Dear CRO letter - Thematic review of private equity related financing activities – April 2024
Overview
On April 23, 2024, the Prudential Regulation Authority (PRA) published the outcomes of a thematic review of banks' risk management practices related to private equity (PE) financing activities, driven by the substantial growth in PE assets from $2 trillion to $8 trillion over the past decade.
Outcome of the reivew
The PRA identified significant gaps in banks' risk management frameworks and emphasised the necessity for robust, comprehensive risk management approaches. Boards are expected to oversee firm-wide PE strategies, stay informed about aggregate exposure trends, and manage associated credit and counterparty risks within the bank’s overall risk profile, learning from past issues like the failure of Archegos.
Key Areas for Improvement and Actions for Firms
The following summary provides insights on key areas for improvement and actions for small and medium-sized banks:
Next Steps
The PRA has requested that CROs confirm they have shared the results of the benchmarking exercise with the Board Risk Committee. Additionally, CROs are to provide this analysis, along with detailed plans to address any identified gaps in processes, to the supervision team by Friday, August 30, 2024.
How We Can Help
At Katalysys, we specialise in supporting banks with risk management solutions. Acknowledging the uniqueness of each bank's business model, core products, and key risks, we collaborate closely with our clients to customise their risk management framework. Our aim is to ensure that the framework is suitable for their needs, proportionate to the firm's size and scale, and in line with regulatory guidance and industry best practices.
With our expertise and technical skills, we are well-equipped to provide effective assistance.
For more information, please contact:
Josh Nowak
Managing Director, Risk & Regulatory Consulting
T: +44 (0)7587 720 988
Manish Patidar
Director, Risk & Regulatory Consulting
T: +44 (0)7766 001 643