UK banks are under growing pressure to manage risks more effectively, whether from economic shifts, technological advances or geopolitical uncertainty.
The Bank of England’s Prudential Regulation Authority (PRA) sent a letter to the CEOs of UK deposit holders outlining its supervisory priorities for 2025. The letter sets expectations for stronger oversight and better risk management.
What does this mean for banks? In simple terms, it means enhanced governance, improved data integrity, and a proactive approach to funding and liquidity. Let’s break down these priorities and what actions banks need to take.
Stronger risk management, governance and controls
The PRA wants to take a more proactive stance on risk – anticipating potential threats before they escalate. This means having solid governance structures, stress-testing capabilities and an adaptable risk management framework that considers everything.
What banks need to do:
- Boards need to ensure that their organizations have robust governance, risk management and control frameworks in place that are adaptive and resilient.
- Banks should also use stress testing and scenario analysis to uncover vulnerabilities across credit, market, liquidity and operational risks.
The goal? Improved ability to make informed strategic decisions related to investments, lending and risk appetite.
Data risk and model risk management
As financial institutions rely more on AI and predictive models, the integrity of data used in these systems is critical. Poor data quality can lead to biased models and faulty decision-making, which is why the PRA is emphasizing better oversight of model risk management (MRM).
What banks need to do:
- Evaluate the effectiveness of their MRM strategies.
- Financial models should be rigorously tested to ensure they accurately capture and predict risks.
- Data quality must be a priority as clean, unbiased and complete datasets lead to better business decisions.
Preparing for major changes in funding and liquidity
The UK banking sector is facing a shift. The Bank of England is normalizing its balance sheet, and market dynamics are changing. Banks must be prepared for significant changes in funding and liquidity.
What banks need to do:
- Treasury and risk management teams should assess how these changes impact profitability and resilience.
- Balance sheet management should be proactive and integrated, helping banks optimize liquidity and allocate resources effectively.
- Without a strategic approach to liquidity, long-term stability could be at risk.
Why this matters
The PRA’s priorities are indeed regulatory checkboxes, but also a roadmap for banks to stay competitive and resilient. By strengthening risk management, ensuring high-quality data, and preparing for financial shifts, banks can create long-term value and stability.
SAS is helping UK banks meet these priorities with a single, integrated risk management platform – from stress testing to enterprise data management, from model risk management to integrated balance sheet management.
