Prudential risk radar: what firms need to watch in the 2026 regulatory agenda

Prudential regulatory policy across the financial services industry is changing in 2026 as supervisors take a new approach. The Prudential Regulation Authority (PRA) has set the tone for the year with plans to streamline oversight, accelerate decision‑making and sharpen reporting expectations. In this brave new regulatory environment, firms must not only comply but stay alert to what’s coming and adapt fast.

A cross-sector push for resilience and reform

One theme stands out across the PRA’s annual priorities letters to banks, insurers and investment firms: resilience. The letters may be tailored to each sector, but they highlight many of the same concerns, including the need for more robust operations, financial discipline, better governance and more reliable risk data. Whether addressing UK deposit takers, international banks or insurers, the regulator is consistent. Because the financial system is interconnected and the geopolitical environment uncertain, firms need to strengthen their risk management.

Against this backdrop, 2026 brings a demanding set of regulatory milestones. Banks, insurers and investment firms will need to manage a busy programme of reforms while showing that their governance structures, risk frameworks and data capabilities are swiftly improving. Supervisors are raising expectations. Firms that invest early in resilience and make strategic, operational and data‑driven decisions will be in a stronger position for what lies ahead.

UK banking and lending regulation priorities for 2026

For UK banks, the PRA’s latest priorities emphasise stronger risk management, governance, controls and data capabilities. With geopolitical uncertainty increasing, boards are expected to make sure their frameworks remain strong and adaptable. Banks and building societies must also prepare for the Basel 3.1 and Small Domestic Deposit Takers (SDDT) regime, due to take effect in January 2027. Firms need to assess how these changes will impact their capital position and identify the actions they need to take before the rules come into force.

The PRA has also clarified expectations for Internal Capital Adequacy Assessment Process (ICAAP) submissions and will reset Pillar 2A requirements during 2026. Firms must provide details of their risk‑weighted exposure by 31 March 2026 and secure board assurance over the calculations.

Although the draft rules have been available for some time, many SDDTs still have considerable work to do. This includes understanding how methodological updates will affect Pillar 2A and upgrading their data architecture to meet the more detailed Basel 3.1 reporting requirements. High‑quality data remains essential for sound risk management. Firms are expected to improve governance and controls while modernising systems in line with BCBS 239 principles. The PRA’s recent discussion paper on the future of banking data, DP1/26, reinforces this direction, highlighting the need for stronger data ecosystems. It also suggests that ‘crisis data playbooks’ could be introduced to help firms produce fast and accurate reports during stress events.

Increasing risk management expectations for UK insurers

The PRA expects insurers to strengthen risk management, governance and controls in response to a more uncertain environment. It is continuing to challenge firms where modelling assumptions appear to underestimate capital needs and is increasing engagement where there are material gaps between expected and actual performance.

Delegated authority arrangements also remain an area of concern. Weak oversight in these agreements can lead to pricing and reserving issues, so firms need to monitor them effectively. Recent reviews across the London Market highlight that many insurers still need to enhance data quality, systems and analytical tools to meet prudential expectations. The regulator’s Dynamic General Insurance Stress Test (DyGIST) exercise in May will test how firms respond to a fast‑moving market event, giving the PRA insight into crisis management capabilities and internal co-ordination.

Insurers are also required to complete their Solvent Exit Analysis by 30 June, although many remain at an early stage and will need to accelerate efforts to develop credible actions and produce proportionate, defensible plans aligned with regulatory expectations.

Upcoming regulatory developments for UK investment firms

In line with the Financial Conduct Authority’s (FCA) focus on strengthening trust and integrity in UK financial services, investment firms face several regulatory developments this year.

The FCA’s thematic review of consolidation in the financial advice and wealth management sector has given firms greater clarity on how to structure regulated groups to maintain capital efficiency. The regulator’s message is clear: strong governance, well‑resourced compliance and risk teams, and a clear view of risks across the group are essential. The review also found that firms with offshore structures or limited prudential consolidation often struggle to monitor debt, goodwill and other exposures, creating vulnerabilities. These findings provide useful guidance for groups acquiring advisory or wealth management businesses, particularly where cross‑border structures are involved.

Crypto-asset prudential regulation is also progressing. Legislation published in December 2025 sets out the UK’s framework for overseeing crypto‑related activities. Firms that want to operate in this space will need FCA authorisation. The application window will run from late September 2026 to February 2027, and firms that are not authorised by the start date will face temporary limits on their activities. Early preparation is encouraged, drawing on lessons learned from the introduction of MIFIDPRU.

At the same time, the UK is developing its approach to reforming the Alternative Investment Fund Managers Directive (AIFMD). The proposals aim to create a more proportionate framework, including a three‑tier structure based on fund size. Further consultations from the FCA and HM Treasury are expected. The FCA is also seeking to improve liquidity risk management within authorised funds. Consultation CP25/38 proposes better use of anti‑dilution tools and more robust processes to ensure that funds investing in less liquid assets can manage redemptions effectively.

Outlook for upcoming regulatory framework

Here are key upcoming regulatory milestones:

• Publication by the PRA of its amendments to the large exposures framework policy statement PS14/25.
• PRA to conduct the DyGIST.
• Consultation paper on liquidity risk management for alternative investment fund managers.
• Implementation of the PRA’s solvent exit planning requirements for insurers.
• Policy statement by the PRA on the implementation of Pillar 2A – phase 1 (covering pension obligation risk, market risk and counterparty credit risk).
• PRA will consult on new rules for captive insurance.
• Policy statement to be published by the PRA on insurance third country branches.
• Policy statement to be published by the PRA on UK Solvency II, reporting and disclosure: post implementation amendments.
• HMT and FCA to consult on draft legislation on the AIFMD.
• Banks and insurance firms to complete an internal assessment and develop a plan to remediate any identified gaps by June 2026 on climate risk, in line with the PRA’s supervisory statement SS5/25.

• PRA and FCA expected to implement the Financial Policy Committees recommendation to amend the LTI flow.
• Implementation of the PRA’s new definitions of main indices and recognised exchanges following CP3/5.
• Implementation of the PRA’s new insurance liquidity reporting requirements for Solvency II.
• Implementation by the Bank of England of the final fundamental rules for FMIs (central counterparties, central securities depositories, recognised payments systems operators and specified service providers).

• Consultation paper on internal ratings based (IRB) loss given default (LGD) and probability of default (PD) estimation for residential mortgages, targeted at ‘medium sized UK firms’ (to be defined in the consultation paper).
• Policy updates by the PRA on insurance third country branches.
• Publication by the PRA of the aggregate, industry level results from the DyGIST.
• Implementation of the PRA’s UK Solvency II reporting and disclosure: post implementation amendments.
• Publication of the PRA’s consultation paper which outlines the prudential treatment of firms’ exposures to crypto-assets.

• Implementation of the PRA’s Basel 3.1 and SDDT capital framework.
• Implementation of the PRA’s amendments to Pillar 2A for credit and operational risk.
• Implementation of the PRA’s amendments to MREL reporting policy.
• Implementation of the PRA’s Pillar 3 disclosure enhancements across three areas: the resources supporting resolvability, capital distribution constraints and the overall basis on which Pillar 3 disclosures are prepared.
• FCA to publish policy statement on market risk capital requirements for specialised trading firms.

• Implementation of PRA and FCA rules on captive insurance.
• Implementation by the Bank of England of the T+1 standard settlement cycle for securities trades.
• Implementation of FCA’s crypto-asset regulatory regime.

To find out what these changes mean for your business and for guidance on how to prepare for them, please contact Gavin Sharpe or James Roberts.