PRA Expectations in Identification of Groups of Connected Clients for Large Exposures

In the Prudential Regulation Authority’s (PRA) supervisory statement SS 3-25, the regulator stated its expectations on how firms should identify groups of connected clients. The paper highlights the following key considerations: control; economic and funding dependency; under the same management influence; and controlled by or linked to (both directly) Central Government. Where the exposures to a client exceed 5% of the financial institution’s Tier 1 capital, the entity is expected to research for possible connections.

Large Exposures (LE) Framework

The PRA issued policy statement 14-25 in follow up to its consultation paper 14-24. The policy statement will implement two of the proposed changes and be effective from 1^st January 2026.

The option to reduce mortgage exposures by the capped immovable property collateral is to be removed. This option was available to firms that apply the Internal Ratings Based approach to credit risk. The reduction was applicable when comparing exposure amounts to the LE limits.

The second change is to remove the ability to exclude exposures to the UK Deposit Protection Scheme from the need to comply with LE Limits. From 1^st January 2026, these exposures will be required to be compared to the LE limits that are applicable.

Product Sales Data – Consumer Credit

The new consumer credit data submissions are available in WIRES. The relevant forms are PSD008, PSD008a and PSD009. Firms that are classed as ‘large’ (i.e. had outstanding consumer credit balances in the CCR003 submission for report reference date ending between 1 April 2023 and 31 March 2024, of at least £20million and / or new advances reported in that form covering the same period, of at least £20million), have the first report reference date of 30^th September 2025. For other affected institutions, the first report reference date is 31^st March 2026.

Further details are in policy statement 24-3, issued by the Financial Conduct Authority (FCA).

Mortgage Rules Review

The FCA issued its policy statement 25-11 with details of some immediate changes to mortgage rules. Of note are the following.

The need for a Full Affordability Assessment has been removed in the case of a reduction to the term of a mortgage. There is an expectation that firms will take appropriate steps to avoid obvious negative consequences and to perform adequate monitoring.

Modified Affordability Assessments have been extended to include new mortgages that are not with the borrowers’ existing lenders, where it is more affordable than:

a) The borrower’s current mortgage OR

b) A new mortgage product that is available to the borrower from his current lender.

These changes should benefit customers in their dealings with financial services firms.

Foundation Internal Ratings Based Approach for Residential Mortgage Exposures

The PRA published a discussion paper (DP 1-25) seeking feedback on the possible introduction of the Foundation Internal Ratings Based Approach to credit risk on UK residential mortgages. Were this methodology introduced, it would allow medium sized institutions to use internal models in deriving risk weighted exposures. These firms would be responsible for modelling probability of default. Other required parameters, ‘Loss Given Default’ and ‘Exposure at Default’ would be specified by the regulator.

Currently, medium sized lenders that cannot model ‘Loss Given Default’, but can do so on ‘Probability of Default’, are unable to use internal models for credit risk on retail exposures. Foundation Internal Ratings Based Approach applies to non-retail exposures, only.

In that situation, only the standardised approach may be utilised and potentially create a competitive disadvantage. The extension of the Foundation Internal Ratings Based Approach may address this issue.

Pillar 2A Adjustments

The Prudential Regulation Authority (PRA) has extended the consultation period on its paper 12-25, about changes to the Pillar 2A Capital Framework. The date by which responses must be submitted is 30^th September 2025. Implementation of the proposals for pension, market and counterparty credit risks has been moved from 2^nd March 2026 to 1^st July 2026.

WIRES Release

Version	Timing	Content
7.1	14/11/2025	Enhancements and fixes

This regulatory update is Whistlebrook’s understanding of the position as at 28th August 2025.