Prudential Regulation Authority’s (PRA) Cost Benefit Analysis Panel Annual Report 2024/25

The Cost Benefit Analysis (CBA) Panel is a statutory panel established to provide advice to the PRA and the Bank on the preparation of CBA. The Panel provides independent input to the PRA’s and the Bank’s CBAs, helping to support increased transparency and scrutiny of their policymaking. This report covers the period from 1 July 2024 to 28 February 2025.
Published on 26 June 2025
Presented to Parliament pursuant to section 47 of the Financial Services and Markets Act 2023 and The Financial Services and Markets Act 2023 (Panel Remuneration and Reports) Regulations 2023.

Chair’s Foreword

As we conclude the inaugural year of the Cost Benefit Analysis Panel (‘the Panel’), I am pleased to report that our work has had substantial and positive impact on the approach taken by the PRA and the Bank of England (‘the Bank’) in preparing cost benefit analyses (CBA) in relation to policy proposals. We have focused on delivering our statutory remit and adding value by acting as a ‘critical friend’ with the ultimate objective of seeking to improve the quality of CBAs being undertaken. CBA is an important tool for the calibration of policy, which is particularly important in the light of the government’s growth agenda. While the PRA’s and the Bank’s primary objectives will always be the safety and soundness of regulated firms, securing insurance policyholder protection, and financial stability, the secondary objectives relating to competition, competitiveness and growth, and facilitation of innovation can also benefit from thoughtful application of cost benefit analysis.

In the past year, one of the CBA Panel’s initial activities was to advise the PRA and the Bank on their respective new statements of policy[1] setting out their CBA approaches. We will continue to provide support for these documents going forward, including as part of a planned review by the PRA and the Bank that will commence in the second half of 2025 following the end of the public feedback periods.

We also provided significant input on eleven individual CBAs across a broad range of policies, covering banking, insurance and financial market infrastructure. This gave us opportunities to understand how the CBA framework is applied in practice and to make comments and provide challenge. The PRA and the Bank clearly disclose responses to our assessment of each CBA in their consultation papers so that all stakeholders can see the nature of our impact as a panel. The PRA and the Bank use our expertise proactively, as demonstrated by the inclusion of a CBA for our review even when not strictly required from a legislative perspective but where the proposed policies are nonetheless impactful. We appreciate that the PRA and the Bank have continuously adapted their approach to engaging with us in consequence of our feedback. One recent example is the increased clarity with which the PRA and the Bank is communicating the causal chain analysis that supports the foundation of its policy intervention. We anticipate seeing this as a key feature of future CBAs.

Improvements have also been made in the transparency and disclosures made by the PRA and the Bank in CBAs. The Panel will continue to constructively challenge the PRA and the Bank on its risk appetite for transparency, recognising there are genuine constraints that limit the publication of firm-specific and other sensitive information.

The presentations by policy teams have improved, with greater clarity and rigour. We have been made aware that the CBA process is now more carefully planned and embedded in the policymaking process. We have not yet had CBAs of major significance presented to us, such as the complete Basel 3.1 or Solvency II packages, where the PRA and the Bank CBA frameworks are fully applied and so look forward to seeing further evidence of this more systematic approach in the future.

An important event in the past year was a half-day workshop to enable the PRA and the Bank to benefit more broadly from the collective expertise of the Panel across public policy and financial services, during which we made a number of over-arching recommendations, largely focusing on public transparency, monitoring and improving application and quality of CBA methodology. To the first point, the Panel provided views and ideas as to how enhanced transparency could provide more reassurance to the public regarding how CBA tools are applied in policymaking, including how different policy options are considered, both at inception and throughout the development process. We recommended that the PRA and the Bank review their risk appetite for greater disclosure of the process in public documentation. We also discussed the PRA and the Bank’s approach to monitoring outcomes holistically, including using insights from business as usual supervision, horizon scanning exercises and roundtables with regulated firms. Finally, the Panel raised points on methodological issues, such as scaling and uncertainty in benefits estimation and when and how to collect data in support of CBA. We will be engaging further with the PRA and the Bank to understand and advise on enhancing its CBA toolkit as part of our forward agenda in 2025/26.

