Letter from Nathanaël Benjamin and Rebecca Jackson ‘International banks active in the UK: 2023 priorities’

The Prudential Regulation Authority, PRA, has published a Dear CEO Letter addressed at chief executive officers (CEOs) of PRA-regulated international banks. Therein, the PRA specifies its 2023 (supervisory) priorities regarding international banks operating in the UK. The key priorities are briefly summarized below:
(1) Financial resilience: As the economy is on a downside and as high financial market volatility persists, the PRA expects banks to be aware of the risks and uncertainties surrounding this situation. Therefore, institutions should closely monitor these risks particularly in view of their impacts on capital and liquidity positions. Also, based on the lessons learned from the failure of Archegos Capital Management last year, firms are expected to continuously monitor and – if needed – adjust their exposures and possible risk concentrations.
(2) Operational risk and resilience: In this context, the PRA primarily names three issues that will be of focus: institutions‘ practices as regards the identification and mapping of important business services (IBS) and the setting of corresponding tolerances as outlined in Supervisory Statement (SS1/21) – Operational resilience: Impact tolerances for important business services, the resilience in connection with the use of third-party service providers, and the offering of crypto products to customers. The PRA announces a close monitoring of the measures firms have put in place to remain resilient to operational risks and reminds of the issues primarily of relevance in that regard (e.g. IT-system controls, stress tests).
(3) Data management: The PRA announces that it will continue to monitor institutions‘ practices as regards data management, „governance, systems, and production controls“. As data management is of key importance, e.g. for the submission of returns including financial ones to the regulator, the PRA expects firms to consider all relevant publications in this context to improve their data handling.
(4) Financial risks arising from climate change: One of the key areas of focus, so the PRA, will be the supervision of firms with respect to the management of financial risks arising from climate change. In this context, the PRA expects institutions to continue their efforts to embed climate-related risks in their risk management practices and in their disclosures. Particular attention should thereby be paid to sudden risks such as this year’s sharp increase in commodity prices and the consequences on financial risks.
There is one other priority outlined in the Letter, namely the implementation of inclusion policies among financial institutions. To see more details on this last priority or on the priorities mentioned above, please consult the attached document or follow above noted link.