Prudential Regulation Authority Rulebook

Update: on 20 November 2015 the PRA updated this supervisory statement to reflect the changes to the PRA Rulebook that will occur when the new Solvency II and non-Directive firm (NDF) regimes come into force on 1 January 2016. The statement is not addressed to firms within the scope of Solvency II who will need to value their assets in accordance with the Valuation Part of the PRA Rulebook and must have the necessary governance and internal controls in place to control their valuation risks. For the avoidance of doubt, Solvency II contains the same requirements covered in this statement. Paragraphs 1.1, 2.1 and 2.2 have been updated. The response to consultation feedback in paragraph 1.5 has been deleted, and is available for reference in the August 2014 version¹.

1.1

This supervisory statement sets out the Prudential Regulation Authority’s (PRA’s) expectations of firms outside the scope of Solvency II from 1 January 2016, in relation to rules on the valuation of financial assets. Collectively, these firms are referred to as non-Directive firms (NDFs).

1.2

The statement seeks to reduce the risk to the PRA’s objectives caused by intended or unintended misstatement of values and hence misstatement of capital resources, by clarifying the PRA’s existing expectations. The statement is therefore designed to help the PRA meet its statutory objectives of promoting safety and soundness of the firms it regulates and, specifically for insurers, to contribute to securing an appropriate degree of protection for policyholders, along with its secondary objective; to promote effective competition.

1.3

The PRA’s public consultation² on this statement ended on 11 July 2014. At consultation, the PRA considered the way in which the policy advances the PRA’s objectives, the impact on mutual, consistency with the Regulatory Principles³, the impact on equality and diversity and the costs and benefits of the proposed policy. The PRA’s findings on these issues are unchanged following consultation and the PRA’s consideration of the feedback received.

1.4

This statement does not represent a change of policy. Future clarifications or expectations on the topic of valuation risk may be added to the statement.