On 1 April 2013 the Prudential Regulation Authority (PRA) became responsible for the prudential regulation and supervision of banks, building societies, credit unions, insurers and major investment firms. In total the PRA regulates around 1,700 financial firms.
The PRA’s role is defined in terms of two statutory objectives to promote the safety and soundness of these firms and, specifically for insurers, to contribute to the securing of an appropriate degree of protection for policyholders.
In promoting safety and soundness, the PRA focuses primarily on the harm that firms can cause to the stability of the UK financial system. A stable financial system is one in which firms continue to provide critical financial services – a precondition for a healthy and successful economy.
The PRA will make forward-looking judgements on the risks posed by firms to its statutory objectives. Those institutions and issues which pose the greatest risk to the stability of the financial system will be the focus of its work.
The PRA was created by the Financial Services Act (2012) and will be part of the Bank of England. It will have close working relationships with other parts of the Bank, including the Financial Policy Committee and the Special Resolution Unit.
The PRA works alongside the Financial Conduct Authority (FCA) creating a “twin peaks” regulatory structure in the UK. The FCA is a separate institution and not part of the Bank of England. The FCA is responsible for promoting effective competition, ensuring that relevant markets function well, and for the conduct regulation of all financial services firms. This includes acting to prevent market abuse and ensuring that consumers get a fair deal from financial firms. The FCA operates the prudential regulation of those financial services firms not supervised by the PRA, such as asset managers and independent financial advisers.