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Home > Prudential Regulation Authority > Supervisory activities

Supervisory activities

Capital instruments  |  Climate Change Adaptation Reporting  |  Stress test scenario  |  Remuneration Rules  |  Run-off  |  Skilled Person Reviews  |  Stress testing

The Prudential Regulation Authority (PRA) undertakes a range of activities in its work to promote the safety and soundness of financial firms. Its two key tools in this regard are regulation and supervision. 

Through its regulation the PRA sets standards or policies that it expects firms to meet.  The PRA’s Remuneration Code, for example, sets out the standards that banks, building societies and major investment firms have to meet when setting pay and bonus awards for their staff. Stress and scenario testing is an important element in firms’ planning and risk management processes, helping them to identify, analyse and manage risks. The PRA sets policy for firms' stress-testing requirements, sets stress scenarios and monitors test results.

Through its supervision the PRA assesses the risks that firms pose to its objectives and takes action to reduce them. Where a firm’s activities are a cause for concern, the PRA has the power to commission reports by skilled persons. A firm is required to notify the PRA in advance if it plans to issue instruments that are intended to count towards it regulatory capital. In order to wind down a business, insurers must consider a range of issues set out by the PRA when entering into run-off.

The PRA is supporting efforts to boost lending through a capital policy that allows reductions in the additional capital that firms are required to hold as buffers. The so-called capital planning buffer offset is a temporary policy put in place to support lending to the real economy and will take account of growth in eligible lending between the period end-June 2012 and end-December 2013.

The scope of the Alternative Investment Fund Managers Directive (AIFMD) is broad and, with a few exceptions, covers the management, administration and marketing of alternative investment funds. AIFMD aims to enhance supervisory practice to prevent market instability and the build-up of systemic risk in the European financial system.