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