightly, reflecting delivery of some large multi-year pieces of work, and a continued focus on maximising efficiencies. Alongside this, work will continue in support of increasing skills and experience including via the provision of training and development opportunities for PRA colleagues.
The PRA will continue to impose discipline on how it deploys its budget to ensure resources are allocated appropriately. The PRA will also need to reprioritise during the year in response to changes in the external environment, as it routinely does. The PRA will continue to focus on managing operational risks and strengthening horizon-scanning capabilities so that it can respond quickly to changes in risk and drive decisions on prioritisation, business planning, and resourcing.
Technology
Having access to the right technology and data remains a key area of focus as part of ongoing investment across the PRA and the Bank to ensure that the PRA’s technology capabilities support its strategic priorities. This focus will take account of developments in regulatory technology, reduce inefficiencies, and leverage the benefits of being a regulator within the UK’s central bank. A key focus of internal investment will be on addressing areas of obsolescence in the Bank’s technology infrastructure. This will in turn benefit the PRA but will also require careful prioritisation and scoping of key PRA projects in 2025/26
Dependencies
Given the interconnected nature of the global financial system, dependencies on external parties, such as the FCA, HMT, and overseas regulators, could present a risk for the PRA to deliver its business priorities for 2025/26. For example, policy development, authorisation processes, and supervision activities are supported by maintaining effective relationships and co-operation with these parties.
The PRA will continue to foster its domestic relationships to ensure effective regulation and supervision across the UK financial sector. The PRA will also work closely with international regulators to address cross-border risks for firms operating internationally. This will be done through several engagement channels, including international committees, supervisory colleges, joint reviews, and information-sharing.
PRA budget 2025/2026
The PRA’s provisional budget for 2025/26, which is subject to finalisation of the Bank’s investment budget and pension costs, is estimated at £343 million. This is £10 million (3%) lower than the 2024/25 budget.
The PRA’s costs comprise its own direct costs and costs allocated to the PRA for the provision of services by the broader Bank including central support functions and technology investment. From the 2024/25 budget of £353 million, the PRA’s own direct costs are budgeted to reduce by £5 million due to lower pension costs and PRA specific investment, alongside improving efficiency and productivity. Costs allocated to the PRA from the Bank more broadly are also expected to be £5 million lower than the 2024/25 budget mainly due to an overall reduction in the size of the Bank’s investment portfolio and a lower proportion of the portfolio directing costs to the PRA Levy.
Budgeted headcount is expected to reduce in 2025/26, ending the year at 1,527 FTE compared to a like-for-like actual year-end headcount of 1,582 FTE for 2024/25 which included the PRA’s investment resources. The headcount reduction primarily reflects a lower allocation of PRA resources to Bank-wide strategic priorities relevant to the PRA, while still enabling the PRA to advance its objectives through delivering core supervision and policy work, implementing key policy initiatives, including stress testing banks and insurers, embedding the SCGO, overseeing CTPs and developing the PRA’s future banking data.
Details on how the PRA proposes to fund its budget can be found in CP8/25 – Regulated fees and levies: Rates proposals 2025/26. It includes proposals for allocating costs of the PRA’s 2025/26 ongoing regulatory activities across PRA fee payers.
Abbreviations
Bank – Bank of England
BCBS – Basel Committee on Banking Supervision
BDR – Banking Data Review
CBA – Cost Benefit Analysis
CEG – Cyber Expert Group
CEO – Chief Executive Officer
CMORG – Cross Market Operational Resilience Group
CP – Consultation paper
CRR – Capital Requirements Regulation
CTP – Critical third party
DEI – Diversity, equity, and inclusion
FCA – Financial Conduct Authority
FinTech – Financial Technology
FPC – Financial Policy Committee
FSB – Financial Stability Board
FSMA – Financial Services and Markets Act 2000 (as amended)
HMT – His Majesty's Treasury
IAIS – International Association of Insurance Supervisors
IBS – Important business services
ICS – Insurance Capital Standard
IRB – Internal ratings-based
ISPV – Insurance special purpose vehicle
MRM – Model Risk Management
PMA – Post Model Adjustment
PRA – Prudential Regulation Authority
PRC – Prudential Regulation Committee
PS – Policy statement
RWA – Risk-weighted asset
SCGO – Secondary Competitiveness and Growth Objective
SCO – Secondary Competition Objective
SDDT – Small domestic deposit takers
SMCR – Senior Managers and Certification Regime
SMF – Senior management function
SS – Supervisory statement
SVB – Silicon Valley Bank
Contacting the Bank of England and the PRA
Please send any enquiries related to this publication to
PRA.Communications@bankofengland.co.uk.
Bank of England 020 3461 4444 | Prudential Regulation Authority 020 3461 4444 |
Public enquiries 020 3461 4878 | PRA enquiries 020 3461 7000 |
Media enquiries 020 3461 4411 | Stakeholder Relations |
As at 2 January 2025.
Strictly speaking, DIFs do not accept deposits and are included under the category of deposit-takers for presentational purposes only.
These provisions are disapplied by regulation 4 of FSMA 2023 (Commencement No. 2 and Transitional Provisions) Regulations 2023.
Any references to SDDT(s) hereafter in this business should be treated as applicable to both SDDTs and SDDT consolidation entities, unless stated otherwise.
The largest and systemically important banks have a particular significance. Participation in the Bank Capital Stress Test, for instance, will be based on an assessment of a bank’s share of lending to the UK real economy, other measures of its systemic importance, and the test’s overall coverage of the banking sector’s lending to the UK real economy.
In the first component of the updated approach, the Bank expects to carry out every other year a Bank Capital Stress Test in which the largest and most systemic banks participate.
As set out in the 2025 priorities letters on International banks; and UK Deposit Takers.
PRA regulatory reporting period in 2024.
Managing climate-related financial risk – thematic feedback from the PRA’s review of firms’ SS3/19 plans and clarifications of expectations; and Thematic feedback on the PRA’s supervision of climate-related financial risk and the Bank of England’s Climate Biennial Exploratory Scenario exercise.
Thematic feedback from the 2021/2022 round of written auditor reporting; Thematic feedback from the 2022/2023 round of written auditor reporting; and Thematic feedback on accounting for IFRS 9 ECL and climate risk.