PRA’s observations post-administration of the Arena Holdings Group of companies

Following the administration of Arena Holdings Group of companies, the PRA asked banks to provide details of lessons learnt from that event.

The PRA has conducted a cross-firm review of banks’ lessons learnt and has identified key themes and areas of weakness in respect of credit risk and control environments. In its recent letter to PRA Asset Finance lenders, the PRA has shared its observations to help banks strengthen their credit risk management frameworks.

In particular, the PRA identified the following key areas of weaknesses:

  • Risk Appetite and underwriting;

Inappropriately calibrated risk appetite limits on customer level limits and such limits not being considered in the context of any high volume and low value assets being financed.

  • Asset Inspections;

Inadequate levels of inspection and verification of assets and failing to review and enhance asset inspection policies and processes.

  • Supplier Vetting;

Failing to review and enhance supplier vetting policies and processes and failing to engage with the original equipment manufacturer.

  • In-life account management and roles and responsibilities;

Lack of portfolio management and lack of robust challenge and control checks on long standing arrangements.

  • Automated transaction monitoring and data capabilities; and

Failure to cross-check transactions between the supplier and borrower and individual lenders being unable to assess the real exposure of the borrower spread across other lenders to inform their under-writing decisions.

  • Industry engagement and fraud controls framework.

Industry-wide engagement required on information sharing and for the creation of a common asset register (like the HPI register) which would ensure authenticity of assets as securities and protect from any duplicate or false references in asset based lending.

If you’d like to discuss the issues raised in this post, please contact our colleagues Nicola Walker and Graham Jeffries.

Harshil Patel