Bank of England PRA issues PS25/25 strengthening climate-risk prudential framework

The Bank of England's Prudential Regulation Authority issued Policy Statement PS25/25 on December 3 2025, replacing SS3/19 with new supervisory expectations on climate-related risk management for UK banks and insurers. The shift cements climate risk as a core prudential requirement rather than a disclosure exercise, signalling the direction of travel for Indian financial regulators and globally active institutions.

The PRA issued Policy Statement PS25/25, finalising updated supervisory expectations for UK banks and insurers on managing climate-related risks, effective immediately upon publication on December 3 2025. The statement, detailed in Supervisory Statement SS4/25, replaces the previous SS3/19. The PRA applies a proportionate, principle-based approach: while all UK insurers, reinsurers, banks, building societies, and PRA-designated investment firms are in scope, expectations are tailored to materiality of exposure, recognising exposure is driven more by business model and geographical factors than firm size alone.

The framework affects all UK insurance and reinsurance firms, banks, building societies, and PRA-designated investment firms. It enhances governance and accountability, requiring boards and senior management to oversee climate-related risks and embed them in strategic decisions, with clear identification of the responsible existing Senior Management Function holder rather than a new SMF role. Firms must integrate material climate risks into risk registers or sub-registers, define climate-specific risk appetites, and use climate scenario analysis as a strategic tool. The expectation to "quantify" data uncertainty was moderated to "understand" it.

Financial institutions should conduct an immediate internal review to identify gaps against SS4/25, then develop action plans, which supervisors will begin assessing within at least six months of the December 3 2025 publication date. Firms should embed climate considerations into governance, risk registers, risk appetites, and climate scenario analysis, while banks may align ICAAP and ILAAP climate scenario horizons with standard timeframes for those processes. Institutions should treat climate risk as integral to capital adequacy, stress testing, and long-term strategy influencing lending, underwriting, and investment.

Key figure — Supervisory assessment timeline: action plans assessed within at least six months of December 3 2025