UK Prudential Regulation Authority writes to domestic and international banks on its 2025 supervisory priorities

The Prudential Regulation Authority has published a Dear CEO letter outlining its supervisory priorities for 2025 for domestic banks and international banks and large investment firms. The PRA's key areas of focus for 2025 include:

• Risk management, governance and controls: firms' senior management, and boards need to ensure that their organizations have robust governance, risk management and controls frameworks in place that are adaptive and resilient, leveraging stress and scenario analyses to inform risk management, strategy and business planning. Firms are expected to have these frameworks in place across businesses, risk and internal audit functions, commensurate with the firm's business model. The PRA also notes that counterparty credit risk will remain an area of focus.
• Data risk: firms must continue to improve their ability to aggregate data to ensure that they have the information necessary to support holistic risk management, robust board decision-making, and accurate regulatory calculations. Throughout 2025 the PRA will continue to assess data accuracy.
• Financial resilience: the PRA will continue to focus on broader financial resilience issues in 2025 through ongoing assessments of individual firms' capital and liquidity. Firms are expected to use stress testing to assess their financial resilience and to have realistic and effective contingency plans that are supported by accurate and relevant information.
• Operational resilience, by March 2025, firms must be able to show they can remain within impact tolerances for all their important business services throughout severe but plausible disruptions. Operational resilience should be a key point of consideration for boards and executives when planning major change programs, making strategic business decisions, or engaging in new third-party, or in some cases fourth-party, relationships.

In addition to the above, the PRA highlights that U.K. banks' boards should seek assurance from their treasury and risk management functions about the effectiveness of balance sheet management and how changes to the funding and liquidity landscape will affect profitability, resilience, contingency funding options and underlying business models. The PRA also states that it will review how credit risk management practices have progressed, focusing on strategic growth areas (such as funds lending, specialized lending), vulnerable and higher-risk portfolios (such as buy-to-let, unsecured retail, SME and mid-corporates, leveraged lending, commercial real estate), as well as important international portfolios. Firms should also continue to implement changes to model risk management and, if deficiencies have been identified, prioritize remediation. Firms are expected to consider the letter alongside their periodic summary meeting letter and, where relevant, discuss its supervisory priorities with the board.

The annex to the letters sets out a summary of PRA-led cross-firm priority work for 2025, which includes consulting on changes to the Senior Managers and Certification regime, updating the PRA's approach to branch and subsidiary supervision and consulting (jointly with the FCA) on ICT and cyber risk management. Firms are expected to consider the letter alongside their periodic summary meeting letter and, where relevant, discuss the firms' supervisory priorities with the board.

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