Prudential Regulation Authority Annual Report 2019/20

The Bank of England and the Prudential Regulation Authority (PRA) publish their annual reports. The PRA report includes information on our activities for the year ended 29 February 2020.

Published on 18 June 2020

1 March 2019 - 29 February 2020

Presented to Parliament pursuant to paragraph 19(4) of Schedule 1ZB of the Financial Markets and Services Act 2000 as amended by the Financial Services Act (FMSA) 2012 and the Bank of England and Financial Services Act 2016.

The report contains:

The PRA Annual Report completes our reporting obligations for the year ending 29 February 2020, following the publication of the PRA Business Plan 2020/21, including the PRA’s Strategy.

Readers may find it helpful to read the PRA Annual Report alongside the Bank of England Annual Report and Accounts, which includes the PRA’s statement of accounts for the reporting period ended 29 February 2020.

Prudential Regulation Authority Annual Report 2020

Consultation

Members of the public are invited to make representations to the PRA on the:

PRA Annual Report;
way in which the PRA has discharged, or failed to discharge, its functions during the period to which the report relates; and
extent to which, in their opinion, the PRA’s objectives have been advanced and the PRA has considered the regulatory principles to which it must have regard when carrying out certain of its functions (contained in section 3B of FSMA), and facilitated effective competition in the markets for services provided by PRA‑authorised firms in carrying on regulated activities in accordance with section 2H of FSMA.

Please send any comments or enquiries to praannualreport@bankofengland.co.uk.

The consultation closed on Friday 18 September 2020. No correspondence was received.

Examples of how the PRA delivered its 2019/20 strategic goals

Robust prudential standards

Have in place robust prudential standards comprising the post-crisis regulatory regime, and hold regulated firms, and those who run them, accountable for meeting these standards

Fully implemented and operationalised the Senior Managers and Certification Regime for all PRA-authorised firms, and evaluated its effectiveness in practice.
Engaged with firms on actions and expectations to manage the transition from the London interbank offered rate to alternative interest rate benchmarks.
Continued to refine our implementation of the Solvency II regime.

Adapt to changes in the external market

Continue to adapt to changes in the external market and to hold regulated firms, and those who run them, accountable for meeting our standards

Continued to look ahead and perform horizon-scanning to pre-empt and mitigate risks to our objectives.
Carried out ongoing work to embed climate change into financial and macroeconomic decisions.
Used our statutory powers to conduct investigations and initiate enforcement action where needed to tackle threats to safety and soundness in PRA-authorised firms.

Ensure that firms are adequately capitalised

Ensure that firms are adequately capitalised, and have sufficient liquidity, for the risks they are running or planning to take

Continued to assess the financial resilience of firms through our supervision at firm and sector level.
Contributed to the work of the Basel Committee on Banking Supervision as it finalised revisions to the market risk framework.
Ensured that insurers maintain capital for balance sheet risks arising from complex products and asset exposures.
Worked jointly with the Bank’s Financial Stability Directorate to deliver the annual concurrent stress test for the banking sector: supported the biennial exploratory scenario stress tests to explore the resilience of the banking system to a wide range of risks that may not be linked to prevailing economic or financial conditions; and launched our biennial insurance stress test for the largest regulated life and general insurers.

Supervision of operational resilience

Develop our supervision of operational resilience in order to mitigate the risk of disruption to the provision of critical economic functions

Published a joint Consultation Paper with the Bank and Financial Conduct Authority (FCA) on how the operational resilience of the financial services sector could be enhanced.
Consulted on proposals for modernising the regulatory framework on outsourcing and third-party risk management.
Initiated nine threat-intelligence led penetration tests (known as CBEST) and completed a further three initiated in 2018.

Credible plans

Ensure that banks have credible plans in place to enable them to recover from financial stress events, and that we support the Bank as a resolution authority to have a credible resolution strategy to manage a firm’s failure in an orderly manner

Supported the Bank in implementing the Resolvability Assessment Framework for banks.
Continued to work with major UK and international banks with significant trading and derivatives portfolios to ensure firms develop capabilities to wind down their trading and derivative businesses in an orderly manner.

Competition

Facilitate effective competition by actively considering the proportionality of our approach as it contributes to the safety and soundness of the UK financial system

Facilitated entry in the insurance and banking sectors, jointly with the FCA, through the New Insurer Start-up Unit and the New Bank Start-up Unit.
Published further guidance material to help applicants wishing to use the UK Insurance Linked Securities market.
Consulted on changes to the capital requirements that apply to credit unions to encourage the growth of successful credit unions.

The Annual Competition Report, on pages 47-57, sets out our work over 2019/20 to support the delivery of our secondary competition objective.

EU withdrawal

Deliver a smooth transition to a sustainable and resilient UK financial regulatory framework following the UK’s exit from the EU

Carried out work to reduce risks and minimise disruption that could have occurred in the event that the UK left the EU without a withdrawal agreement.
Prioritised activity to reduce risks and minimise disruption to firms’ safety and soundness as the UK prepared to leave the EU covering work across policy development, authorisation, and supervision.

Operate effectively

Operate effectively by ensuring that resources are allocated to work that best advances our strategy and reduces the greatest risks to the delivery of our statutory objectives

Continued to make improvements to data storage and analytics to support our assessment of firms’ safety and soundness. For example the PRA Data Innovation team has developed a number of new analytical tools to monitor new securitisation activities and encourage peer analysis across firms with related but idiosyncratic business models.
Continued to co-ordinate with the FCA across a range of supervisory and policy matters.
Feedback from firms gave us assurance on the effectiveness and quality of our supervisory framework and approach.

Prudential Regulation Authority Annual Report 2020

Related publications

The Bank of England’s Annual Report and Accounts is available under related links. We also published the:

Prudential Regulation // Letter

23 April 2024

Prudential Regulation // Letter

22 April 2024

Prudential Regulation // Consultation paper

22 April 2024

Prudential Regulation // Memorandum of Understanding

19 April 2024

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Prudential Regulation Authority Annual Report 2019/20

1 March 2019 - 29 February 2020

Consultation