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Policy

Prudential supervision is based on policies which ensure that judgements about risks to the PRA’s objectives are made within a clear and coherent framework. This page details the PRA’s approach to setting and communicating these policies, common across all the firms that it regulates and relevant to both of its statutory objectives. It also includes information about Global and European engagement and European engagement and legislation.

Making policy to support the PRA’s approach

The Prudential Regulation Authority (PRA) aims to establish and maintain published policy material that is consistent with its objectives, clear in intent, straightforward in its presentation and as concise as possible, so that it is usable by the senior management of firms. Taken as a whole, the set of published policy material is intended to set out clearly and concisely what the PRA expects of firms in terms of intended outcomes, so that they can meet these expectations through their own actions.

The policy framework for the PRA’s supervision is to a large extent agreed internationally, both at a global level and within the European Union (see below). Relevant EU Regulations, including binding technical standards that apply directly to UK firms, will not be reproduced in the PRA’s Rulebook but will be part of the PRA’s requirements of firms. Firms are also subject to guidance by the European Supervisory Authorities.

Where the PRA issues rules in areas not covered by EU law, it aims to do so in a manner which is clear about the intended outcome, straightforward to understand and as concise as possible to achieve this. The PRA sets out its rules in the PRA Rulebook which contains direct requirements on firms. The framework includes non-rule material, which is contained in supervisory statements.

Firms are expected to engage directly with policy materials, including rules in the PRA Rulebook, supervisory statements, EU materials and determine – bearing in mind the overarching principle of safety and soundness – whether they meet the PRA’s expectations. More information about making policy to support the PRA’s general approach is available in the approach documents.

The different types of PRA policy publications:

​Discussion paper (DP) DPs are used to stimulate debate on issues about which the PRA is considering making rules or setting out expectations. The PRA uses the responses it receives on DPs to help formulate its policy. Once the PRA establishes a preferred position, draft rules and supervisory statements will be prepared and then the formal consultation process, by way of a consultation paper, will commence.
​Consultation paper (CP) CPs are the formal document by which the PRA sets out draft proposals and invites comments from the public on those proposals. CPs either deal with one discrete issue of significance or a number of small and/or uncontroversial topics in Occasional CPs.
​Policy statement (PS) PSs set out the PRA’s feedback on consultation responses, together with the PRA’s policy line. Feedback is only issued where there have been extensive comments by the public and industry.
​Supervisory statement (SS) SSs set flexible frameworks for firms, incorporating new and existing expectations. They focus on the PRA’s expectations and are aimed at facilitating firm and supervisory judgement in determining whether they meet those expectations. They do not set absolute requirements which are contained in rules.
​Statement of Policy (SoP) Statements of policy are the formal document by which the PRA details its policy on a particular matter. Statements of policy usually set out the PRA’s approach to the exercise of powers conferred by the Financial Services and Markets Act 2000. They do not contain the PRA’s expectations which are set out in a supervisory statement.

 
See Related Links to PRA Publications.

Global and European engagement

Banking and insurance are international industries and, to a large extent, the policy framework for supervising banks and insurance companies is agreed internationally. Therefore effective international cooperation will be essential to the PRA’s success. The PRA attaches great importance to being an influential and persuasive participant in international policy debates, seeking to achieve agreement at the global and European level to the reforms necessary for a strong, coherent and clear prudential framework for supervision.

At the global level, the PRA is actively involved in the work of the Financial Stability Board, the Basel Committee on Banking Supervision, the International Association of Insurance supervisors, and the Joint Forum. It uses these fora to advance its safety and soundness, and policyholder protection objectives. As a consequence of the UK’s role as an international financial centre, a key responsibility of the PRA is the supervision of overseas firms operating in the UK, as well as UK groups operating abroad. The PRA engages actively with its overseas counterparts in supervising cross-border firms. To support this, the PRA maintains co-operation agreements including memoranda of understanding with overseas counterparts to enable the sharing of confidential information on cross-border firms. It participates in “supervisory colleges” for firms with significant operations in the UK, and organises and chairs the colleges for UK firms.

European engagement and legislation

The policy standards agreed internationally are implemented in Europe through Directives or directly-applicable Regulations. Therefore the PRA engages actively with relevant European institutions and EU regulators and it is involved in the on-going development and implementation of the single market in financial services. This involves a comprehensive legislative programme, which must be implemented in the UK.

The regulation of financial services across Europe is overseen by a European System of Financial Supervision (ESFS). This is comprised of three European Supervisory Authorities (ESAs):

  • The European Banking Authority (EBA)
  • The European Securities and Markets Authority (ESMA)
  • The European Insurance and Occupational Pensions Authority (EIOPA).

The European Systemic Risk Board (ESRB) is an independent EU body responsible for macro-prudential oversight of the EU financial system.

The PRA is involved in the ESFS and the UK representative on the EBA and EIOPA. The Financial Conduct Authority (FCA) represents the UK at ESMA and the Bank of England is the voting member on the ESRB.

Part of the role of the ESAs is to improve coordination between national supervisory authorities in the EU. They have significant powers to propose draft rules and to take decisions binding on national supervisors, and to a lesser extent, firms. The PRA is involved in ESA working groups that develop rules and guidance.

In future overseas regulators who have not previously contacted the PRA should get in touch where they want assistance or to notify it ahead of contacting PRA-authorised firms.

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