PRA Business Plan 2021/22

This year it is the PRA that has issued its business plan first, with the FCA deferring its usual springtime publication until July in order to include an update on its transformation plans.

Unsurprisingly, mitigation of the impacts of COVID-19 on regulated firms and the wider economy remains high on the agenda with continuing focus on asset and credit quality, the resumption of stress testing, clear expectations for the implementation of operational resilience policy and emphasis on the importance of robust recovery and resolution planning.

Maintaining a sustainable and resilient financial framework following the UK's exit from the EU is a priority and, as the PRA adjusts to its role as rule-maker rather than rule-taker, it notes that this may bring changes to improve the effectiveness of rules for UK markets. It also has a key role to play in supporting the UK Government and HMT in developing the Future Regulatory Framework.

Whilst financial and operational resilience for all firms remain paramount, smaller and mid-sized firms will welcome the focus on competition and proportionality which plays through in initiatives such as the proposed “strong and simple” prudential framework for smaller banking firms, a more measured implementation of remaining Basel standards, and consideration of the design and implementation of a “mobilisation phase” for insurers.

There are some major reviews or policies to deliver too, not least the Solvency II Review and final policy for the Capital Requirements Regulation II (CRR2), the Resolvability Assessment Framework (RAF) and operational continuity in resolution (OCIR). An approach to recovery and resolution for insurers will be developed this year and the S166 skilled person reviews of banks' regulatory reporting will recommence, having been suspended due to the pandemic.

The PRA's horizon scanning efforts remain firmly trained on climate risk, FinTech developments and economic and geopolitical uncertainties.

Diversity and inclusion is also an important theme, both across the financial sector and within the PRA itself. A joint discussion paper with the FCA is planned for summer 2021.

The book of work is extensive and the PRA notes that it faces potential challenges from dependencies on external bodies such as HMT and overseas regulators, budgetary constraints, competing priorities and the need to manage staff wellbeing and new ways of working.

1. Robust prudential standards and supervision: continue the core work of setting and implementing effective supervisory strategies, including consideration of the impacts of economic developments (including the UK's withdrawal from the UK and COVID-19)
2. Adapt to market changes and horizon scanning: continue to adapt to market changes and pre-empt and mitigate risks to the PRA's objectives
3. Financial resilience: ensure that firms are adequately capitalised and have sufficient liquidity for the risks they are running or planning to take
4. Operational resilience: develop the supervision of operational resilience in order to mitigate the risk of disruption to the provision of important business services
5. Recovery and resolution: ensure that firms have credible plans in place to enable them to recover from stress events and that they work to remove barriers to their resolvability to support the management of orderly failure, proportionate to their size and systemic importance
6. Competition: facilitate effective competition by actively considering the proportionality of the PRA's approach as it contributes to the safety and soundness of the UK financial system
7. EU withdrawal: maintain a sustainable and resilient UK financial regulatory framework following the UK's exit from the European Union
8. Efficiency and effectiveness: operate effectively and efficiently by ensuring that resources are allocated to work that best advances the PRA's strategy and reduces the greatest risks to the delivery of its statutory objectives, and by providing an inclusive working environment in which all staff can perform to their potential

The PRA highlights the following risks to delivery of the Business Plan:

• The impact of competing priorities and stretch on staff
• Continuing budget constraints coupled with increased responsibilities and significant demands due to economic and geopolitical challenges - there may be further reprioritisation as a result
• Challenges due to remote working, including integration of new staff and staff wellbeing
• Access to the right technology and data
• Dependencies on external parties such as the FCA, HMT and overseas regulators
  

The PRA's budget will increase by 4% to £296 million in 2021/2022. The increase in costs is driven primarily by an increase in responsibilities following the UK's withdrawal from the EU, together with the priorities of operational and cyber resilience, and developments in data analytics and technology. There was some offset from lower travel costs due to the COVID-19 pandemic and a reduction in pension service costs. Overall headcount will increase by approximately 3.6% in 2021/22.

In June, the PRA will publish its Annual Report for 2020/21, which will show progress on activities set out in last year's Business Plan.