The Prudential Regulation Authority (PRA)’s recent ‘Dear CEO’ letter to international banks and investment firms is pivotal for organisations navigating the UK's challenging financial landscape.

As we step into 2024, the PRA has laid out a roadmap in response to the unpredictable waves of 2023 – a year marked by sudden shifts in customer and market confidence. This year, the emphasis is on bolstering governance, risk management, and controls in a fluid financial environment. For international entities, this guidance isn't just regulatory advice; responding positively to it is a strategic imperative to thrive in the UK's unique market landscape.

Here’s our summary of the key PRA priorities:

Risk management and controls

Risk management and controls are under the spotlight. The PRA's message is clear: in the face of the complex challenges of operating across borders, firms with a robust risk culture stand a better chance of success. This involves a deep dive into the interconnectedness of risk and business functions, ensuring they are not just aligned but are actively collaborating to address potential vulnerabilities. Reflecting on past communications from the PRA, such as the 'Dear CEO' and 'Dear CRO' letters of 2021, offers valuable insights into areas needing attention, including equity and fixed income financing.

Moreover, the landscape of risk management is evolving with technological advancements. International banks are encouraged to navigate the nuances of distributed ledger technology and generative AI, ensuring their operations remain resilient in the face of digital transformation. This aligns with the broader goal of enhancing digital operational resilience, a critical factor for firms operating in the dynamic UK financial market.

Financial resilience

The theme of financial resilience is more relevant than ever, especially considering today’s macroeconomic uncertainties. For international banks, adapting treasury management practices in line with the PRA's guidance is essential, not just for compliance but for sustaining operations amidst the ebb and flow of capital and liquidity risks. The Bank of England's quantitative tightening policies add another layer of complexity, requiring a proactive approach to funding and liquidity management.

Stress testing emerges as a non-negotiable exercise, far beyond a regulatory checkbox. It's about genuinely understanding the implications of credit risks under the PRA's CRD framework. Additionally, the looming threat of climate change on financial risks demands a forward-looking stance, preparing for further guidance in 2024 as an update to SS3/19.

Operational and data resilience

Operational resilience is a cornerstone of the PRA's strategy, emphasising the need for international banks to identify and mitigate vulnerabilities in delivering key business services. This isn't just about internal processes but extends to managing third-party and cloud computing relationships, crucial for banks that leverage global networks for their operations.

Data risk management, focusing on accurate and timely regulatory reporting, remains a top priority. Addressing control deficiencies and integrating feedback from skilled person reviews are steps towards not just compliance but excellence in data stewardship. Engaging with the PRA on reforms related to data collection and reporting is another step forward, ensuring that international banks can navigate the regulatory landscape efficiently.

Next steps

For international banks and investment firms, the PRA's 2024 priorities are not just a regulatory checklist but a strategic blueprint for success in the UK financial market. Firms should begin by conducting a thorough review of their risk management frameworks and controls, ensuring they're aligned with the PRA's guidance and embedded within their operational ethos. By embracing these priorities, international banks can contribute to a stable and trustworthy financial landscape in the UK, benefiting not just their operations but the broader economic fabric of the country.

The journey towards 2024's regulatory landscape demands proactive steps today. We urge firms to not just view these priorities as regulatory hurdles but as strategic opportunities to innovate and strengthen their market position. To ensure your firm is on the right path, our experts can provide tailored guidance and support. 

Contact us to devise a robust strategy that not only meets the PRA's expectations but sets your firm up for enduring success.

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