PRA writes to CROs on private equity related activities

Following a PRA review of private equity financing businesses, it has now written to bank Chief Risk Officers noting the key conclusions. It specifically notes a recent trend that increases exposure to various non-traditional forms of financing such as Net Asset Value based loans secured against PE fund assets and facilities backed by Limited Partner interests. The PRA is now focussed on whether banks’ risk management frameworks in relation to PE linked financing and related derivatives exposures take proper account of the risks. Its review concluded that banks need to make better use of group-wide risk data aggregation tools, stress testing capabilities and consolidated management information reporting processes.

The letter sets out the review’s conclusions and asks the CROs to confirm by 30 August that they have carried out a benchmarking exercise against these conclusions, noted and analysed and gaps and put in place a plan to remediate any gaps in their processes, and that they have shared their work with their boards.