Prudential Regulation Authority Rulebook

4

The PRA’s approach to supervision, including the use of its powers, is set out in the approach documents. The culture of a firm contributes towards its ability to meet its Threshold Conditions, the minimum requirements that firms must meet in order to be permitted to carry on the regulated activities in which they engage; and the PRA’s Fundamental Rules, which set out at a high level the requirements placed on firms. A failure to comply with the Fundamental Rules may be relevant to a firm’s ongoing compliance with the Threshold Conditions and may result in enforcement or other actions³. Furthermore, the PRA expects firms not merely to meet the letter of its requirements, but to maintain sight of the overriding principle of their safety and soundness and act accordingly⁴.

5

The PRA expects firms to have a culture that supports their prudent management. The PRA does not have any ‘right culture’ in mind, rather it focuses on whether boards and management clearly understand the circumstances in which the firm’s viability would be under question, whether accepted orthodoxies are challenged, and whether action is taken to address risks on a timely basis. The PRA wants to be satisfied in particular that designated risk management and control functions carry real weight within firms⁵.

6

The PRA also expects that individuals, whatever their position in the firm, should take responsibility for acting in a manner consistent with its safety and soundness; that remuneration and incentive structures should reward careful and prudent management; that firms and individuals should deal with the PRA (and other regulators as appropriate) in an open and co-operative manner as set out in the PRA’s Fundamental Rules; and that the board takes responsibility for establishing, embedding and maintaining a firm’s culture⁶. The PRA seeks to address serious failings in the culture of firms as part of its approach to supervision.