For Victoria Saporta, executive director of prudential policy directorate at the Bank of England, good prudential regulation is strong and responsive, just like an immune system.
Speaking at Tuesday’s The Future of UK Financial Services Regulation Summit, the Prudential Regulation Authority (PRA) senior management team member told attendees: “Good prudential regulation is a bit like an effective immune system. An immune system is strong and responsive. It is strong to protect against threats, and responsive to fight new risks. Indeed, it is strong because it is responsive.
“Its strength is a consequence of its ability to change so that it can identify, contain, and control new threats to our wellbeing, without getting in the way of what works well. It remembers previous threats. It is easy to take it for granted until something overcomes its defences. When that happens, the consequences can be devastating.”
She stated: “Good prudential regulation is very similar. It stays strong by adapting when shocks hit the economy, such as when we acted at the start of the pandemic to ensure that the financial system delivered services for households and businesses to support the real economy at all times, good and bad.
“Good prudential regulation also responds when innovation changes the way finance works… Good prudential regulation also changes to meet new sorts of risk, which is why we were among the first regulators globally to develop standards for operational resilience.”
Saporta made the analogy amid important changes to the PRA’s powers and responsibilities, as a result of the Financial Services and Markets Bill. Rule-making powers for the regulator will be broadened while a new objective is introduced.
“The PRA’s primary objectives will remain the safety and soundness of firms and, for insurers, an appropriate degree of protection for policyholders,” noted the executive director in her speech. “We will keep our existing secondary objective to facilitate effective competition in markets for financial services.
“But alongside these we will have a new secondary objective to facilitate, subject to alignment with relevant international standards, the international competitiveness of the UK’s economy and its growth in the medium to long term.”
She continued: “We know it is important that we explain what we think these changes will mean for our policy-making. We also want to hear how other people think we should approach our objectives and use new powers. That is why on September 8 we published a discussion paper setting out our vision for the PRA as a strong, accountable, responsive, and accessible rule maker.”
In her address, Saporta explained how the abovementioned principles will guide the regulator as it seeks out new opportunities to pursue all of the PRA’s objectives. She also pointed to the opportunity not only to strengthen the PRA’s accountability to Parliament and the public but also to make its rules more accessible.
“It is also essential that we explain our proposals to all our stakeholders and take into account their views,” declared Saporta. “We will engage with them more, including by publishing more discussion papers to explain our early-stage thinking.
“This will go hand-in-hand with clear communications to help firms understand our plans for future changes to policy… Being more accessible also means making it easier for firms to understand the requirements they must meet.”
Held in London, the summit was organised by City & Financial Global. It featured speakers from the likes of HM Treasury, the Financial Conduct Authority, and the Association of British Insurers.
