The UK PRA Business Plan… and Seven Awkward Questions from Six Years Ago

Reflecting the Government's message to regulators to focus on growth and international competitiveness, the Business Plan is replete with references to actions the PRA has either already taken (e.g. adjustments to Basel 3.1 rules), is currently working on (e.g. changes to the Senior Managers and Certification Regime (SMCR)), or has in mind for the near future (e.g. simplifying regulatory data reporting for banks).

Planned actions are intended to reflect and deliver on the PRA's four strategic priorities for the year which are:

• Maintain and ensure the safety and soundness of the banking and insurance sectors and ensure continuing resilience.
• Be at the forefront of identifying new and emerging risks, and developing international policy.
• Support competitive, dynamic and innovative markets, alongside facilitating international competitiveness and growth, in the sectors that [the PRA] regulate[s].
• Run an inclusive, efficient, and responsive regulator within the central bank.

Seven awkward questions answered?

Taking a novel approach to the regulatory set piece which is the Business Plan, we revisited a 2019 speech the PRA CEO delivered to mark the fifth anniversary of the PRA's secondary competition objective. In his speech, Mr Woods set out 'Seven Awkward Questions' (though not all are posed as questions).

The six years between this speech and the 2025/26 Business Plan have been quite remarkable – from the fulfilment of the UK's withdrawal from the EU, the Covid pandemic, war in Ukraine, the 2022 mini-budget, the collapse of Silicon Valley Bank, the passage of the Financial Services and Markets Act 2023 which introduced the new secondary competitiveness and growth objective, a new UK Government in 2024, all the way through to a new US Administration keen on crypto and tariffs.

So, are all or any of these 'Seven Awkward Questions' still relevant today? Answer – yes, they mostly are. And does the 2025/26 Business Plan hold answers? Answer – some, but not all.

Awkward Questions 1 and 5 – the gradient problem and small is special

In 2019, Mr Woods introduced his first awkward question as follows:

'First, how do we square the principle of proportionality with the steeper slope of regulatory requirements this inevitably causes for growing firms? This arises in many ways, where we take a softer approach for smaller firms but this has to be withdrawn as they grow. One example is the steps in our Systemic Risk Buffer regime, which we’ve debated with Sir John [Vickers] in the past – it’s true these could be smoothed to some extent by greater granularity and/or an ‘income tax’ approach, but the basic problem of gradient remains. This issue also arises on the resolution side, which is of course outside the scope of the competition objective – it must be right that we exempt small firms from bail-in debt, but this inevitably leads to a moment when successful firms stop being small and need to start issuing.'

Somewhat further on in his remarks was Awkward Question 5, but there is clearly a link between the two:

'Fifth, might Brexit create opportunities to move further on proportionality for smaller firms? […] there may be a reasonable case that a simpler (simpler, not weaker) regime for small firms would advance both our safety and soundness and competition objectives. […] It is impossible to know at this stage, but under some Brexit outcomes we might have room to revisit this question for small domestic firms. It is notable that both Switzerland and the U.S. are taking quite radical steps in this area; while I am cautious about the leverage-ratio-only capital regimes they are working on, and small British firms might be cautious about a 9% leverage ratio requirement, we are taking a close interest.'

Basel 3.1 has been the dominant regulatory project on the prudential side for many years. As outlined above, since the standards were endorsed by the Group of Central Bank Governors and Heads of Supervision (GHOS), the Basel Committee's oversight body, on 7 December 2017 and then since the market risk framework was endorsed by the GHOS on 14 January 2019, much has changed in the world. Implementation has been delayed in both the EU and the UK for several reasons, though most recently this has been to reflect uncertainty around how US regulators will approach Basel 3.1. At the time of writing in April 2025, the UK implementation date is 1 January 2027.

The Business Plan outlines the PRA's approach to its work on implementing the Basel 3.1 Framework for the UK. With the PRA unconstrained by the EU's legislative and regulatory process, the Business Plan explains that the rules have been 'tailored' to 'better suit the UK market'. Simply, the PRA says that it has ensured that Basel 3.1 does not significantly increase overall capital requirements in the UK banking system.

More significantly for smaller banks and as posited in Awkward Question 5, the PRA has developed a discreet 'Strong and Simple' regime with simplified capital and liquidity requirements for small domestic-focused deposit takers (SDDTs); there are currently 50 SDDTs and 10 SDDT consolidated entities, less than 10% of the 708 deposit takers which are currently subject to PRA supervision.

On capital and liquidity, then, the Business Plan addresses both small and not small (or no longer small), but 'the basic problem of gradient remains'.

