What is the Prudential Regulation Authority (PRA)?

The Prudential Regulation Authority, also known as the PRA, is a prudential regulator with far-reaching responsibilities that safeguard the stability of the United Kingdom’s financial infrastructure.

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16 February 2024 5 mins read
by Jennie Clarke

In this article, we’ll cover:

Join us as we explore how the PRA helps strengthen the resilience of U.K. financial services firms to create a more stable economy.

What is the Prudential Regulation Authority?

The Prudential Regulation Authority (PRA) is a U.K. financial services regulatory agency responsible for overseeing major financial institutions.

The prudential regulator was established along with the Financial Conduct Authority (FCA) in 2013, replacing the preceding agency, the Financial Services Authority.

The PRA’s remit is to ensure system-wide stability and soundness of the banking sector. With a focus on safety and resilience across markets, the PRA mandates robust capital and liquidity reserves while setting standards around governance, risk controls, and regulatory reporting.

In addition to its main objectives, the PRA promotes the safety and soundness of its regulated firms and helps ensure that proper protections are in place for insurance policyholders.

Is the Prudential Regulation Authority part of the Bank of England?

The Bank of England regulates and supervises financial institutions through the PRA. The PRA is often referred to as the regulatory arm of the Bank of England.

The PRA’s most important decisions are made by the PRA Committee. A number of key individuals hold positions in the PRA Committee, including:

  • The Governor of the Bank of England
  • Deputy Governors for Financial Stability, Markets and Banking, and Prudential Regulation
  • The Chief Executive of the Financial Conduct Authority (FCA)
  • A member appointed by the Governor of the Bank of England with the approval of the Chancellor;
  • And six other external members appointed by the U.K.’s Chancellor

What does the Prudential Regulation Authority do?

The PRA uses its network of policies and supervisory capabilities to set standards at firm-level and ensure a safe, trusted financial infrastructure for U.K. consumers.

Simply complying with PRA Rules does not, in itself, prevent U.K. financial institutions from failing. The PRA does, however, safeguard against major disruptions caused by the failure of a financial institution, making it a critical component to the stability of the U.K.’s financial markets.

One of the PRA’s core objectives is to ensure adequate protection for U.K. consumers. One of the most well-known examples of this is the Financial Services Compensation Scheme (FSCS).

The PRA does not provide financial compensation; however, it is responsible for rules relating to FSCS protection in respect of deposits and contracts of insurance.

Who does the Prudential Regulation Authority regulate?

It is important to note that the PRA only possesses jurisdiction over U.K.-based financial institutions. According to the Bank of England, the PRA supervises about 1,500 financial institutions including major investment firms, banks, building societies, and insurance companies. The PRA’s overarching mission is to promote stability among the U.K.’s financial institutions by ensuring that firms act responsibly and in a way that minimizes the risk of falling to financial difficulty.

What are the rules of the Prudential Regulation Authority?

The PRA Rulebook outlines provisions made by the PRA that are applicable to PRA-authorized firms. An integral part of the PRA Rulebook is the PRA’s Fundamental Rules.

The eight fundamental rules that PRA-authorized firms must follow are:

  1. A firm must conduct its business with integrity.
  2. A firm must conduct its business with due skill, care, and diligence.
  3. A firm must act in a prudent manner.
  4. A firm must at all times maintain adequate financial resources.
  5. A firm must have effective risk strategies and risk management systems.
  6. A firm must organize and control its affairs responsibly and effectively.
  7. A firm must deal with its regulators in an open and cooperative way and must disclose to the PRA appropriately anything relating to the firm of which the PRA would reasonably expect notice.
  8. A firm must prepare for resolution so, if the need arises, it can be resolved in an orderly manner with a minimum disruption of critical services.

Prudential Regulation Authority enforcement actions

Failure to comply with the PRA’s requirements leads to hefty penalties. In July 2023, the PRA issued Credit Suisse a record fine of £87 million for significant risk management and governance failures between 2020 and 2021. The PRA’s enforcement investigation revealed that the firm breached four of its Fundamental Rules, leading to the regulatory body issuing its largest ever fine to Credit Suisse International and Credit Suisse Securities (Europe) Ltd.

Summary

In its capacity as a prudential regulator, the PRA uses its statutory powers to ensure that U.K. financial firms maintain sufficient capital and establish adequate risk controls. Firms that adhere to the PRA’s standards benefit from firm stability, consumer trust, and access to wider opportunities among other potential gains.

Regulatory compliance, especially regarding safety and soundness, cements an ethical foundation from which businesses can pursue sustainable, socially-conscious success strategies in step with market overseers.

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Published 16 February 2024

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