While there is room for improvement in how the PRA and the Bank prepare and use CBAs, the Panel recognises the progress made in the past year and thanks all the policy team members who have worked hard to prepare and present the work we have seen. We look forward to the continued evolution of the CBA process within the PRA and the Bank and to providing our support in the coming year. Finally, I would personally like to thank my fellow Panel members for their diligence in reviewing a considerable body of work and for providing professional and constructive input.

Laurel C Powers-Freeling

Chair, Cost Benefit Analysis Panel

1: Overview

About the Cost Benefit Analysis Panel

1.1 The Cost Benefit Analysis (‘CBA’) Panel (the ‘Panel’) is a statutory panel established to provide advice to the Prudential Regulation Authority (the ‘PRA’) and the Bank of England (the ‘Bank’) on the preparation of CBAs. It was established in July 2024 by the PRA in accordance with section 138JA of the Financial Services and Markets Act 2000 (FSMA). Since 1 August 2024 the PRA and the Bank have been required to consult the Panel on relevant CBAs. The PRA supports the Panel on an ongoing basis.

1.2 The Panel provides independent input to the PRA’s and the Bank’s CBAs, helping to support increased transparency and scrutiny of their policymaking. The Panel provides advice on the preparation of CBAs when the PRA or the Bank proposes new rules, or to amend existing rules, for PRA regulated firms and financial market infrastructure (FMI) entities. It also keeps under review how the PRA and the Bank are performing generally in carrying out CBAs and provides recommendations to the PRA and the Bank on how they can improve their methodology and approach to CBAs. There may also be instances where the Panel reviews updated CBAs which accompany policy statements.

1.3 While the Panel provides advice both to the PRA and the Bank on specific CBAs and on their methodological approach, it does not assure or audit CBAs prepared by the PRA or the Bank, nor does it make recommendations on which policies the PRA and/or the Bank should consult upon.

1.4 The Panel meets approximately eight times each year to consider PRA and Bank CBAs and provide feedback. The feedback from the Panel is primarily provided at these meetings but there are circumstances when feedback is sought in writing. These details are outlined in the Panel’s Terms of Reference.

About the report

1.5 This report covers the period from 1 July 2024 to 28 February 2025. It is an updated version of a previous report provided to HM Treasury on 17 December 2024 and published on 10 January 2025 (Cost Benefit Analysis Panel Annual Report 2024). The previous report was prepared in accordance with the FSMA (Panel Remuneration and Reports) Regulations 2023,[2] which required the Panel to provide its first annual report within one year of the date upon which these regulations came into force, on 26 December 2023.

1.6 This report incorporates the following updates compared to the previous report published on 10 January 2025:

  • Appointment of a new Panel member in paragraph 1.10.
  • Details of a workshop held by the PRA, the Bank (as FMI regulator) and the Panel in paragraph 2.3.
  • The materiality threshold for CBAs prepared by the PRA in paragraphs 2.6 and 2.7.
  • CBAs considered by the Panel between 01 November 2024 and 28 February 2025 in the final five rows of the table below paragraph 2.9.
  • Annex on costs incurred by the PRA and the Bank in connection to the Panel.

1.7 The Panel is required to provide a report to HM Treasury each year. This report, and subsequent reports, will be provided to HM Treasury, and published, in line with the PRA’s and the Bank’s broader approach to annual reports.

Panel membership – as of 28 February 2025

1.8 Appointments to the Panel are agreed by the Prudential Regulation Committee (PRC) in consultation with the Financial Market Infrastructure Committee (FMIC). The appointment of the Chair is approved by HM Treasury. As of 28 February 2025, the members[3] of the Panel are:

  • Laurel Powers-Freeling (Chair)
  • Andrew Maclaren
  • David Aikman
  • Martina Garcia
  • Stephen Gibson
  • Kristy Robinson (PRA firm member)
  • Sergio Afonso (PRA firm member)

1.9 Members of the Panel are external to the PRA and the Bank and are not employed by either the PRA or the Bank. Independent members[4] serve a term of three years and members employed by a PRA-authorised firm serve a term of one year, both renewable at the discretion of PRC, in consultation with FMIC.

