The Prudential Regulation Authority (PRA) published a policy statement setting out feedback to CP10/25 and its final supervisory expectations in Supervisory Statement 5/25 on managing climate-related financial risks. The statement replaces SS3/19 in full and applies from 3 December 2025, with expectations designed to be implemented proportionately to the materiality of a firm’s climate-related risk exposure. SS5/25 applies to UK banks, building societies and PRA-designated investment firms, and to UK insurers and reinsurers (Solvency II and non-Solvency II), including the Society of Lloyd’s and managing agents, but not to branches of overseas entities operating in the UK. The final policy strengthens and clarifies expectations across governance, risk management, climate scenario analysis, data and disclosures, and includes banking-specific expectations (including integration into ICAAP and ILAAP and financial reporting considerations) and insurance-specific expectations (including ORSA, stress testing and how climate-related risks may be reflected within existing SCR rules and internal models). In response to consultation feedback, the PRA clarified how proportionality should be applied, confirmed that firms can embed climate responsibilities within existing governance structures without creating a new Senior Management Function, and made targeted adjustments on risk registers and risk appetite language. It also recognised that litigation risk may be treated either as a subset of physical or transition risk or, where appropriate, as a distinct transmission channel; updated climate scenario analysis expectations so the number and type of exercises are commensurate with exposure and firms can use reverse stress testing and or scenario-based sensitivity analysis; and adjusted data expectations so firms should understand data uncertainty and may use appropriate proxies without necessarily choosing conservative ones. Firms are expected to complete an internal review of their current position against SS5/25 and develop plans to address any gaps within a six-month review period, which the PRA clarified is not an implementation deadline for closing those gaps. Supervisors would not ask firms to evidence their internal reviews or action plans until at least after the end of the six-month period, and the PRA intends to invite the Climate Financial Risk Forum to update and evolve supporting guidance and tools over time.
Prudential Regulation Authority 2025-12-03
Prudential Regulation Authority issues final climate risk management expectations for UK banks and insurers replacing SS3/19
The Prudential Regulation Authority has issued a policy statement and Supervisory Statement 5/25 setting out final supervisory expectations for managing climate-related financial risks, replacing Supervisory Statement 3/19. The framework applies proportionately to UK banks, building societies, PRA-designated investment firms, and UK insurers and reinsurers, and strengthens expectations on governance, risk management, climate scenario analysis, data and disclosures. The PRA has clarified the application of proportionality, governance arrangements, treatment of litigation risk, use of scenario and reverse stress testing, and the use of data proxies, and expects firms to review their position and address gaps.