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The Prudential Regulation Authority (The PRA's approach to regulation…
The Prudential Regulation Authority
A subsidiary of the Bank of England
Responsible for regulating deposit taking businesses, ie banks and building societies, insurers and investment firms
General objectives are to promote the safety and soundness of PRA authorised persons. Seeks to do this in two ways:
Ensuring that the business of PRA authorised persons is carried out in a way which avoids any adverse effect on the stability of the UK financial system
Minimising the adverse effect that the failure of a PRA authorised person could expect to have on the stability of the UK financial system
Also has an insurance objective, namely contributing to securing an appropriate degree of protection for those who are, or may become policyholders
In discharging its general functions, the PRA has a duty to have regard to the regulatory principles set out in the Financial Services Act 2012
The PRA's approach to regulation and supervision has three main characteristics
A judgement based approach:
the PRA uses its judgement in determining whether financial firms are safe and sound, whether insurers provide appropriate protection for policyholders and whether firms continue to meet the threshold conditions
A forward looking approach:
the PRA assesses firms not just against current risks but also against those that could plausibly arise in the future, where they judge it necessary to intervene, it generally aims to do so at an early stage
A focused approach:
the PRA focuses on those issues and those firms that pose the greatest risk to the stability of the UK financial system and policyholders
Ongoing Supervision by the PRA:
The PRA divides the firms that it supervises into categories of potential impact. The frequency and intensity of supervision applied to firms varies in line with this. The size of a firm's potential impact depends upon these factors:
Firms size
Firms complexity
Firms interconnectedness with the rest of the financial system
Number of policyholders (if an insurance company)
Type of business undertaken
Varies the resources allocated to the supervision of firms based on their proximity to failure and resolvability as well as the possible adverse effects on the PRA's objectives