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On 31 October the Prudential Regulation Authority (PRA) issued a “Dear CEO” letter on the reliability of regulatory returns.

Background to the letter

The PRA expects firms to submit complete, timely and accurate regulatory returns as the integrity of regulatory reporting is the foundation of effective supervision. Errors observed by the PRA in both public and business as usual reporting have highlighted the need for firms to ensure that they are investing appropriately in both the integrity and accurate processing of data.

The letter indicates the PRA’s intention to introduce more formal third-party reviews of key prudential information submitted through regulatory returns.

Implications for firms

The letter reminds firms that the production and integrity of a firm's financial information and regulatory reporting is a prescribed responsibility for specified senior managers, but that focused engagement at executive and Board level is also expected.

The PRA expects firms to be able to respond promptly to any request to:

  • Demonstrate how the design and operation of governance, controls and other processes deliver regulatory reporting of appropriate quality. This should include details of any judgements and interpretations relating to the PRA's reporting requirements; and
  • Provide details of any material regulatory reporting errors identified and the steps taken to remediate them

In addition, the PRA has stated its intention to commission skilled person's reports (under Section 166 of the Financial Services and Markets Act 2000) to focus on the Common Reporting Framework and other related returns such as the recently introduced PRA 110 Cashflow Mismatch template.  S166 reviews are likely to focus on larger firms, which will be notified on an individual basis.

In light of this enhanced scrutiny, firms should consider how best to ensure the integrity of their regulatory returns. Recommended actions might include:

  • Reviews of the effectiveness of governance, controls and other processes around returns
  • Deep dives to test the accuracy of returns
  • Pre-emptive “reasonable assurance” opinions on whether returns have been properly prepared
  • Consolidation of information that would enable the PRA to review key interpretations and judgements made in preparing returns

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