Insights

An update on recent key PRA announcements for banks and insurers

Ahmer Khan · Posted on: August 5th 2025 · read

Ahmer Khan, Partner and Head of Insurance and Banking and Shakeel Aslam, Partner and Head of GRC and Internal Audit at MHA and Baker Tilly, take a closer look at some of the recent announcements coming from the PRA.

The Prudential Regulation Authority (PRA) has recently issued a batch of guidance updates that will continue to shape the operational and risk management frameworks for financial institutions in the United Kingdom.

Over the past month, several significant announcements from the Bank of England's prudential regulation arm have emerged, necessitating careful attention from both banks and insurers.

These developments, accessible via the official Bank of England website at https://www.bankofengland.co.uk/news/prudential-regulation, will undoubtedly generate substantial regulatory and risk management work across the sector.

Streamlining the Senior Managers & Certification Regime (SM&CR)

A pivotal announcement on 15 July 2025 outlined proposed reforms to the Senior Managers & Certification Regime (SM&CR). Both the Financial Conduct Authority (FCA) and the PRA are seeking to make the regime less onerous while preserving its core objective of enhancing accountability.

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Key proposals include:

Increased flexibility for Senior Manager (SMF) applications: Firms may now have more time and leeway for SMF applications during unforeseen or temporary changes.
Reduced certification role duplication: Efforts are underway to reduce the number of certification roles by an estimated 15%, aiming to strip out unnecessary duplication.
Streamlined "Fit and Proper" checks: Guidance will be provided to help firms streamline their annual "fit and proper" assessments.
Extended reporting deadlines: Firms will benefit from more time to report updates to SMF responsibilities and to update the Directory of certified individuals.
Lengthened criminal record check validity: The validity period for criminal record checks associated with SMF applications is set to increase.

These changes represent a concerted effort to enhance the efficiency of the SM&CR without compromising its effectiveness in fostering good governance and individual accountability. Banks and insurers must thoroughly review their internal processes, policies, and systems to ensure alignment with these forthcoming changes, including preparing for potential legislative amendments in a subsequent "Phase 2" of the reforms.

Tailoring rules for mid-sized banks and building societies

Also on 15 July 2025, the PRA announced measures designed to foster growth and competition among mid-sized banks and building societies. This initiative reflects a recognition that a diverse and vibrant banking sector, encompassing firms of varying sizes, is crucial for economic prosperity.

Noteworthy adjustments include:

Increased Minimum Requirement for Own Funds and Eligible Liabilities (MREL) thresholds: The indicative thresholds for a transfer or bail-in resolution strategy have been raised from £15bn-£25bn to £25bn-£40bn in total assets. This provides greater clarity and flexibility for these firms regarding their resolution strategy, effective from January 2026.
Delayed Basel 3.1 implementation for market risk: While the majority of Basel 3.1 rules will commence on 1 January 2027, the implementation of a new internal model approach for market risk has been postponed by a year to 1 January 2028. This delay aims to allow for greater international clarity and alignment.
Higher resolution assessment threshold: The threshold for reporting and disclosures related to resolution assessments will increase from £50bn to £100bn of retail deposits, focusing the most stringent requirements on the largest and most complex firms.
Easier access to Internal Ratings Based (IRB) models for residential mortgages: The PRA intends to publish a discussion paper in mid-summer, exploring options to ease barriers for mid-sized banks in gaining permissions to build IRB models for residential mortgages. This could significantly enhance their competitiveness in the mortgage market.

Mid-sized banks, in particular, will need to recalibrate their MREL requirements, update their resolution plans, and adjust capital planning in light of the revised Basel 3.1 timeline. Engagement with the upcoming discussion paper on IRB models will also be crucial for their strategic planning.

Amendments to the large exposures framework

On 16 July 2025, the PRA issued PS14/25, detailing amendments to the Large Exposures Framework. This policy statement addresses specific aspects of how firms manage and report large exposures to individual clients or groups of connected clients. Banks must ensure their systems and processes for monitoring and reporting large exposures are updated to align with the revised framework, a technical but vital area of prudential compliance.

Updates to the UK policy framework for capital buffers

PS8/25, published on 3 July 2025, provided updates to the UK policy framework for capital buffers. This includes streamlining some policy materials to enhance usability and clarity. Firms will need to review their capital planning and risk appetite frameworks to ensure consistency with the updated policy on capital buffers.

General insurance stress test and bulk purchase annuities for insurers

For insurers, two specific announcements warrant attention:

Update on the 2026 Dynamic General Insurance Stress Test (DyGIST):

On 17 July 2025, the PRA provided an update on the 2026 DyGIST, confirming its commencement in May 2026 with objectives and format as previously outlined. Insurers, particularly those identified as participants, will need to allocate significant resources to prepare for this exercise, involving extensive data collection, scenario analysis, and reporting on their resilience.

Solvency-triggered termination rights clauses in bulk purchase annuity transactions:

A policy statement on 3 July 2025 addressed specific considerations for solvency-triggered termination rights clauses in bulk purchase annuity transactions. Insurers engaged in these transactions must review and, if necessary, adjust their contractual arrangements and associated risk management practices.

Ongoing focus: Climate-related risks

The PRA's consultation paper CP10/25 on enhancing banks' and insurers' approaches to managing climate-related risks remains a paramount focus. This consultation proposes updated supervisory expectations for the identification, management, and governance of climate-related financial risks. Both banks and insurers must continue to develop and embed robust frameworks for assessing, managing, and reporting these risks, including enhancements to governance, risk appetite setting, and the application of scenario analysis. The final supervisory expectations, once published, will necessitate further refinement of existing practices.

The role of cost-benefit analysis in regulation

The publication of the Prudential Regulation Authority's (PRA) Cost Benefit Analysis Panel Annual Report 2024/25 on 30 June 2025, whilst not directly regulatory, underscores the PRA's commitment to proportionate and well-considered regulation. It highlights the ongoing focus on ensuring that regulatory changes are evaluated for their costs and benefits to the industry. Firms should be aware of this overarching principle as it informs future regulatory developments.

Conclusion

In conclusion, the past month has seen the PRA continue its proactive approach to prudential regulation, balancing stability with fostering competition and growth. Financial institutions must remain vigilant and agile in responding to these evolving requirements to ensure ongoing compliance and robust risk management.