Prudential Regulation Authority Annual Report 2022

The Bank of England and the Prudential Regulation Authority (PRA) have published their annual reports. The PRA report includes information on our activities for the year ended 28 February 2022.
Published on 23 June 2022

1 March 2021 – 28 February 2022

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:

Examples of how the PRA delivered its 2021/22 strategic goals  

Have in place robust prudential standards, and hold regulated firms, and those who run them, accountable for meeting these standards

  • Landmark publication of the final policy for some of the remaining Basel III standards for banks, using new powers granted by Parliament. 
  • Work progressed on the PRA’s ‘strong and simple’ regime for non-systemic banks and building societies.
  • Emphasising to firms the importance of investing in risk management and control frameworks, following the collapse of Archegos and Greensill. 
  • Supported the development of international regulatory standards for insurance and the implementation of the International Association of Insurance Supervisors’ (IAIS) holistic framework for managing systemic risk.
  • Continued work with the government on the review of Solvency II insurance regulation.
  • Supported the smooth transition through the cessation of GBP panel bank LIBOR.
  • Reformed regulatory reporting for insurers delivering a 15% reduction in burden across the sector and significantly more for smaller firms.
  • Expanded the PRA’s programme of skilled persons reviews of firms’ regulatory reporting and commencement of work to improve data collection, as part of the Bank’s transformation programme.
  • Enforcement action including significant fines for regulatory and governance failures.

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

  • Thematic asset quality reviews targeted key vulnerable sectors and asset classes across banks’ commercial and retail activities to assess the financial risks and impacts of Covid-19, including small and medium-sized enterprise and commercial real estate lending, unsecured personal loans, and buy-to-let portfolios. 
  • Worked with deposit-takers and their auditors to improve consistency and disclosure standards in expected credit loss accounting. 
  • Resumed concurrent stress testing of deposit-takers and prepared for resumption in 2022 of insurance stress tests.
  • Review of insurers’ internal ratings of assets backing annuities. 

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

  • Continued to complete CBEST and CQUEST intelligence-led cyber assessments, and to collaborate on cross-jurisdictional assessments of firms’ cyber resilience.
  • Published a co-ordinated Bank, PRA, and FCA policy statement on operational resilience (PS6/21); the culmination of a major workstream initiated through the 2018 operational resilience discussion paper.
  • Assessed the effectiveness of firms’ operational risk management frameworks, linking this to operational resilience outcomes.
  • Published a policy statement aimed at modernising the regulatory framework on outsourcing and third-party risk management, and engaged with firms on the implementation of third party risk management policies. 
  • Assessed firms’ compliance with the information and communication technology supervisory review and evaluation process (ICT SREP).

Ensure that banks and insurers have credible plans in place to enable them to recover from stress events, and that firms work to remove barriers to their resolvability to support the management of failure – proportionate to the firm’s size and systemic importance – in an orderly manner

  • The first Resolvability Assessment Framework (RAF) submissions were received in
    October 2021.
  • Worked with HMT on targeted changes to insurance insolvency arrangements to reduce risk of disorderly failures.

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

  • Announced the intention to develop a new ‘strong and simple’ framework for non-systemic and domestic banks and building societies.
  • Set final policy on internal ratings based (IRB) capital requirements for UK mortgage risk weights, constraining the advantage over banks and building societies on the standardised approach.
  • Made simplifications to regulatory reporting by insurers targeting a reduction of the burden on smaller firms.
  • The PRA’s Annual Competition Report, published alongside this report, sets out our work over 2021/22 to support the delivery of our secondary competition objective.

Continue to deliver a sustainable and resilient UK financial regulatory framework following the end of the transition period arising from the UK’s exit from the European Union

  • Continued work with HMT on the FRF to ensure it is fit for the future.
  • Authorised a number of firms in transition from the Temporary Permissions Regime (TPR).
  • Used powers under the EU Withdrawal Act, including the publishing of technical information relating to risk-free rate term structures on a monthly basis.
  • Continued participation in the Financial Services Regulatory Initiatives Forum (FSRIF), established in 2020 in response to HMT’s Future of Finance report, to set out the timings of regulatory initiatives and assess the cumulative operational impact on industry. 

Continue to adapt to changes in the markets in which we are involved and pre-empt and mitigate risks to our objectives

  • Worked with the Bank to lay the groundwork for the regulation of systemic stablecoins. 
  • Explored the resilience of major banks and insurers to climate-related financial stability risks in the Climate Biennial Exploratory Scenario (CBES) exercise. 
  • Contributed to the Basel Committee on Banking Supervision’s (BCBS) work on the impact of digitalisation and disintermediation of finance on the retail banks. 

Operate efficiently and 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, and by providing an inclusive working environment in which all staff can perform to their potential

  • Undertook a strategic review to take stock of priorities and improve efficiency and effectiveness. 
  • Authorised seven new insurers and four new banks in 2021/22. Applications for 11 banks and 11 insurers in the TPR were also approved, with a further 35 applications from banks and 84 from insurers in progress as at end-February. 
    • In response to firm feedback, the PRA: 
    • acknowledged the need to strengthen and transform data collection related capabilities, commencing a multi-year programme of work, starting with further investment in regulatory data collection and processing, alongside the FCA. 
    • as part of the FSRIF, agreed to enhance transparency by providing examples of closely interconnected initiatives, and continues to look for ways to refine the Regulatory Initiatives Grid.
    • continued to work closely with the FCA to refine the Senior Managers and Certification Regime (SM&CR) application approvals process, improve co-ordination, proactive sharing, and prioritisation of assessments to support timely processing of applications within the statutory deadline. 
    • started work with the FCA to create a cross-regulator view of data requests that considers firms’ business and reporting cycles.

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