PRA boss outlines new approach to regulation

Andrew Bailey has said the Prudential Regulatory Authority (PRA) will focus on the potential harm insurance companies and banks can cause to the stability of the financial system in his first public speech since becoming its chief executive.

Speaking at the Chartered Banker Dinner in Edinburgh last night, Bailey said the focus was consistent with the PRA’s objective of promoting the safety and soundness of firms.

“We define a stable financial system as one that is resilient in providing the critical financial services that the economy needs. And this supply of services is a necessary condition for a healthy and successful economy, as demonstrated by the costs imposed by the financial crisis on the public and society at large,” he said.

“For insurance companies, the PRA will have the second objective of contributing to securing an appropriate degree of protection for policyholders. Why do we need a second objective for insurance?

“One reason is that in taking out some forms of insurance policies, the public can become locked into very long-term contracts, much longer often than is the case in banking with deposit contracts. Bearing this in mind, the public interest I think justifies a second objective for insurance, which is more directly targeted at the situation of individual policyholders,” he added.

Bailey said the FSA, which was split into the PRA and Financial Conduct Authority (FCA) last month, had been unable to deliver a balance of conduct and prudential supervision.

“It is easy to conclude from observation of the issues we face as regulators, and the public debate, that we are just dealing with reforming the regulation of banks. That is not the case, and what we are doing is not about dragging the rest of the financial services industry into reform to solve a problem that is in essence only about the banks. We have to design a system that works effectively for all sectors of the industry,” he said.