As we have seen, the PRA advances its objectives using two key tools.
Firstly, through regulation, it sets standards or policies that it expects firms to meet.
Secondly, through supervision, it assesses the risks that firms pose to the PRA’s Objectives
and, where necessary, takes action to reduce them.
The PRA’s approach to regulation and supervision has three characteristics:
- A judgement-based approach: The PRA uses judgement in determining whether financial firms are safe and sound, whether insurers provide appropriate protection for policyholders and whether firms continue to meet their Threshold Conditions
- A forward-looking approach: The PRA assesses firms not just against current risks, but also against those that could plausibly arise in the future. Where the PRA judges it necessary to intervene, it generally aims to do so at an early stage
- A focused approach: The PRA focuses on those issues and those firms that pose the greatest risk to the stability of the UK financial system and policyholders
The PRA approach to supervision does not seek to operate a “zero-failure” regime. Rather, the PRA seeks to ensure that a financial firm which fails does so in a way that avoids significant disruption to the supply of critical financial services.
Similarly, the FCA’s Objectives
indicate that they want consumers to use financial services with confidence and have products made available to them that meet their needs, provided by firms and individuals they can trust.
To achieve this objective, they regulate firms and financial advisers so that markets and financial systems remain sound, stable and resilient. They also encourage transparent pricing that’s easy for everyone to understand. The FCA’s aim is to help firms put the interests of their customers and the integrity of the market at the core of what they do.
Indeed, recent experience would suggest that the FCA is as much focussed on the issue of fairness to the consumer as it is on a strictly legal interpretation of insurance policy documents.
In December 2014, the FCA published its latest revised strategy
The FCA believes that “change is the new normal” and therefore it must be in a position to meet the unexpected.