PS25/25 – Enhancing banks’ and insurers’ approaches to managing climate-related risks – Update to SS3/19
AI Analysis
PS25/25 is the PRA's policy statement providing feedback on CP10/25 and issuing updated Supervisory Statement SS5/25, which replaces SS3/19 to enhance banks' and insurers' management of climate-related financial risks through strengthened governance, risk management, scenario analysis, data quality, and disclosures. It matters because it sets a higher regulatory bar for embedding climate risks proportionately into core processes like ICAAP, ILAAP, ORSA, and financial reporting, promoting resilience and strategic decision-making amid evolving climate threats.
Key dates
- 3 December 2025
- - PS25/25 and SS5/25 published; SS5/25 effective immediately, replacing SS3/19
- Within 6 months (by ~June 2026)
- - Firms assess gaps against new expectations and develop remediation plans (industry guidance)
- Ongoing
- - Forward-looking, strategic implementation proportionate to risks; PRA may request progress evidence
Suggested considerations
- Conduct gap analysis against SS5/25 within 6 months and remediate (e.g., update governance, risk frameworks, CSA processes).
- Integrate climate risks into board oversight, strategy, risk registers, ICAAP/ILAAP (banks), ORSA/stress testing (insurers), and financial reporting.
- Perform CSA exercises commensurate with exposures, using suitable scenarios to inform decisions; enhance data quality and disclosures.
- Document proportionate application (two-step process: materiality assessment, risk response); leverage existing structures where robust.
- Ensure senior accountability and alignment with standards like SS1/21.
What changed
- The main changes in SS5/25 from SS3/19 and CP10/25 responses include:
- Proportionate application clarification: New 'Overarching aims' section in Chapter 3 explains how firms should tailor expectations to their climate risk exposure, business size, and complexity via a two-step process (assess materiality, then respond)
- Governance strengthening: Boards and senior management must actively oversee climate risks, embedding them in strategy and ensuring accountability.
- Risk management enhancements: Integrate climate risks into existing frameworks/risk registers (supplementary sub-registers allowed); 'accept, manage, avoid' is suggestive, not mandatory; aligns with SS1/21 on operational resilience.
- Climate scenario analysis (CSA) advancements: Firms must use CSA strategically for decisions; flexibility on number/type of scenarios, reverse stress/sensitivity analysis, and longer horizons (narrative over quantification); horizons align with ICAAP
- Data quality improvements: Firms must assess and address gaps in reliable, granular, forward-looking data for decision-making.
Compliance impact
Urgency: High – Effective immediately (3 Dec 2025), requiring significant uplift to existing approaches; non-compliance risks supervisory scrutiny, as PRA expects ambitious, ongoing progress and may request evidence. Matters for capital/liquidity planning, resilience, and strategic viability amid maturing climate risk landscape.
Who is affected
Related regulations
References
AI-generated analysis. May contain errors or omissions — verify with the original PRA source before acting. Full disclaimer.
What the PRA said
Policy statement 25/25
Published by PRA . Read the full notice at the source for the authoritative text.