The Prudential Regulation Authority (PRA) has outlined its supervisory priorities for 2025, focusing on promoting the safety and soundness of international banks operating in the UK. This year, the PRA emphasises themes of governance, risk management, and resilience to address the dynamic challenges facing the financial sector.

Here’s a summary of their key areas of focus:

1. Governance, Risk Management, and Controls
The PRA expects firms to enhance their ability to proactively identify and manage risks, particularly as they navigate global interest rate volatility, geopolitical challenges, and the rapid evolution of technology like AI. Boards must strengthen governance frameworks, risk culture, and control mechanisms to ensure resilience and adaptability.

2. Counterparty Credit Risk
The PRA has identified weaknesses in counterparty credit risk (CCR) management, particularly in dealing with exposures to non-bank financial institutions. Firms are expected to implement holistic remediation plans and enhance their practices across all business lines. Commercial real estate exposures remain under scrutiny, with thematic reviews and asset quality assessments continuing.

3. Data Risk
Accurate data is fundamental to effective risk management and decision-making. The PRA stresses the importance of improving data aggregation, regulatory reporting accuracy, and leveraging technology responsibly. Firms should expect increased supervisory reliance on data tools and analytics.

4. Financial Resilience
The PRA is focused on firms’ liquidity and capital management amid a changing funding landscape. Stress testing, realistic contingency planning, and preparation for the Bank of England’s repo-led operating framework will be critical as quantitative tightening progresses and central bank reserves evolve.

5. Operational Resilience
Firms must demonstrate by March 2025 that they can operate within tolerances for severe disruptions, including cyber threats and third-party service interruptions. Investments in IT and third-party relationships must be resilient by design, and Boards are expected to oversee robust contingency and recovery plans.

6. Basel 3.1 Implementation Delay
The UK’s adoption of Basel 3.1 has been delayed to January 2027, allowing firms more time to prepare while maintaining the original full implementation date of 2030. Boards must continue to assess its potential impact on their operations.

The PRA’s 2025 priorities highlight the importance of robust frameworks and proactive management in a challenging and competitive environment. Firms should take this opportunity to assess their current practices and prepare for a year of heightened supervisory engagement.

What are your thoughts on the PRA’s focus areas? How are your organisations preparing to address these challenges?