1.10 In November 2024, Sergio Afonso was appointed as the second PRA firm member on the Panel. This appointment was agreed by the PRC in consultation with FMIC and commenced on 31 January 2025. The appointment of each of the other members commenced on 24 June 2024.

1.11 All members of the Panel are responsible for identifying and declaring actual, potential, or perceived conflicts of interests in line with the Panel’s conflicts guide. Conflicts are recorded in the Panel’s register of interests. In accordance with the guidance, this register is reviewed in advance of each meeting of the Panel. Any actual, potential, or perceived conflicts are declared to the Chair, who then takes appropriate action to manage such actual, potential, or perceived conflicts.

2: Panel engagement with the PRA and the Bank

Summary of activities

2.1 Prior to its first meeting, the Panel was briefed by various members of the PRA and the Bank on their work and processes. Between 1 July 2024 and 28 February 2025, the Panel met six times, during which it provided independent advice on:

  • The PRA’s approach to CBA, published on 12 December 2024.
  • The Bank of England's approach to CBA, published on 12 December 2024.
  • Ten CBAs accompanying consultation papers (CPs) proposing rules: seven prepared by the PRA, two prepared by the Bank as FMI regulator, and one jointly prepared by the PRA and the Bank.
  • One CBA accompanying a CP proposing an update to a supervisory statement (SS) but no rules. Supervisory statements do not constitute rules and therefore CBAs of proposed changes do not require statutory consultation with the Panel. However, the PRA sought the Panel’s insights due to the complexity and novelty of the associated risks.

2.2 All meetings of the Panel were attended by relevant senior executives from the PRA and the Bank. Key outcomes and insights from these meetings were provided to relevant decision-makers and policy leads, contributing to the transparency of the PRA’s and the Bank’s policymaking processes. The Panel’s comments on any given CBA, and the PRA’s and Bank’s responses to these comments, are summarised in the relevant CP.

2.3 On 11 March 2025, the Panel, the PRA and the Bank (as FMI regulator) held a workshop to share best practice and current thinking in CBA, drawing on lessons learnt from the PRA, the Bank and the Panel’s collective experiences since the Panel’s establishment. The workshop aimed to ensure a common understanding of the PRA and the Bank’s policymaking and CBA processes, and to discuss how the PRA, the Bank and the Panel could optimise their collaboration[5]. The focus areas were as follows:

  • The policy process and use of CBA tools. The Panel received background materials that provided a detailed overview of the steps, tools, and governance involved in the PRA policymaking process, including a case study to show how CBA tools are applied throughout the policymaking process.
  • Engagement with the PRA and the Bank. The Panel reviewed with the PRA and the Bank where engagement has been effective, identified areas for improvement, and proposed tangible ideas for more effective collaboration.
  • Addressing key challenges in CBA for prudential regulation. The Panel discussed with the PRA and the Bank some of the most difficult challenges in conducting CBA on prudential regulation, with a view to leveraging the Panel’s expertise. Topics included the quantification of benefits, exploring alternative methods for scaling benefits, determining the frequency and timing of data collection from firms to support CBA, and identifying and mitigating potential sources of bias in CBA.

