The UK's Prudential Regulation Authority (PRA) became responsible for the prudential regulation and supervision of banks, building societies, credit unions, insurers and major investment firms on April 1st 2013.
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Prudential Regulation Authority Responsibilities
In total the PRA regulates around 1,700 financial firms. The Prudential Regulation Authority is part of the Bank of England. Together with the Financial Conduct Authority, the PRA replaces the now-defunct Financial Services Authority (FSA). This followed criticism that the latter failed to regulate the financial markets effectively, a catastrophic failure that led to the collapse of the banking sector and the subsequent intervention of the British taxpayer to avoid financial meltdown.
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.
Global and European engagement
Banking and insurance are international industries and, to a large extent, the policy framework for supervising banks and insurance companies is agreed internationally. Therefore effective international cooperation will be essential to the PRA’s success.
Globally, the PRA will be actively involved in the work of the Financial Stability Board, the Basel Committee on Banking Supervision, the International Association of Insurance supervisors, and the Joint Forum. It will use these fora to advance its safety and soundness, and policyholder protection objectives.
As a consequence of the UK’s role as an international financial centre, a key responsibility of the PRA will be supervision of overseas firms operating in the UK, as well as UK groups operating abroad. The PRA will engage actively with its overseas counterparts in supervising cross-border firms. To support this, the PRA will maintain co-operation agreements including memoranda of understanding with overseas counterparts to enable the sharing of confidential information on cross-border firms. It will participate in “supervisory colleges” for firms with significant operations in the UK, and it will organise and chair the colleges for UK firms.
European engagement and legislation
The policy standards agreed internationally are implemented in Europe through Directives or directly-applicable Regulations. Therefore PRA will engage actively with relevant European institutions and EU regulators and it will be involved in the on-going development and implementation of the single market in financial services. This involves a comprehensive legislative programme, which must be implemented in the UK.
The regulation of financial services across Europe is overseen by a European System of Financial Supervision (ESFS). This is comprised of three European Supervisory Authorities (ESAs):
The European Systemic Risk Board (ESRB) is an independent EU body responsible for macro-prudential oversight of the EU financial system.
The PRA will be involved in the ESFS and the UK representative on the EBA and EIOPA. The Financial Conduct Authority (FCA) will represent the UK at ESMA and the Bank of England will be the voting member on the ESRB.
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