Yesterday, the UK Financial Services Authority (FSA) and the Bank of England announced they have jointly published a paper entitled: “The Bank of England, Prudential Regulation Authority: Our approach to banking supervision.” The paper considers the future of the Prudential Regulation Authority (PRA), especially in connection with its approach to banks, building societies, investment firms, and credit unions. The PRA is a proposed regulatory body intended to partially replace the FSA.
Hector Sants, FSA and PRA executive, says that the PRA “will lead to a significantly different model of supervision to that which was in use pre-2007.” When crafting the organization’s policies and procedures, regulators “incorporated both the lessons learned from the last financial crisis and those from firm failures of the past. The new regulatory model will be based on forward looking judgments and will be underpinned by the fact that the PRA has a single objective to promote the stability of the UK financial system and in consequence will be a very focused organization.”
Andrew Bailey, FSA director of UK banks and PRA executive, concurred: “Maintaining financial stability is an objective in public policy which we should all value highly…the PRA will use a new framework to asses risks to financial stability.” The paper, to be presented at a later date, covers the PRAs scope and underlying principles, risk assessment framework, and supervisory approach.
The PRA is one of three regulatory bodies established by the UK in July of 2010. The PRA, along with the Financial Policy Committee of the Bank of England and the Financial Conduct Authority will fill the vacuum left by the FSA when it is ultimately disbanded. The PRA itself will supervise over 2,000 firms, of which around half will be deposit-takers. Of those deposit-takers, 157 will be UK-incorporated banks, 48 will be UK building societies, 652 will be UK credit unions, and 162 will be branches of overseas banks.