The PRA’s and Bank’s approaches to CBA

2.4 In its first constitutive meeting in July, the Panel agreed its Terms of Reference and was consulted on the PRA’s draft Approach to CBA statement of policy (PRA SoP). The PRA SoP explains why the PRA undertakes CBA, the role of CBA in the policymaking process, how the PRA analyses and estimates costs and benefits, and the role of the PRA’s CBA Panel. The Panel discussed the references in the PRA SoP to the development of the PRA’s CBA toolkit over time. It also commented on how the PRA’s approach to CBA compares to the approach of other organisations, the use of qualitative and quantitative data in CBAs, and the PRA’s approach to modelling of costs and benefits. The Panel provided views on how the PRA assesses the overall impact of its policies, as well as distributional and behavioural impacts. Members gave feedback on the materiality threshold which is used to determine on which CBAs the Panel is consulted, how it is calculated and the way in which this is presented to stakeholders. The Panel also expressed opinions on the uncertainty involved in CBA relating to PRA and Bank policymaking, including in relation to direct cost estimation and the role of confidence intervals in communicating uncertainty. Finally, members suggested on the appropriate balance of technical detail in the PRA SoP and the need to enhance the accessibility of the document to non-specialist readers. The final version of this document, which incorporates the Panel’s feedback, was published on the Bank’s website on 12 December 2024.

2.5 In its third meeting, the Panel was consulted on the Bank’s draft Approach to CBA SoP (Bank SoP). The Bank SoP explains how the Bank conducts CBAs when exercising its rulemaking powers in relation to financial market infrastructures (FMIs), such as central counterparties (CCPs) and centralised securities depositories (CSDs). The methodology is consistent with the PRA’s CBA framework while highlighting certain specificities relating to FMIs. The Panel’s comments focused on three areas: methodology, document structure, and clarifications on FMIs and their role in the financial system. Regarding methodology, the Panel acknowledged the challenge of quantifying benefits to financial stability of policy choices and discussed how CBA approaches in other sectors might provide useful comparators. On structure, members advised on reducing repetition, particularly on the role of CCPs and CSDs in the financial system. Regarding FMIs, the Panel recommended ensuring the benefits set out in CBAs concentrate on how proposals aim to prevent risks to financial stability, the inclusion of stress testing in the CBA toolkit, and that CBAs should be clear about the systemic importance and high level of interconnection of FMIs. The final version of this document, which incorporates the Panel’s feedback, was published on the Bank’s website on 12 December 2024.

CBAs considered by the Panel

2.6 The Panel is consulted on the CBAs of proposed rule changes prepared by the PRA and the Bank (as FMI regulator) where legislation requires a CBA, except in cases set out in the PRA or Bank’s SoPs on their approaches to CBA. The Panel may also be consulted even when not strictly required from a legislative perspective but where the proposed CBAs are nonetheless impactful – for example, the CBA accompanying CP10/25 – Enhancing banks’ and insurers’ approaches to managing climate-related risks – Update to SS3/19.

  • For CBAs relating to the PRA. The PRA’s approach to CBA SoP provides that the CBA Panel will be consulted except in cases where it would be disproportionate to do so. In determining whether it would be disproportionate to consult the Panel, the PRA will consider whether, in its view, the annualised net direct cost to PRA firms will exceed +/- £10 million. This ensures that the Panel reviews CBAs both for proposals that materially increase costs to firms and for proposals that are expected to materially reduce their costs. The PRA will generally not consult the CBA Panel where the direct impacts on PRA firms are expected to be below the +/-£10 million threshold, but may decide to do so in some cases, in consultation with the CBA Panel Chair. Further details about this threshold can be found in paragraphs 5.10 to 5.14 of the PRA’s approach to CBA.
  • For CBAs relating the Bank (as FMI regulator). No threshold has been established. As the requirement for the Bank (as FMI regulator) to conduct CBA is new, it would be difficult at this stage to set an objective quantitative threshold. Any change to this approach would be reflected in an updated SoP of the Bank of England's approach to CBA.