Awkward Questions 2 and 3 – balancing large and small

The second Awkward Question is as follows:

'Second, and related to the first, although we have in my view been pretty successful in encouraging new entrants, it is so far notable that no small bank has successfully become a large bank. Perhaps this will change through time, and it may have much more to do with behavioural stickiness of current accounts than regulation, but it would be complacent to be relaxed about it. […] Of course one way firms can get larger is through mergers and acquisitions, for which PRA approval of the ‘change in control’ is required. A natural question to ask is how our secondary competition objective plays into these situations. The law is actually very clear on this point: when considering whether to approve the change in control, we are required to disregard the competitive impact and to limit ourselves to a consideration of the appropriateness of the new controller. Assessing the impact on competition falls instead to the CMA.'

While Awkward Question 3 circles the same theme:

'Third, there is a tension for us arising from the efforts we make to encourage new and smaller players. […] I will never believe that there is something inherently safer about larger banks. But nor do I believe the opposite, and there are plenty of examples of smaller banks getting into trouble, in some of which I’ve been heavily involved. So it is perfectly natural that with our safety and soundness objective in mind we should take a close interest in small firms as well as large, particularly when they are fast-growing, heavy users of central bank funding schemes, concentrated in higher-risk niches and/or untested in a downturn. Bluntly I think we wouldn’t be doing our job if we didn’t do this – but at the same time the competition objective requires us to ride both horses at once. This is doable but it is tricky. It also raises an interesting question about the relative costs of supervising smaller firms versus higher FSCS levies to cover failures, which would merit further study.'

Mr Woods' 2019 observation 'that no small bank has successfully become a large bank' is an interesting one. Looking back at events over the past few years, the dimensions alluded to in Question 3 emerge more clearly.

In March 2023, the US saw its largest bank failure since the 2007/08 global financial crisis with Silicon Valley Bank (SVB); the US parent left its UK subsidiary, SVB UK, struggling. SVB had entered the UK market in 2004, and announced the transition of its UK branch to a wholly owned subsidiary in 2022 following the UK entity reaching a threshold of £100m insured deposits; by March 2023, SVB UK was estimated by the Financial Times to hold nearly £7bn in deposits, understood to be largely from technology and innovation start-ups. A relatively small bank in absolute terms, but certainly an important contributor to developing and maintaining the success of a key sector of the UK economy. Ultimately, the Bank of England stepped in to manage the transfer of SVB UK's business to HSBC.

In terms of the Business Plan, in addition to the capital regime developments discussed under Question 1, the PRA highlights the importance of its multi-sector initiative on 'ease of entry and exit' to 'enable a dynamic and competitive market which entrants can join and leave with minimal impact on the wider market and the PRA's statutory objectives'. The PRA's research agenda 2023+ includes focus areas on barriers to entry in banking and insurance, and implications for fintech and financial stability. Perhaps reasonably, given the risks for the PRA, including moral hazard, there is little which speaks directly to the regulator delivering big banks from small banks.

Awkward Question 4 – where the technology takes us

With the fourth Awkward Question, we come to more familiar ground, if not an answer:

'Fourth, how is technology going to affect all this? This is obviously a huge topic in its own right, and others here will touch on it so I will make only two brief comments. One, in my view the jury is still out on whether Open Banking and/or PSD2 are the gateway to a bigger change. Two, it is notable that some digital banks are making material inroads into the current account market – is this the leading edge of a bigger change, or not?'

From cryptoassets and tokenisation to Gen AI and quantum computing – the last six years has been packed with technological advancements and seen a growing awareness of technology across society.

Perhaps the key topic in the Business Plan on the technology theme is the implementation of the critical third party (CTP) regime which will see, for the first time, regulatory oversight of third party providers in respect of the material services which they provide to the regulated UK financial services sector. The CTP regime, which is an element of the UK financial services regulators' operational resilience framework, was enabled by the Financial Services and Markets Act 2023. The Business Plan confirms that the PRA, the Bank of England and the FCA are currently reviewing third party providers with a view to recommending to HM Treasury (for the first time) those which should be designated as CTPs. A new CTP Consultation and Coordination Forum of regulators is to be established to ensure a joined-up approach to the newly designated CTPs.

On the operational resilience regime for regulated firms, the PRA notes that the regime came fully into force in March 2025, meaning that firms should now be able to remain within their impact tolerances for the delivery of important business services. The PRA, for its part, will now be in ongoing monitoring mode, engaging with industry via existing cyber and operational resilience coordination groups. The PRA will also finalise policy on reporting operational incidents, and outsourcing and third parties in 2025, helpfully aligning this with international standards set by the Financial Stability Board in order to alleviate the burden on internationally active firms.

