The PRA has sent Dear CEO letters to PRA-regulated international banks, insurance firms and UK deposit-takers setting out its supervisory priorities for 2022.
For banks, the PRA’s priorities relate to:
- Financial resilience – the PRA will engage with firms to assess the challenges that broad structural changes, such as increased digitalisation, are bringing to the sustainability of business models.
- Operational risk and resilience – the PRA will assess firms’ progress in developing effective operational risk and control frameworks and will continue to review the implementation of firms’ operational risk programmes. It also expects firms to manage the risks arising from the outsourcing of important business services, in particular to cloud providers.
- Financial risks arising from climate change – from 2022, the PRA will incorporate supervision of climate-related financial risks into its core supervisory approach, paying particular attention to how firms quantify climate-related risks and incorporate those risks into business strategies, decision-making and risk-taking.
- Diversity and inclusion – firms should consider the themes set out in the PRA’s July 2021 discussion paper on D&I and consider where they can make progress to address any gaps.
- Risk-free rate transition – firms should continue transitioning LIBOR-referencing contracts where possible.
For insurers, the PRA is prioritising:
- Financial resilience – the PRA expects retail general insurers to manage the impact on their business models of the FCA’s updated pricing rules in PS21/5.
- Operational risk and resilience – the PRA has reminded firms that they must have complied with its new operational resilience requirements by 31 March 2022. It also expects firms to ensure that any outsourced services comply with its expectations set out in SS2/21.
- Financial risks arising from climate change – the PRA expects firms to embed the expectations set out in SS3/19 and take a forward-looking approach in managing climate-related financial risks, including in both underwriting and investment.
- Regulatory change – the PRA has confirmed it will consult on a package of measures relating to the government’s Solvency II review later in 2022.
- Third-country branches seeking authorisation in the UK – the PRA expects applicant firms to co-operate with it in an open and transparent way.
- Diversity and inclusion – firms should consider the themes set out in the PRA’s July 2021 discussion paper on D&I and consider where they can make progress to address any gaps.
For UK deposit-takers, the PRA’s priorities are:
- Financial resilience – the PRA will engage with firms to assess the challenges that broad structural changes, such as increased digitalisation, are bringing to the sustainability of business models.
- Credit risk and model risk – the PRA expects firms to monitor closely credit risk within their portfolios and the impact on provisioning.
- Operational risk and resilience – the PRA will assess firms’ progress in developing effective operational risk and control frameworks and will continue to review the implementation of firms’ operational risk programmes. It also expects firms to manage the risks arising from the outsourcing of important business services, in particular to cloud providers.
- Financial risks arising from climate change – from 2022, the PRA will incorporate supervision of climate-related financial risks into its core supervisory approach, paying particular attention to how firms quantify climate-related risks and incorporate those risks into business strategies, decision-making and risk-taking.
- Regulatory reporting and data quality – firms should consider any work they may need to do to improve their governance, controls and data related to regulatory reporting.
- Diversity and inclusion – firms should consider the themes set out in the PRA’s July 2021 discussion paper on D&I and consider where they can make progress to address any gaps.