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Mitigating risk

Assessing risk  |  Information for smaller firms  |  Mitigating risk  |  Proactive intervention framework  |  Regulation of insurance

The Prudential Regulation Authority (PRA) continually reviews its judgement of the risks to firms’ safety and soundness, on the basis of the supervisory activities undertaken. It communicates these judgements to firms, and requires them to take action as a result. 

There is a clear and direct link between the risks that the PRA perceives and the actions it expects from firms in consequence. The test of materiality for points raised with firms is high, with a focus on root cause analysis rather than symptoms, and with supervisory interventions clearly and directly linked to reducing risks to financial stability. The PRA expects to verify itself that action is taken on these key risks, and communicates to the firm’s board when and how it intends to do this.
The PRA focuses on outcomes. The PRA highlights issues of concern and the outcomes it wishes to see. But it is the responsibility of the firm to manage itself, and in general the way in which firms achieve these outcomes is a matter for them. In some cases the PRA may choose to be directive in terms of the action required, if it considers it necessary in order to reduce risks to its objective.
Firms may sometimes disagree with the PRA’s decisions. This is inherent in a forward-looking system. In general, the PRA discusses issues with firms in reaching its decision, and carefully considers representations made, not least to ensure that its decisions are made on the basis of all the relevant evidence. But firms should not approach their relationship with the PRA as a negotiation.