2.7 For CBA relating to the PRA, the threshold came into place on 12 December 2024 (the publication date of the PRA SoP). Therefore, the Panel has reviewed all CBAs finalised by the PRA between 1 August 2024 (the date from which FSMA requires the PRA to consult the Panel) and 12 December 2024, without considering this threshold. Since 12 December 2024, the review of CBAs relating to the PRA has taken this threshold into consideration.2.8 There are some CBAs that the PRA and Bank have published during the reporting year covered by this report but were not reviewed by the Panel due to the following reasons:Three CBAs accompanying CPs were finalised before 1 August 2024 but published after that date. Their publication was delayed due to the quiet period around the General Election held on 4 July 2024.[6]One CBA accompanying a CP finalised by the PRA was below the materiality threshold.[7]Additionally, for two CPs published during the reporting year covered by this report, the statutory duty to produce a CBA did not apply under s138L(3) of the FSMA.[8] [9]

2.9 The table below lists the CBAs considered by the Panel between 1 August 2024 and 28 February 2025. For more context, this table should be read alongside the associated CPs available on the Bank’s website, except for the CPs related to the European Market Infrastructure Regulation (EMIR) Repeal and Replace, which has not yet been published. The information provided for this item is therefore presented at a high-level.

CBAs considered by the Panel

Subject

Description

Panel feedback

CP4/25 – Depositor protection

The CBA assessed proposals to increase the depositor protection limit from £85,000 to £110,000 and the temporary high balance (THB) limit from £1 million to £1.4 million. This increase aims to account for inflation, as the current limits were set in 2017. The main benefits include maintaining orderly markets in which consumers have confidence, thereby supporting lending and economic output, especially during times of economic stress. The main costs identified are the one-off implementation costs that deposit takers would be required to meet, as well as potentially higher levy costs under the new limits.

The Panel suggested further exploring the expected impacts on competition. Members suggested making clear that some costs for firms could be seen as benefits from a depositor’s perspective. They advised that the CBA could elaborate on what indicators would demonstrate the success of the policy. The Panel suggested that the CP could ask a specific question on the CBA to gather responses. They also commented on some presentational elements, highlighting the importance of setting out the CBA in a clear and objective way for all stakeholders.

Paragraph 1.18 in the CP describes this feedback and states how the PRA has incorporated it.

CP13/24 – Remainder of CRR: Restatement of assimilated law

The CBA assessed the transfer of remaining assimilated capital regulations into PRA policy materials, along with some changes to securitisation capital requirements (primarily, the use of a new formulaic p-factor). The main benefits included increased clarity on the relevant regulations and expanded options for calculating securitisation capital requirements.

For areas where the PRA is proposing to restate CRR provisions without changing policy substance or intent, there would be minimal costs or benefits. For proposals introducing policy adjustments, the CBA has assessed the incremental costs and benefits, particularly in Chapter 3 of the CP, which addresses the main changes to the securitisation requirements.

The Panel recommended that the CBA more explicitly address the primary drivers of the policy proposals and their potential financial stability impacts. Members noted that the benefits arising from the change relating to securitisations risk weighted using the Standardised Approach (which are quantified in the CBA) depend on firms choosing to use a new p-factor. Given this dependency the Panel recommended that the CBA addresses how certain the PRA is that these benefits will arise. Members also noted the complexity and technical nature of the proposals, recommending that, where possible, the CBA be made more accessible to readers unfamiliar with securitisation capital requirements.

Paragraph 3.37 in the CP describes this feedback and states how the PRA has incorporated it.

CP16/24 –Remuneration reform

The CBA assessed proposals to improve the PRA remuneration regime, aiming to make the requirements more effective, simple, and proportionate in achieving their primary aim of ensuring accountability for risk taking through firms’ remuneration arrangements. The main benefits included reduced compliance costs for firms, improved staff retention and attraction, and potential prudential benefits. The expected costs were primarily one-off costs for firms to familiarise themselves with the proposals and, where applicable, to restructure their remuneration regimes.

The Panel provided feedback on the overall presentation of the CBA assessment as well as analysis of data on risk events which are relevant from a remuneration perspective. On this latter point, members suggested that data on risk events over a longer time horizon than 4 years could be captured in the CBA. Members recommended greater clarity was included in the CBA around the benefits of the PRA’s proposals on the use of the material risk takers[10] identification process as a risk management tool. The Panel also recommended that the CBA present the impact of the proposals on employee remuneration in a more systematic way.

