The UK Prudential Regulation Authority (PRA) has published a policy statement on the identification and management of step-in risk (PS5/25). The policy statement provides feedback on responses to consultation paper (CP) 23/23 which, among other things, proposed to: (i) introduce new rules where firms are required to develop their own step-in risk policies and procedures based on the relevant Basel Committee on Banking Supervision's (BCBS) guidelines; and (ii) introduce an accompanying supervisory statement also based on the BCBS guidelines, detailing factors that firms are expected to consider when identifying potential step-in risk and in deciding, where necessary, on potential mitigating action. The responses to CP 23/23 were generally supportive of the PRA's proposals and made a number of observations and requests for clarification. The PRA considers these responses and sets out changes to the original proposals in the policy statement, which include:
- A new Rule 6.2 to remove the requirement for a firm to consider its relationship with a third-party securitisation special purpose entity for step-in risk where its only relationship is an investment in its senior securitisation position; and
- Amending Rules 1.2 and 6.1 to rename the part-specific definition 'sponsor' to 'step-in sponsor' to avoid confusion with the PRA Glossary term 'sponsor' and to amend the externally defined terms to improve clarity without changing the substance.
The final rules on the identification and management of step-in risk are set out in: (a) The PRA Rulebook: CRR Firms: Step-in Risk Instrument 2025, the PRA rulebook instrument that will introduce the Step-in Risk Part (Appendix 1) and (b) Supervisory statement: Step-in Risk (SS1/25) which sets out the PRA's expectations for firms undertaking step-in risk assessments and links to the reporting guidance to be used by these firms (Appendix 2). The implementation date for the new step-in rules and accompanying policy material is 1 January 2026.
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