Craig McSherry, Partner at MHA, the UK member firm of the global Baker Tilly accountancy and consulting network discusses the key points of the Bank of England/Prudential Regulation Authority supervision priorities for International Banks in 2026:
The PRA’s 2026 priorities for international banks and investment firms are designed to ensure safety and soundness amidst an uncertain global environment characterised by geopolitical tensions, trade fragmentation, and sovereign debt market pressures.
Strategic Risk and Counterparty Management
Framework Robustness: Firms must maintain risk management frameworks that are proportionate to their business models and adaptable to external changes. These must be embedded across business lines, risk management, and audit.
Counterparty Credit Risk (CCR): A primary focus remains on exposures to non-bank financial institutions (NBFIs), particularly private markets and hedge funds. The PRA notes that private market interconnections have not yet been tested by a severe downturn.
Intraday Monitoring: While end-of-day monitoring has improved, vulnerabilities remain in risk controls for firms providing market access and clearing to ultra-low latency liquidity providers.
Model Risk: Remediation of shortcomings in model risk management, following the 2024 supervisory statement, is a priority.
Innovation and Operational Resilience
Technological Advancement: The PRA views AI, Distributed Ledger Technology (DLT), and tokenisation as opportunities for efficiency and growth. However, these must be adopted without compromising safety, specifically regarding data accuracy and cyber risks.
Testing and Dependencies: Following the March 2025 deadline, firms are expected to improve operational resilience testing and integrate it into board-level decision-making. Firms must not rely solely on third-party assurances but conduct their own validation of critical services.
Financial Resilience and Reporting
Basel 3.1 Implementation: With the majority of Basel 3.1 due on 1 January 2027, firms must assess capital implications now. Internal Capital Adequacy Assessment Processes (ICAAPs) signed off in 2026 must include an impact assessment of these standards.
Supervisory Efficiency: To facilitate UK competitiveness, the PRA is transitioning firms to a two-year Periodic Summary Meeting (PSM) cycle.
