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 makes 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 is the focus of its work.

 

The PRA was created by the Financial Services Act (2012) and is a part of the Bank of England. It has 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.

 

The final report of the Parliamentary Commission on Banking Standards (PCBS), Changing banking for good, recommended the creation of a new secondary competition objective for the PRA. The Government accepted this recommendation and announced in its response to the PCBS (Cm 8661) published on 8 July 2013, that it would bring forward amendments to the Financial Services (Banking Reform) Bill to give the PRA a secondary competition objective.

 

As a secondary objective, the PRA's requirement to facilitate competition is subordinate to its general objective to promote the safety and soundness of the firms that it regulates (and to its insurance objective). However, the secondary objective requires the PRA to take a more proactive approach on competition than implied by its previous duty to “have regard” to the need to minimise the adverse effects on competition of its exercise of its general functions. This means that in taking action which advances its general and/or insurance objective it will be expected to act in a way which advances its secondary objective. It will also be expected to keep the prudential regime under review to consider changes that might further its competition objective without undermining the PRA's general and/or insurance objective.

 

The secondary competition objective is not intended to mirror the language of the FCA's primary competition objective which reflects the FCA's different remit.

 

For more information please refer to The Financial Services Act 2013 in the External Links on the right hand side of this page.