PRA GOVERNANCE – PRUDENTIAL REGULATION AUTHORITY GOVERNANCE

The Prudential Regulation Authority (PRA) due to come into effect in early 2013 is essentially designed to minimise the effects of disorderly failure of banks, building societies, credit unions, investment firms and deposit takers.

Since senior management generally have a remit to minimise the possibility of failure, the objectives of the PRA and businesses should technically sit well together.

The area where there may be some divergence is risk. Directors and senior management have long had an obligation to understand risk (Section 172 of Companies Act 2006 required directors to ‘have regard’ to the likely consequence of any decision in the long term). However, events in the financial markets during 2008 proved that not all decisions were made with this responsibility in mind. The existence of the PRA is a direct response to failings in the financial services sector since 2008.
The PRA has already laid out the remit that senior management and company boards have a primary responsibility to run their firm responsibly; they must manage finance to minimise risk and ultimately it is the companies’ obligation to ensure they do not fail.

The PRA plans to use a judgement based model, complimented by prudential standards, to test this responsibility and adherence to it. This will be done via rules and regulations, supervisor oversight and resolution plans.

The high quality analysis of business risk will be essential. This is where TCC comes in. We can help you now by reviewing risks currently faced and advising on potential future risk.

Get ready for the PRA by emailing us now to discuss this further on info@theconsultingconsortium.com or call 020 3008 6020.