Paragraph 10.4 in the CP describes this feedback and states how the PRA has incorporated it.

CP15/24 –Proposed changes to the UK Insurance Special Purpose Vehicles (UK ISPV) regulatory framework

The CBA assessed proposed reforms to the ISPV regime to enhance its global competitiveness, while maintaining a policyholder protection level consistent with the PRA’s objectives. The primary benefits included an increased range of capital available to the UK insurance market. Expected costs included some marginal additional risk of cedants not receiving payments from the ISPV when required (mitigated by a new supervisory statement).

The Panel recommended that the economic benefits of the proposals be further explained to demonstrate more clearly how they advance the PRA’s primary and secondary objectives and outweighed the costs. Members commented that a smaller upfront investment (under a proposal related to the aggregate maximum risk exposure[11]) could encourage a broader range of investors, which would be beneficial for risk dispersion. The Panel commented that the proposal for an accelerated pathway could increase the risk of some ISPVs being approved when they should not have been and that this should be factored into the CBA. The Panel mentioned that there could be extra cost under the ‘Simplification of Authorisation process’ proposal if requests for additional information, which were previously provided upfront but would no longer be under the simplified process, result in delays.

Paragraph 8.38 in the CP describes this feedback and states how the PRA has incorporated it.

CP – Fundamental Rules for financial market infrastructures

The CBA assessed a proposed set of fundamental rules for FMIs. These aim to increase the resilience of FMIs through enhanced supervisory effectiveness by setting out at high level clear and transparent outcomes that encompass the Bank’s policy framework.

The Panel was consulted on the CBA for CCPs and CSDs only. The CBA for recognised payment system operators and specific service providers was conducted on a non-statutory basis.

The Panel recommended the CBA highlight the benefits of the fundamental rules in addressing potential gaps in the regulatory framework. The Panel commented that while increased transparency of regulatory outcomes was a benefit, the resulting increased supervisory effectiveness in relation to monitoring compliance and holding FMIs accountable was the key mechanism through which this resulted in changing incentives at FMIs, and so increased adherence to regulatory requirements, supporting financial stability. The Panel also noted that it is very difficult to precisely quantify the financial stability benefits of introducing fundamental rules. They advised that it would be helpful to provide a sense of the benefit by referencing the cost of financial crises should they occur, especially as a result of regulatory underlap. The Panel recommended further explanation of familiarisation and compliance costs.

Paragraphs 3.24 and 3.25 in the CP describe this feedback and state how the Bank has incorporated it.

CP14/24 – Large Exposures Framework

The CBA assessed proposed reforms to the PRA large exposures framework, aiming to implement the remaining Basel LE standards. This framework complements the risk weighted capital requirements by aiming to protect firms from large losses resulting from the sudden default of a single counterparty or groups of connected counterparties. The proposals were expected to impose minimal costs on firms.

The Panel commented on addressing the potential impacts of the proposed changes in stress scenarios. They also provided feedback on the uncertainty around the operational costs associated with the mandatory substitution approach proposal to calculate the effect of the use of credit risk mitigation techniques.

Paragraph 6.3 in the CP describes this feedback.

CP19/24 – Closing liquidity reporting gaps and streamlining Standard Formula reporting

The CBA assessed two proposals. The first one, the liquidity reporting proposal, aims to improve liquidity reporting so the PRA can identify and address liquidity risks more quickly. The second one, the standard formula reporting proposal, removes the expectation for life insurers to report their Solvency Capital Requirement under the Standard Formula, as this figure has been found ineffective in detecting model drift.

For the liquidity reporting proposals, the main benefits include enhancing safety and soundness, boosting competition, increasing confidence and aligning with international standards. The costs mainly involve operational expenses for setting up new systems and carrying out annual reporting.

For the standard formula reporting proposal, the benefits include cost reductions related to preparing and analysing standard formula reports.

