Publication of the PRA and FCA Business Plans is an important annual milestone for regulated firms trying to work out regulators’ priorities. However, their length and form are quite different and they are often misunderstood and can be confusing, particularly for dual-regulated firms.

Since they were published, I’ve written several blogs about what firms should take from these documents, and have also broadcast a webinar with my colleague David Morrey. For this blog, I’ve taken a step back to think about how firms should view them together and in the round. 

For retail banks in particular, therefore, here are 4 useful ways to approach regulators’ business plans:

1. Identify the driver: The FCA Business Plan is largely policy-driven. As a result, it tends to be heavy on potential new rules and light on talking about the normal business of supervision.

A good example is cash savings, found under the cross-sector priority on fair treatment of existing customers, and the latest stage in a policy process that goes back to 2013. The Citizens’ Advice super-complaint about firms’ treatment of longstanding customers has imbued it with new energy, but this is a multi-year policy initiative and progress is unlikely to be rapid. The 2019/20 impact may well be small.

The PRA, by comparison, has a more integrated model in which supervisors are intrinsically involved much earlier. A good example is climate change, whose prominence I’ve blogged about separately.

It’s no coincidence that Sarah Breeden, an Exec Director in Supervision, made a speech on the subject the same day the Business Plan appeared. And although much of the intellectual heavy-lifting will be done by policy, climate change is already being owned by supervisors and firms should expect it to start appearing on agendas.

2. Work out your real resource needs: Responding effectively to regulatory initiatives typically requires some combination of senior management, subject matter expertise and project management heavy lifting, but the relative mix of the three elements can vary hugely.

One initiative still requiring significant investment of the first two is structural reform. The project management phase may be done, but the PRA is making it very clear how important it is to them that “the ring-fences that have been established are effective in practice, and remain so.”

It would also be a mistake to imagine that, because implementation has been successful, this will simply be a case of maintaining the new structure in line with original planning. In reality, PRA scrutiny post-implementation may be more probing than it has been to date and, for example, some SMCR structures that were permitted in the first instance may now have their tires kicked.

Although more understated, the FCA’s proposed reforms of the overdraft market are likely to demand considerable implementation resource this year, including a high proportion of subject expertise. Depending on the final rules, scheduled for June, the reforms may also attract a good deal of senior management interest.

3. Build in the time lag: Perhaps the most difficult hurdle in reading regulators’ business plans is understanding the time horizon of the initiatives that appear there. Probably the simplest way to think about this is in 4 phases – policy formulation; implementation; assessment by supervisors; possible enforcement – each taking an average of about 2 years. Reading back over previous business plans will allow you to follow initiatives through and build your own picture of future timelines.

SMCR is a good example, with the policy emerging from the PCBS Report in 2013 and implementation for banks in March 2016. From the conversations I have in the market, it sounds like supervisors only really became comfortable with applying it last year and, while there has been the odd SMCR enforcement case already, I suspect there will be a steady stream from the middle of this year on.

Against this background, SMCR’s prominent place in both business plans signals the start of a period when it will be the primary lens through which supervisors will view firms.

At the other end of the spectrum, the FCA’s Strategic Review of Retail Banking Business Models, is likely to be a slow burn, with only peripheral impact on firms this year. Not least, this is because of new, complicating factors such as structural reform and reforms to the overdraft market.

4. Spot the gaps: Finally, because the FCA Business Plan in particular tends to be very policy-focused, it’s important to recognise that some major priorities may receive little or no mention. Through this lens, absence can be a signal that policy and implementation phases are complete and the focus has shifted to supervisors.

A live example is credit cards, where the recent Dear CEO letter – see Oliver Morgans’ review in my 13 March blog – shows supervisors actively picking up the baton after the 2016 market study. This will be a major part of the FCA’s retail banks’ strategy but the Business Plan is silent.

In a different way, some core PRA activity is sometimes more visible through Financial Policy Committee minutes. An obvious example is credit risk and asset quality, likely to be a major priority as supervisors worry about the credit cycle and the knock-on impacts of ring-fencing, but mentioned in the Business Plan only in passing.

The standout new priority for both regulators this year is undoubtedly Operational Resilience, commanding headlines and with a major joint consultation paper due in the summer. However, much of the content of both business plans is best understood when viewed in a broader context, driven by long term processes and reflecting shifts of pace and focus through the different phases of their lifecycle.