UK: PRA 2024 supervisory expectations for UK deposit takes, international banks and insurance sector - more work needed to manage risks

The PRA has sent Dear CEO letters setting out its supervisory priorities for UK deposit takers, international banks and the insurance sector.

A common theme that underpins its 2024 priorities is the need for robust governance, risk management and controls at firms to enable the effective and proactive identification, assessment and mitigation of risks in an increasingly challenging and changeable operating environment. 

The PRA have identified that in the context of the financial risks arising from climate change, whilst firms are progressing in their approach to managing these risks, further work is still required.

A summary of the priorities in each of the letters is set out below:

• UK Deposit Takers and International Banks

Considerable work is required for all firms to develop their climate -related financial risk management capabilities and linking these more concretely into decision marking.

The PRA expects firms to further progress and demonstrate the development and integration of processes to identify, measure, manage and mitigate climate-related financial risks in line with its previous feedback (in the letter to international banks, the PRA particularly notes consideration of trading book exposures). 

Firms should also consider relevant and ambitious stress scenarios to enhance their assessment of the impact of climate change on their businesses and resilience. 

• Insurance:

Further progress is required by all firms to embed supervisory expectations, particularly on scenario analysis and risk management. 

Improvement in scenario analysis capabilities will support effective decision-making, and many firms are still in the process of embedding climate risk within their risk appetite statements, including both qualitative and quantitative measures. As firms develop these capabilities, sources of climate risk should be considered across both sides of an insurer’s balance sheet. 

Next Steps 

The PRA expect all firms to be able to demonstrate how they are responding to its expectations and to set out the steps they are taking to address barriers to progress, recognising that each firm’s approach should be proportionate to the nature, scale, and complexity of their business. 

In 2024, the PRA will continue to assess firms’ progress in managing climate-related financial risks and expect firms to increase their efforts now.

PRA work will also commence to update supervisory statement 3/19 (Enhancing banks’ and insurers’ approaches to managing the financial risks from climate change) which will include, among other things, identified effective practice and developments in wider regulatory thinking.

Resources:

You can find the Dear CEO letters here: 

• UK deposit takers
• international banks 
• insurance sector