The Panel recommended providing a more detailed analysis of the benefits of the proposals, including additional information on the market scenarios that concern the PRA and further description of how the proposed reporting collection would help to reduce prudential risks. Members also suggested considering different sensitivities in the range of cost estimates for the proposals to firms. They advised further explaining how the proposals align with international standards on insurance supervision. The Panel recommended assessing the cost for firms moving in and out of the scope of the reporting requirement. Members recommended the need to be more explicit about the marginal costs and benefits of the proposals, and the trade-offs between them.

Paragraph 4.7 in the CP describes this feedback and states how the PRA has incorporated it.

CP17/24 –Operational resilience: Operational incident and outsourcing and third-party reporting

Operational resilience: operational incident and outsourcing and third-party reporting for financial market infrastructures

The proposals set out in these CPs are consistent with the approach developed jointly with the PRA and the Bank (as FMI regulator).

The CBA assessed a proposal to standardise reporting requirements for operational incidents and material third party arrangements, formalising existing expectations into rules. Key benefits include enhanced visibility into the operational resilience of individual entities and the sector, and the ability to identify systemic risk among critical third parties. Alignment with international standards may also ease the reporting burden on entities with multiple reporting obligations, supporting the PRA’s secondary objectives.

The Panel recommended to more explicitly state that a key benefit of the proposals is the better identification of concentration risks within the sector, and adding more detail on the actions proposed to use the data to achieve these benefits. Members also suggested that the Bank and the PRA should further clarify the analysis of the proposals' counterfactual. For example, how limiting existing data collections to material outsourcing arrangements could limit the Bank and PRA's ability to oversee sector-wide risk. They provided feedback on how the CBA presented the average ongoing costs per firm to maintain the material third party register annually.

Paragraph 5 of Annex 4 in the CP prepared by the PRA and paragraph 5 of Appendix 7 in the CP prepared by the Bank describes this feedback and states how it has been incorporated by the PRA and the Bank.

CP2/25 – Leverage Ratio: changes to the retail deposits threshold for application of the requirement

The CBA assessed proposals to raise the threshold for the application of the Leverage Ratio (LR) requirement from £50 billion to £70 billion in retail deposits to ensure it continues to capture ‘major UK firms’. The threshold, set in nominal terms, has remained unchanged since 2016. Key benefits include reduced capital requirements for a subset of firms that would otherwise be bound by the LR requirement thus supporting their ability to grow and compete, operational cost savings, and positive impacts on competition, competitiveness and efficiency. There are minimal costs as the policy continues to apply to the firms that are most likely to affect financial stability.

The Panel suggested to provide more detail about the number and type of firms affected, while acknowledging the confidentiality challenges due to the small number of firms involved. Members suggested to provide more detail on why the PRA proposes to increase the threshold in line with nominal GDP growth. They asked to clarify the implications of the proposed increase in the retail deposits threshold for the affected firms. The Panel commented on some presentational aspects to ensure that the objectives and impacts of the proposals are clearly explained, helping stakeholders understand the policy proposals, the underlying analysis and the CBA assessment.

Paragraph 1.8 of the CP describes this feedback and states how the PRA has incorporated it.

EMIR Repeal and Replace[12]

The CBA assessed the transfer of CCP-facing requirements set out in UK EMIR[13] into Bank rules and policy material, along with some changes.

The Panel provided advice on framing the behavioural incentives of some of the proposals and illustrating their benefits through scenarios. Members also noted the difficulty of precisely quantifying benefits and supported the use of qualitative methods. They further advised that as the benefits could not be fully explained in quantitative terms, the analysis should provide suitable qualitative explanation.

The Panel suggested that the CBA include further information on the impact of the proposals on different users of FMI services (for example, small firms as well as the wider market). Members also provided a number of suggestions on presentational elements of the CBA.

CP10/25 – Enhancing banks’ and insurers’ approaches to managing climate-related risks – Update to SS3/19

The CBA assessed proposals to provide more specific guidance on managing climate-related risks. The seven proposals combine PRA guidance from various letters to firms over recent years and reflect recent international standards.

