PRA SS2/21

PRA Supervisory Statement SS2/21 became effective on 31 March 2022. It sets PRA expectations for how UK PRA-regulated firms manage outsourcing and third-party arrangements. For agentic AI builders, SS2/21 matters because the LLM provider, the cloud provider, and any third-party API the agent calls are third parties under the statement.

Material outsourcing is the threshold concept. SS2/21 distinguishes material arrangements — those that, if disrupted, would have a material adverse impact on the firm’s safety, soundness, or operational resilience — from non-material. Most regulated firms running agentic AI workflows in production will classify their LLM provider as a material arrangement: the agent doesn’t work without the model.

Once classified as material, several obligations attach:

• Pre-contract due diligence. Documented assessment of the provider’s capability, control environment, and operational resilience.
• Concentration risk monitoring. Over-reliance on a single provider is a regulator concern. SS2/21 doesn’t prescribe a single threshold; it expects the firm to define one. The Regulus Model Registry’s concentration metric is the runtime view.
• Exit planning. A documented exit strategy that’s regularly rehearsed. Regulus’s kill-switch plugin doubles as the exit-drill mechanism — engaging the switch on the primary LLM provider exercises the runbook.
• Sub-outsourcing transparency. If your LLM provider sub-outsources any material function (e.g. compute capacity), that needs to be identified. Most LLM providers’ sub-outsourcing chain is opaque; Regulus tracks what’s disclosed but can’t conjure transparency from nothing.
• Ongoing monitoring. Continuous monitoring of the third party’s performance against the SLA, incident handling, and audit rights. The audit chain captures the firm’s side of the relationship.

The Regulus pra-ss2-21 profile is intentionally narrower than the SS1/23 profile — most of SS2/21 is governance-side documentation, not runtime evidence. What Regulus delivers: the material-arrangement register, the concentration metric, the exit-drill audit trail, and the ongoing-monitoring substrate. The actual contract terms, the SLA text, the audit-right enforcement letters — those live in your procurement and vendor-management systems.

The profile composes naturally with pra-ss1-23 (model risk is a specific case of third-party risk where the third party is an LLM), with dora (DORA’s ICT third-party register has overlapping field expectations), and with fca-sysc (FCA SUP 16 reporting on outsourcing runs in parallel for dual-regulated firms).