PRA CBA Panel strengthens policy analysis, transparency
The Prudential Regulation Authority's Cost Benefit Analysis Panel has published its annual report for 2025/26, detailing its independent challenge and advice to strengthen analysis in policymaking. The Panel emphasizes embedding cost-benefit analysis early in the policy design process.
Early integration for stronger CBAs
The Panel evaluated eight Cost Benefit Analyses (CBAs) this year, spanning banking, insurance, and financial market infrastructures (FMIs).
It acts as a 'critical friend', providing independent challenge and advice to strengthen analysis before final decisions.
A key focus is embedding CBA into the full process of policy design, not merely as a review mechanism at the final stage.
This is particularly vital for policies where benefits are difficult to quantify in monetary terms, which applies to most PRA and Bank policies.
In March 2025, the Panel agreed a shared roadmap with the PRA and the Bank, guiding their engagement and deepening understanding of CBA application in prudential regulation.
This included structured engagement on CBA models and technical Q&A sessions.
The Panel also engaged in the initial development stages of five CBAs, leading to considerably stronger outputs.
The updated Statement of Policy 14/24 now explicitly envisages early input for more complex CBAs, reflecting this successful collaboration.
Navigating complex regulatory impacts
The Panel supported the PRA and Bank in presenting CBA thinking in consultations, focusing on causal chain exposition and evidence-based explanations.
They proposed securing cost estimates from multiple sources, using cost ranges for uncertainty, and clearer articulation of benefits with simple examples.
Insights from other jurisdictions were also suggested.
CBA in prudential and FMI regulation remains challenging due to long-term, indirect, and behavioural impacts, especially in less-researched FMI markets.
The Panel believes the PRA and Bank should assess mechanisms to test if CBAs accurately capture intended outcomes as part of the Rule Review process, acknowledging no one-size-fits-all approach.
The Panel expects its contribution to develop further as its understanding deepens and experience grows, promoting greater expertise in CBA application.
A critical friend's evolving role
The report clearly demonstrates the CBA Panel's growing influence in refining the PRA's policy development process, moving beyond mere review to early-stage engagement.
While acknowledging positive strides in transparency and methodology, the inherent complexities of quantifying long-term regulatory impacts, particularly in FMIs, highlight persistent challenges.
The Panel's commitment to continuous improvement and deeper collaboration is essential for ensuring proportionate and effective regulation in an increasingly intricate financial landscape.