Another point of note in the Business Plan is news that the PRA will alleviate some confusion by consolidating its Banking Data Review with at least some aspects of its work under the Transforming Data Collection initiative. The consolidation will drive forward work to remove duplication in regulatory reporting which is likely to be welcomed by firms.

Also in the technology space, the PRA plans to continue to support the Bank of England's work on payments innovation. This will include monitoring banks' activities and exposures, and in relation to this, the PRA will take forward the Basel prudential standard on cryptoasset exposures.

Awkward Question 6 – Competing competition objectives and getting competitive

Mr Woods' sixth question is very much back to the fundamentals of regulatory purpose:

'Sixth, there is the debate […] about whether our competition objective would be better cast as a primary objective. I have a number of reservations about this idea. One is purely practical: with the FCA and CMA already having primary competition objectives, do we really want a third regulator doing this for the financial services sector? It strikes me as a recipe for bureaucratic overlap. Another is that the sort of referee role the PRA often plays, making sure that firms are competing fairly and not by running excessive risks with policyholders’ and depositors’ funds, is itself the most important contribution we make to competition. And finally, I do worry about diluting overly the focus of the prudential regulator, which was I’m sure one element of what led to the financial crisis. The same logic applies to a competitiveness objective, which surprisingly often gets confused with our competition mandate.'

The last part of Awkward Question 6 has been answered. While UK political parties may not agree very often, they are very much on the same page about competitiveness – the previous Government put the secondary competitiveness objective for the regulators into the Financial Services and Markets Act 2023 (FSMA 2023), and the current Government is very much promoting that agenda. The PRA's focus on its competitiveness objective runs through the Business Plan.  It is given 'top billing' as informing one of four key themes which provide structure for the document: 'Support competitive, dynamic and innovative markets, alongside facilitating international competitiveness and growth, in the sectors that we regulate'. Unsurprisingly, competitiveness is also particularly central to the foreword written by the PRA CEO. 

Our Global FSR Outlook 2025 article 'The long and winding road of regulatory overhaul' examines the challenges which regulators around the world face as, in the face of economic downturn, they are increasingly expected to focus on growth and competitiveness – we find regulators in 'an unenviable position'.

In terms of the Business Plan, some of the activities which the PRA sets out as contributing to competitiveness include:

• Basel 3.1 implementation;
• delivering changes to the SMCR and the ringfencing regime;
• easing entry and exit to market;
• improving regulatory processes for authorisations, SMCR, and internal model approvals;
• further amendments to the remuneration requirements on banks;
• simplifying regulatory reporting;
• introducing a Matching Adjustment Investment Accelerator for insurers;
• improving the attractiveness of the UK for insurance special purpose vehicles (ISPVs); and
• updating its approach to bank branches to ensure that the UK remains 'responsibly open'.

Awkward Question 7 – look busy, someone may be watching

Mr Woods' last question may prompt a wry smile from anyone who has been watching financial markets and financial regulation over the past six years:

'Seventh, […], I am slightly worried about a looming political economy problem. We have I think taken quite an expansive view of our secondary competition objective, by which I mean that we have been vigorously prowling all parts of the PRA’s terrain actively looking for things we can do to advance the objective. But our terrain is not limitless, so the flow of new initiatives will I think slow, and we will have to spend more time tangling with more difficult questions of the sort I have discussed today. I am worried that people may infer from a lower volume of announcements a reduced commitment to our secondary competition objective. There is no such reduction in commitment – we are simply implementing our commitments thoroughly. Those taking an interest should hold us to account for that, and press us on what we can do in the next five years about the more awkward questions which now confront us.'

We do not really need the Business Plan to illustrate just how busy the PRA – and its fellow regulators – will be over the coming year. The Chancellor's promised Financial Services Growth and Competitiveness Sector Strategy which is due to land in 'Spring 2025' will certainly keep everyone well occupied.

What this question illustrates is that quite often, when we are looking in one direction, the next big upheaval is coming from somewhere else. The skill is being able to pivot to the next issue, much as  the regulators pivoted quite quickly to address the crystallised risk in the case of SVB UK.

Awkward Questions answered?

Some of the questions have been addressed even if they have not been fully answered. The UK will now have a strong and simple regime for smaller deposit takers, but many of the cliff edges that banks encounter as they grow remain.

Competition remains important, but – particularly in the current economic and geopolitical climate – it may be less so than competitiveness and financial stability.