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Cabinet News - Research and commentary on regulatory and other financial services topics. Cabinet News - Research and commentary on regulatory and other financial services topics. Cabinet News - Research and commentary on regulatory and other financial services topics.
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UK Banking and Insurance Regulation Update
January 23, 2025
Profile photo of contributor Michael Newell
Partner | Financial Services
Profile photo of contributor Alix Prentice
Partner | Financial Regulation

The UK’s Prudential Regulation Authority ("PRA") has recently published various statements regarding its current approach to its regulation of banking in the UK, including delaying implementation of Basel 3.1 rules.

Delay to UK Basel 3.1 implementation

On 17 January 2025, the PRA published a press release announcing that it has decided to delay the UK implementation of the Basel 3.1 reforms at least until 1 January 2027, mainly to allow more time for greater clarity to emerge about plans for, and timing of, the U.S. implementation. The PRA also announced:

  • Transitional periods for the reforms will be reduced so that full implementation is still required by 1 January 2030.
  • The deadline for firms to inform the PRA that they intend to join the interim capital regime ("ICR") (previously 28 February 2025) is being extended.
  • A data collection exercise, intended to inform an off-cycle review of firm-specific Pillar 2 capital requirements, is paused until further notice.

Advancing UK competitiveness and growth agenda

On 20 January 2025, the PRA published a reply to a letter from the Prime Minister (dated December 2024) regarding the Government’s approach to financial services regulation in the UK.  

The PRA sets out the actions it has taken recently to advance competitiveness and growth:

  • the now-completed implementation of the new Solvency UK prudential regime for insurers;
  • removing the ‘bonus cap’ for banks;
  • undertaking a review of the Senior Managers and Certification Regime; and
  • driving improvements in operational efficiency, with a particular focus on the timely handling of authorisation applications.

The PRA then sets out further actions that it intends to take:

  • simplifying the prudential regime for small banks;
  • increasing the ability of the insurance sector to invest in the UK economy;
  • improving the UK framework for Insurance Special Purpose Vehicles ("ISPVs"), including simplifying and accelerating the ISPV authorisation process;
  • making further amendments to remuneration requirements to enhance competitiveness; and
  • simplifying regulatory data reporting from banks.

Banking supervisory priorities

On 21 January, the PRA published two “Dear CEO” letters, setting out its thematic priorities in relation to the supervision of international banks and UK deposit takers, respectively (noting that these thematic priorities are not exhaustive and are intended to complement both its core assurance work and any firm-specific feedback from periodic summary meetings):

  • Risk management, governance and controls. The PRA notes that it expects firms to have robust frameworks in place, commensurate with the firm’s business model, across its business, risk and internal audit functions. Boards should consider where risk culture may be the root cause of any material weaknesses in their control environment. The PRA states that firms should continue to invest in robust credit risk management and measurement practices, including modelling (for UK firms to align with the principles in the PRA’s supervisory statement 23 January), in order to ensure that these remain adaptable to changing conditions. New lending policies, growth areas and existing portfolios should be continually risk assessed in the context of an ever-evolving outlook.
  • Operational resilience and data risk. The PRA states its expectation that firms should have made significant progress with their operational resilience obligations, given the approaching March 2025 deadline, and that this should be a key point of consideration for boards and executives. The PRA and the Financial Conduct Authority plan to issue a consultation in the second half of 2025 on policy relating to the management of information, ICT and cyber risks. The PRA reminds firms of the need to ensure they are submitting complete, timely and accurate regulatory returns, and notes that, while not all firms are in scope of the Basel Committee on Banking Supervision’s principles for effective risk data aggregation and reporting, these principles provide a good base for firms to think about in their management of data risk.
  • Financial resilience. The PRA plans to continue to focus on firms’ financial resilience in 2025 through ongoing assessment of individual firms’ capital and liquidity. It notes that it expects to see firms consider and manage risk to a broad range of forward-looking liquidity and capital indicators, to use stress testing to assess their financial resilience and to have realistic and effective contingency plans that are supported by accurate and relevant information.
  • Funding and liquidity. The PRA notes to UK deposit takes that liquidity events in recent years have highlighted the importance of liquidity resilience and firms’ preparedness for unexpected shocks. The PRA observes that the funding and liquidity landscape for UK banks will see significant changes in the next few years both in terms of normalisation of the Bank of England’s balance sheet and changing market dynamics, meaning firms need to ensure the effectiveness of balance sheet management and how these changes will impact them.
  • The delay in implementing Basel 3.1. The PRA notes that firms should ensure they continue to work through the potential implications of Basel 3.1 with their board despite the delay in implementation.
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