The Prudential Regulation Authority is to target areas including emerging risks from geopolitical trends and stress tests focused on private markets in its business review for the 2026/2027 financial year.
The Bank of England has also launched, supported by the PRA, its second system-wide exploratory scenario, to build a clearer understanding of how private markets behave under severe but plausible stress.
The UK government is currently pushing for greater pension scheme investment into domestic private assets, as seen through the mandation clause currently a part of the Pension Schemes Bill.
Counterparty credit risk management is also being prioritised by the PRA, particularly in relation to banks’ growing exposures to non-bank financial institutions, where relationships are increasingly complex. According to the PRA, recent supervisory work shows that gaps in data quality, availability and aggregation mean that many firms cannot form a complete view of the risks posed by NBFIs.
During 2026/27, the PRA will also continue to identify and monitor emerging risks from geopolitical trends, economic and financial market developments, and support responsible AI adoption including through monitoring the evolving use of AI by regulated firms.
The renewed focus on geopolitics comes as the ongoing conflict in the Middle East threatens to have a lasting worldwide economic impact, as seen through supply chain shocks due to the closure to shipping within the Strait of Hormuz.
Sam Woods, chief executive of the PRA, said: “Recent market turbulence resulting from events in the Middle East has highlighted the importance of a resilient financial sector, and in support of this, we will maintain our forward-looking supervisory regime and our efforts to manage current and emerging risks.
“Alongside this, we will continue to implement and embed reforms that support a more streamlined and efficient regulatory framework, reducing unnecessary cost and complexity while maintaining resilience.”
In January 2026, the PRA published rules implementing the remaining elements of Basel III, ensuring that capital requirements better reflect underlying risks without increasing overall requirements for the banking sector.
Cara Spinks, head of life and health at consultancy Broadstone, says: “The PRA’s continued focus on capital strength, liquidity and operational resilience, particularly in the face of rising cyber risks and geopolitical volatility, reinforces the expectation that firms must remain robust under a wide range of stress scenarios.
“At the same time, the emphasis on emerging risks such as AI adoption and private market exposures highlights how quickly the prudential landscape is evolving. Firms will need to ensure their risk frameworks and governance keep pace, particularly as regulatory scrutiny becomes more forward-looking and data driven.”
The PRA’s provisional budget for 2026/27 is estimated at £347m, which is £3m (1 per cent) lower than the previous year. This figure remains subject to final adjustments for pension service costs.