Key benefits include improved management of anticipated climate-related risk losses, identification of opportunities in climate-transition, and more accurately pricing of climate-related risks. These factors ultimately support safety and soundness and market confidence. Key costs arise from incremental direct compliance costs, primarily due to the need for firms to make changes to meet expectations around climate scenario analysis, risk management and governance. There may be some indirect costs as well.

Supervisory statements do not constitute rules and therefore do not require statutory consultation with the Panel. However, the PRA sought the Panel’s insights due to the complexity and novelty of the associated risks.

The Panel commented on the case for regulatory action included in the CBA and the market failures related. Members also asked for more information regarding the supervisory evidence underpinning the assessment that firms need to improve their climate-related risk identification and management capabilities. They also suggested the PRA expand its discussion of the distinction between different kinds of climate-related risk, how these impact different types of firms (eg banks compared to insurers), and the most relevant transmission channels.

Paragraph 4.2 of the CP describes this feedback and states how the PRA has incorporated it.

3: Panel forward agenda

3.1 The Panel’s forward agenda is naturally shaped by the PRA’s and the Bank’s policy development pipeline. Members can influence the focus of discussions, including in relation to broader thematic matters. During the remainder of 2025 the Panel will meet regularly to review relevant CBAs accompanying PRA and Bank CPs relating to rules.

3.2 The Panel’s 2025 agenda might also include time allocated to provide advice on how the PRA and Bank can improve their methodologies and approach to the completion of CBAs. These discussions are expected to be guided by, and be a continuation of, the topics covered in the 11 March workshop described in paragraph 2.3.

Annex

Costs incurred

Over the period up to February 2025, costs of £165,923 have been incurred in connection to the Panel. These costs are met by the PRA and are broken down as follows:

Remuneration: £111,313 (including National Insurance and travel for members)

Other costs: £54,610 (including costs incurred in 2023 for recruitment of Panel members)

The PRA and the Bank have also provided the Panel with policy and secretariat support.

  1. The Bank of England's approach to cost benefit analysis; and the Prudential Regulation Authority’s approach to cost benefit analysis.

  2. SI 2023/1273 Financial Services and Markets Act 2023 (Panel Remuneration and Reports) Regulations 2023.

  3. Members are listed in alphabetical order by their type of membership (individual or PRA firm member), with exception of the Chair.

  4. Members of the Panel who are not employed by a PRA-authorised firm or a Bank-regulated entity.

  5. Although the workshop was held beyond the reporting year covered by this report, the Panel considers it appropriate to include its key outcomes in this report rather than deferring them until the 2025/26 Annual Report.

  6. The CBAs finalised before 1 August 2024 were related to the following CPs:

    CP7/24 – The Strong and Simple Framework: The simplified capital regime for Small Domestic Deposit Takers (SDDTs)
    CP8/24 – Definition of Capital: restatement of CRR requirements in PRA Rulebook
    CP9/24 – Streamlining the Pillar 2A capital framework and the capital communications process

  7. CP1/25 – Financial Services Compensation Scheme – Management Expenses Levy Limit 2025/26

  8. The CPs where the statutory duty to produce a CBA did not apply were the following:

    CP10/24 – Updates to the UK policy framework for capital buffers
    CP12/24 – Resolution assessments: Amendments to reporting and disclosure dates

  9. The provisions listed in subsection (4) do not apply if the regulator concerned considers that, making the appropriate comparison – (a) there will be no increase in costs, or (b) there will be an increase in costs but that increase will be of minimal significance.

  10. Material risk taker is a term used to refer to the individuals subject to the remuneration rules.

  11. The aggregate maximum risk exposure is the sum of maximum payments, including expenses that the special purpose vehicle may incur, excluding certain specific expenses.

  12. The information for this item is limited because the relevant CP has not yet been published.

  13. EMIR outlines the key requirements that CCPs must adhere to operate in the UK.

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Prudential Regulation // Annual Report

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Competitiveness and growth: the PRA’s second report
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