UK PRA Non-Systemic Deposit Takers

On Apr. 30, UK PRA issued letter on internal audit thematic findings.

  • UK PRA issued a letter from Melanie Beaman, Director, UK Deposit Takers Supervision, to chief risk officers providing findings from 2020 internal audit review of collections.
  • Follows UK PRA Jun. 2019 issued review findings on fast growing firms, #61411.
  • Background
  • In Nov. 2019, the internal audit (IA) function of a sample of non-systemic banks and building societies to undertake review of their collection function to provide assurance.
  • UK PRA were seeking to provide assurance to themselves and the boards on collection processes and control environment, governance & oversight and regulatory reporting.
  • This resulted from 2019 Fast Growing Firms Review findings, which found an untested capability and lack of clarity on how scaling up collections would perform under stress.
  • UK PRA selected 42 non-systemic banks and building societies to take part and half of the IA reviews of the collections processes were conducted by external audit firms.
  • Main Observations
  • UK PRA were assured from findings that processes and controls in place for collection operations, from prudential perspective, were largely both adequate and effective.
  • However, observations reinforce the need for some firms to continue to enhance their collections operations, as well as developing the right level of control and governance.
  • This will ensure effectiveness and allow a review adequacy of resources to efficiently manage the processes and, importantly, to ensure adequate oversight at board level.
  • Outcomes
  • 20% of firms require significant strengthening in collections function, with these firms having an overall IA report rating of amber, but no firms had an overall rating of red.
  • A review of IA recommendations showed most being rated green or yellow, with fewer, amber or red, which related to control weaknesses and some poor prudential policies.
  • Areas needing improvement were policy and process documentation, controls over collections activities, in particular operational controls and quality assurance systems.
  • Also, collections capacity planning and training, in particular ensuring contingency resource skills are suited to activities and capacity plans to reflect Covid-19 solutions.
  • Finally, alignment to regulatory reporting requirement, in particular definitions and rules, mainly in relation to the definitions of both default and unlikely to pay indicators.
  • Issues were also found with MI, mainly on forbearance metrics and trends and the fact that some boards did not take these elements into account, or understood the issues.
  • Regulatory reporting was considered to be compliant, with a few minor exceptions and submission of complete, timely and accurate returns, allows for effective supervision.
  • Next Steps
  • UK PRA is aware that collection controls and processes are under review for many firms, in particular in light of the increase in collections activity due to the pandemic.
  • It is hoped firms may find content of the letter a helpful reference when considering their own collection operations and potential areas that might need strengthening.
  • UK PRA will continue to monitor firms’ collections functions in light of the pandemic.

Regulators UK PRA
Entity Types Bank; BS
Reference Lt, PR 4/30/2021; ESG; COVID-19
Functions Accounting; Compliance; C-Suite; Financial; Operations; Reporting; Risk; Training; Treasury
Countries United Kingdom
Products Banking; Corporate; Deposits; Loan; Securities
Regions EMEA
Rule Type Guidance
Rule Date 4/30/2021
Effective Date 4/30/2021
Rule Id 104480
Linked to Rule :61411
Reg. Last Update 4/30/2021
Report Section UK

Last substantive update on 05/04/2021