The Prudential Regulation Authority’s (PRA) latest feedback on IFRS 9 will shape the relationship between firms, regulators, and the wider market for years ahead. In its September 2025 letter, the PRA emphasises that it expects more than compliance.
Boards must now show active oversight and strategic leadership.
That means leading on risk modelling, climate integration, and data governance. And because IFRS 9 now forms part of the Bank of England’s annual stress test, this leadership is vital for maintaining confidence, optimising capital, and building regulatory
trust.
In this post, we’ll look at the PRA’s main areas of focus and what they mean for board-level action.
PRA expectations for stronger governance and board engagement
The PRA’s thematic feedback highlights where it expects stronger governance and deeper board engagement. These priorities cover models, data, and climate risk, and each will require closer attention in the year ahead.
1. Challenging your own models
The PRA expects firms to “challenge the responsiveness of their processes to evolving risks.” Boards should scrutinise apparently stable ECL figures, as these can hide concentrations of risk in a changing geopolitical and climate environment.
The letter also calls for more rigorous oversight of post-model adjustments (PMAs) and scenario assumptions. Board committees should now ask for evidence of ongoing model monitoring and timely vulnerability analysis across higher-risk segments.
Board action: Strengthen assurance by commissioning regular independent validations and data audits, ensuring that challenge comes from both internal and external sources.
2. Getting data governance right
Supervisory and audit focus continues to centre on data quality and control. UK banks with EU operations are already subject to DORA obligations, but purely UK-based firms should take note of the PRA’s ambition to align with EU standards on operational resilience.
Boards need to be confident that accountability for outsourcing and resilience is clear across their group.
Board action: Review oversight arrangements to ensure they fit the group’s UK and EU structure, and horizon-scan for emerging UK resilience standards.
3. Making climate risk a priority
The PRA’s consultation CP10/25, although not yet final, sets clear expectations for embedding climate risk into loan-level decisioning. Boards will need to oversee progress on risk driver identification, scenario adaptation, and loan-level modelling.
Credible climate integration now directly supports access to sustainable funding and strengthens the firm’s wider governance position.
Board action: Oversee and challenge the design of climate scenarios, particularly given ongoing macroeconomic uncertainty and the link between climate models and capital management.
IFRS 9: a practical action plan for Boards
Responding effectively to the PRA’s feedback requires both immediate actions and longer-term shifts in governance culture. The priorities below provide a framework for discussion during the next board cycle.
Immediate priorities
-
Assign clear ownership: Appoint a Senior Manager to lead a gap analysis against PRA findings, with clear accountability for model performance and data integrity.
-
Demand better information: Request management reporting that tracks PMA movements and vulnerabilities identified by dynamic stress testing.
-
Schedule deeper reviews: Plan dedicated board sessions on operational resilience, third-party exposure, and readiness for climate transition planning.
-
Integrate complex risk: Assess how exposures to securitised assets and complex collateral are reflected in ECL, and monitor for divergence from ECB or EBA standards.
Priorities for 2026 and beyond
-
Link governance to incentives: Embed accountability for models, climate, and data within the risk appetite framework and connect it to remuneration.
-
Benchmark performance: Compare scenario analysis with examples of good practice cited by the PRA and learn from external stress tests to avoid capital strain.
-
Invest in education: Support continuous board-level training on IFRS 9, data, and climate topics to avoid a “box-ticking” culture.
-
Strengthen transparency: Improve disclosure on risk and climate governance to build market confidence and demonstrate clear leadership.
These steps signal that the board is taking an active, informed role in IFRS 9 oversight rather than treating it as a compliance exercise.
IFRS 9 and the PRA: what Boards should expect next
The PRA has already indicated where its focus will lie in 2026. Boards should prepare for greater scrutiny in the following areas:
-
Post-model adjustments (PMAs): Whether overlays remain justified and responsive to emerging risks.
-
Data quality and governance: How input data, aggregation processes, and third-party dependencies are managed.
-
Recovery assumptions and LGD models: Whether assumptions remain realistic for vulnerable sectors.
-
Securitisation exposures: How complex or illiquid collateral is represented within ECL estimates.
Climate risk will remain central, with supervisors expecting deeper integration into loan-level modelling and scenario design.
The biggest takeaway? Boards that act now on these themes will be better placed to demonstrate resilience, meet supervisory expectations, and reduce the risk of capital pressure.
