The new draft supervisory statement (SS) now runs to 40 pages, replacing a far more modest eleven pages in SS3/19reflecting the evolving landscape since 2019. As an extensive consolidation of supervisory thinking, it provides everyone with a potential climate risk management benchmark for their current practices and efforts. Actuaries will be particularly interested in the expectations it sets for climate scenario analysis.
CP10/25 is a consultation paper which the PRA issues to gather industry feedback before finalising rules or guidance. For the UK regime, rules are mandatory setting out the requirements. Supervisory statements (eg SS3/19) are not mandatory but set out the regulatory expectations of firms and frameworks to help judge if those expectations have been met. Accordingly, the consultation paper’s stated aim is to ‘set out clear, straightforward and concise expectations about climate-related risk identification, management and governance outcomes that the PRA would like to see from firms’. It also wants to ‘provide space for firms to take action and develop innovative solutions that are most suited to their business’. The paper comments that the proposals are often ‘simply applying existing regulatory approaches to managing risks (for example, in relation to effective governance), but with greater clarity on how they apply to climate-related risks specifically’ and it also make several references to proportionality. In his launch speech, David Bailey stated “the proposed expectations consolidate and clarify the feedback that the PRA has provided publicly on climate risk since SS3/19 was published. They will align our approach with the relevant international standards for insurers and banks in a way which is consistent with the PRA’s objectives.”
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