Prudential Regulation Authority (PRA)

The Prudential Regulation Authority (PRA) is the United Kingdom's prudential regulator for deposit-takers, insurers and the largest investment firms. It sits within the Bank of England and is responsible for making sure that the firms it supervises are financially sound: that they hold enough capital and liquidity, manage their risks, and can fail, if they must, without causing serious disruption to the wider financial system. It covers roughly 1,300 firms, including banks, building societies, credit unions, insurers and designated investment firms.

The PRA is one half of the UK's "twin peaks" model. Conduct of business, market integrity and consumer protection are the responsibility of the Financial Conduct Authority (FCA), while the PRA concentrates on solvency and resilience. For the Bank's full institutional profile, see the Prudential Regulation Authority regulator profile and the Bank of England regulator profile.

Before 2013, prudential and conduct supervision in the UK were combined in a single body, the Financial Services Authority (FSA). The 2007 to 2009 crisis, including the run on Northern Rock and the rescues of several large banks during the 2008 financial crisis, led the government to conclude that prudential supervision had been neglected. The Financial Services Act 2012 abolished the FSA and, from 1 April 2013, divided its work between the new PRA and the FCA.

The PRA was originally established as a subsidiary company of the Bank of England. The Bank of England and Financial Services Act 2016 ended that separate corporate status and brought the PRA fully inside the Bank, with its decisions taken by a Prudential Regulation Committee. The head of the PRA is also a Deputy Governor of the Bank.

The PRA's statutory objectives are set out in the Financial Services and Markets Act 2000, as amended:

• A general objective to promote the safety and soundness of the firms it regulates.
• For insurers, an objective to contribute to an appropriate degree of protection for policyholders.
• A secondary objective to facilitate effective competition in the markets for services provided by the firms it regulates.
• A secondary objective, added by the Financial Services and Markets Act 2023, to facilitate the international competitiveness and growth of the UK economy in the medium to long term, subject to its primary objectives.

The PRA authorizes new banks and insurers, jointly with the FCA, which issues the authorization for the conduct side. A firm seeking a UK banking license therefore deals with both regulators, and such firms are called dual-regulated. The PRA then supervises them continuously, with the intensity of supervision rising with the firm's potential impact on the system.

Its main tools include:

• Rules on regulatory capital and liquidity, implementing the international standards of the Basel Committee on Banking Supervision, including Basel III, and the Solvency regime for insurers.
• Stress testing of major banks, run with the Bank's Financial Policy Committee.
• Recovery and resolution planning, so that a failing firm can be wound down or restructured by the Bank without taxpayer support.
• The Senior Managers and Certification Regime, shared with the FCA, which makes named individuals accountable for specific areas of a firm.
• Approval of change of control in the firms it regulates.

Many firms that payments practitioners deal with are outside the PRA's remit. Payment institutions and electronic money institutions are authorized and supervised solely by the FCA, which also oversees their safeguarding of customer funds. Most investment firms, brokers and consumer credit firms are also FCA-only. The PRA's remit begins when a firm accepts deposits, writes insurance, or is designated as a systemically important investment firm.

The PRA is a member of international standard-setting bodies through the Bank of England, including the Basel Committee, which is hosted by the Bank for International Settlements. It cooperates with overseas supervisors on cross-border groups, and after the UK left the European Union it took on rule-making functions previously handled at EU level. Comparable bodies abroad include the Australian Prudential Regulation Authority and the Prudential Authority of South Africa, both of which also separate prudential from conduct supervision. Switzerland takes a different route: FINMA handles both prudential and conduct supervision of its banks and insurers within a single integrated authority.

• Prudential Regulation Authority (Bank of England)