Glossary

Prudential Regulation Authority (PRA)

The Prudential Regulation Authority is one of two entities that survived the abolition of the Financial Services Authority. The UK government established it as a quasi-governmental part of the Bank of England. In 2013, it began working alongside the Financial Conduct Authority to regulate the financial markets, including insurance providers and their products.

The History of the Prudential Regulation Authority

The Financial Services Authority regulated the market from 2001 to 2013. However, the market crash in 2008 compelled Britain to question the effectiveness of its regulatory bodies and rules. It ultimately decided to abolish the FSA and created the FCA and PRA in its stead.

The PRA leverages the existing arms of the bank to do its work. For example, it maintains close relationships with the Special Resolution Unit and the Financial Policy Committee. 

One of its most recent contributions to financial security occurred in March 2020. In response to the economic crisis that followed the COVID-19 breakout, it requested the suspension of share and dividends repurchases until year-end.

The Role of the Prudential Regulation Authority

The PRA is responsible for ensuring the safety and soundness of banks, large investment firms, building societies, insurers, and credit unions. It also promotes competition in the markets while maintaining financial stability.

The PRA oversees all aspects of a financial institution’s business. For example, it would be concerned with an insurer’s capital levels, risk management practices, and governance. The aim is to protect consumers by ensuring that companies can meet their obligations.

The PRA has three main objectives:

  1. To promote the stability of regulated firms
  2. To provide an acceptable level of protection for insurance policyholders
  3. To encourage fair competition in the market

As a prudential regulator, the organization focuses on firms’ financial stability and not on consumer protection. Consumer protection is, instead, the focus of the Financial Conduct Authority and the Competition and Markets Authority. That said, the PRA does have some space to intervene when necessary to protect consumers.

How the PRA Regulates the Financial Market

The PRA regulates the financial market by setting standards and expectations for a firm’s operations. It also guides firms on how to meet these standards. The aim is to promote a safe and stable financial system.

These are the three main strategies it uses to support the safety of products offered to consumers:

  1. Providing Tailored Supervision: The PRA works with individual firms to customize its strategy for overseeing them. This depends on the size, complexity, and risk of the firm.
  2. Considering the Bigger Pictures: The PRA also looks at how individual firms fit into the broader financial system. It assesses risks to financial stability and designs its regulation around managing these risks.
  3. Looking Ahead: The PRA is constantly looking for ways to improve its regulation. It reviews its strategies and approaches regularly to make sure they are effective.

How To Apply for PRA Authorization and Registration

Before gaining legal status, new firms must undergo the authorization process to carry out designated business operations. Different units exist for various entities. The Prudential Regulation Authority also sets aside resources to meet with companies before they submit applications. In fact, it has an entire pre-application process broken down into the initial meeting, the feedback meeting, and the challenging session.

Before applying, businesses need at least three items to prove readiness. These include a business plan, corporate governance information, and documents showing funding sources. New companies can submit their applications electronically and pay a fee.

The Enforcement Powers Granted to the PRA

The Prudential Regulation Authority has the right to investigate suspected infractions and take disciplinary action against individuals and firms. These are some examples of enforcement actions:

  • The conducting of interviews as authorized by FSMA Section 169(7)
  • Statutory notices and decisions
  • Restrictions and suspensions
  • Publicity of disciplinary actions
  • Financial penalties
  • Settlements

Generally speaking, PRA fines are not as hefty or frequent as those from the FCA, but they add up. In 2021, it issued two penalties. One fine topped £5.3 million, and the other topped £46.5 million. It does also have joint penalties with the FCA, including one surpassing £48.3 million in 2020.

How Message Capturing And Archiving Can Help With PRA Compliance

The Prudential Regulation Authority has clarified that firms must take adequate steps to protect customer information and communications. This includes adequately archiving communications for record-keeping purposes.

Message archiving helps with PRA compliance in several ways:

  • Data Management
  • Disaster Recovery
  • Communications Retention

At LeapXpert, we have created message-capturing solutions that comply with PRA, FCA, SEC, and other guidelines affecting companies worldwide. No matter your communications compliance concerns, we likely have a solution for you. Contact us for more information and to book your free demo.