The Prudential Regulation Authority (PRA) was created as a part of the Bank of England by the Financial Services Act (2012) and is responsible for the prudential regulation and supervision of around 1,700 banks, building societies, credit unions, insurers and major investment firms. The PRA’s objectives are set out in the Financial Services and Markets Act 2000 (FSMA). The PRA has three statutory objectives:
- a general objective to promote the safety and soundness of the firms it regulates;
- an objective specific to insurance firms, to contribute to the securing of an appropriate degree of protection for those who are or may become insurance policyholders; and
- a secondary objective to facilitate effective competition.
The PRA advances its objectives using two key tools. First through regulation, it sets standards or policies that it expects firms to meet. Second, through supervision, it assesses the risks that firms pose to the PRA’s objectives and, where necessary, takes action to reduce them.
The PRA’s approach to using regulation and supervision has three characteristics – it is:
- Judgement based: the PRA uses judgement in determining whether financial firms are safe and sound, whether insurers provide appropriate protection for policyholders and whether firms continue to meet the Threshold Conditions.
- Forward looking: the PRA assesses firms not just against current risks, but also against those that could plausibly arise in the future. Where the PRA judges it necessary to intervene, it generally aims to do so at an early stage.
- Focused: the PRA focuses on those issues and those firms that pose the greatest risk to the stability of the UK financial system and policyholders. 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 does not seek to operate a “zero-failure” regime. Rather, it seeks to ensure that a financial firm which fails does so in a way that avoids significant disruption to the supply of critical financial services.
The Prudential Regulation Authority is a UK public regulatory body. It has no corporate relationship with Prudential plc or any of its affiliates.
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Key initiatives
Quick links to four of the PRA’s key initiatives: i) Strengthening accountability; ii) Solvency II; iii) CRD IV; and iv) Structural reform, are available below.