UK PRA finalises updated supervisory expectations to manage climate-related risks

The UK Prudential Regulation Authority (PRA) has published a policy statement and supervisory statement SS4/25, updating expectations for banks and insurers on managing climate-related financial risks. The final policy replaces SS3/19 in its entirety and applies with immediate effect. Following feedback from the April consultation, the PRA makes changes to the final policy (i) clarifying proportionality, allowing firms to tailor governance and risk management based on materiality and business models; (ii) recognising litigation risk as a potential transmission channel; and (iii) confirming that the six-month review period is to conduct an internal gap analysis, not an implementation timeline. Firms may integrate climate responsibilities within existing governance frameworks and embed climate risks into current risk registers or sub-registers, with flexibility in approach. The PRA emphasises a principles-based, proportionate framework aligned with international standards, encouraging scenario analysis, reverse stress testing and engagement with the Climate Financial Risk Forum (CFRF).

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