On 22 April 2025, the Prudential Regulation Authority (PRA) published Policy Statement PS5/25 – Identification and management of step-in risk.
Background
Previously, the PRA consulted in CP23/23 on the identification and management of step-in risk, shadow banking entities and groups of connected clients.
Chapter 2 of CP23/23 included proposals to:
- Introduce new rules on step-in risk based on the relevant Basel Committee on Banking Supervision’s (BCBS) guidelines. (Step-in risk is the risk that a bank provides financial support to an unconsolidated entity that is facing stress, in the absence of, or in excess of, any contractual obligations to provide such support.) Under the new rules, CRR firms and CRR consolidation entities would be required to assess their step-in risk and report their assessment to the PRA alongside their Internal Capital Adequacy Assessment Process (ICAAP) assessment.
- Introduce an accompanying supervisory statement (SS), also based on the BCBS guidelines, setting out the factors that the PRA expects firms to consider when identifying potential step-in risk and in deciding, where necessary, on potential mitigating action.
Final policy
In PS5/25, the PRA explains that it received two response to CP23/23, which were supportive of the proposals on step-in risk and included a number of observations and requests for clarification. The final rules take account of those responses and make some changes to the original proposals, including:
- Removing the requirement for a firm to consider its relationship with a third-party securitisation special purpose entity for step-in risk where its only relationship is an investment in its senior securitisation position.
- Renaming the part-specific definition ‘sponsor’ to ‘step-in sponsor’, to avoid confusion with the PRA Glossary term ‘sponsor’, and amending the externally-defined terms to improve clarity without changing the substance.
Next steps
The implementation date for the new step-in rules and accompanying policy material is 1 January 2026.