On 16 February 2021, the PRA published a letter it had sent to independent Non-Executive Directors (iNEDs) who participated in the PRA pilot programme of virtual meetings with PRA senior advisors, which took place in October and November last year. The letter shares some of the themes that emerged from the discussions including:

  • The effect of the economic downturn on business models.
  • Operational resilience in light of the new working environment.
  • Governance and people challenges.
  • Climate related financial risk.

In terms of climate related financial risk the letter notes that:

  • iNEDs were supportive of the PRA’s active supervisory approach to this global risk.
  • Some iNEDs acknowledged that their firms’ climate risk work had been de-prioritised during the pandemic, however it was widely recognised as a key priority.
  • Investing in ‘green’ assets will be key to firm strategies, but several iNEDs flagged that managing the effects of the transition to a low carbon environment would be extremely challenging.

In terms of other issues the letter notes that several iNEDs reflected on some of the wider consequences of the outbreak for their business strategies:

  • The level of government borrowing would mean hard fiscal choices being made in terms of taxation policy and/or spending cuts.
  • There was likely to be a growing cadre of vulnerable customers facing hardship through unemployment and/or business failures.
  • Younger customers will likely find it even more difficult to step on to the housing ladder and/or contribute to a pension.
  • Pension incomes of post baby-boomers would be squeezed further.
  • New recruits will have had their education disrupted by the outbreak, and may require additional support and training in their early career years.
  • Brexit was mentioned in most of the discussions, although iNEDs felt that their firms and the sector generally were well prepared for the UK’s departure from the EU (please note this discussion took place before the end of the transition period).