The Prudential Regulation Authority has published a technical note setting out the standard assumptions and inputs used in its Standard Cost Model, the tool it uses to estimate the direct operational compliance costs or savings firms may face when prudential requirements change. The model forms part of the PRA’s cost benefit analysis framework, and the Bank of England will also use it to estimate direct compliance impacts on central counterparties and central securities depositories from changes to financial market infrastructure requirements. The framework combines four components: the number of firms affected, staff costs, technology costs and other one-off expenditure such as consultancy, legal advice or external assurance. For PRA analysis, firms may be segmented by sector and by asset-based size bands. Core assumptions include average staff salary costs of GBP 100,000 plus 23% for bonuses and 30% for overheads, project management time equal to 10% of one-off staff time using a GBP 110,000 salary benchmark with the same add-ons, and board oversight assumptions based on engagement frequency, board size and remuneration proxies. Technology cost benchmarks range from GBP 55,000 for a small project at a small firm to GBP 10,000,000 for a large project at a large firm. The model outputs one-off costs, annual ongoing costs and a present value using a default 10-year horizon and a 3.5% social discount rate. For financial market infrastructures, the Bank treats all central counterparties and central securities depositories as large firms when applying the model because it considers systemic importance and operational complexity more meaningful than total assets, although it may revisit that assumption if less systemically important and complex FMIs enter the market. Both the PRA and the Bank are inviting confidential feedback and evidence to refine the model’s assumptions and benchmarks.
Prudential Regulation Authority 2026-04-29
Prudential Regulation Authority publishes standard cost model assumptions for regulatory cost benefit analysis and seeks feedback
The Prudential Regulation Authority has published a technical note detailing the standard assumptions and inputs used in its Standard Cost Model for estimating firms’ direct operational compliance costs or savings from changes to prudential requirements. The Bank of England will also use the model to assess direct compliance impacts on central counterparties and central securities depositories, treating such financial market infrastructures as large firms based on systemic importance and operational complexity.