Prudential Regulation Authority Rulebook

7

The PRA identifies serious failings in culture through its normal supervisory activity, which includes (but is not limited to) ongoing frequent contact with firm representatives (including continuous assessment meetings), reviews of the prudence of valuation methods, regular assessment of the independence and professionalism of a firm’s risk management, board effectiveness reviews, and consideration of a firm’s remuneration policies.

8

Identification of failings in culture is not limited to individual serious occurrences, but may include:

1. (i) The observation of multiple examples of firms failing to conduct their business in a safe and sound manner, including failings in different business areas, that may not be related or that when examined individually may not be considered serious.
2. (ii) Evidence of a poorly functioning board that fails to challenge executives or take a lead in consideration of conducting business in a safe and sound manner; which can include setting, articulating and embedding an appropriate culture in the firm, and drawing up clear policies and guidelines that are linked to staff objectives, training, evaluation and incentives.
3. (iii) Evidence of weak control areas such as risk, compliance and internal audit that may indicate poor management, lack of resource, or insignificant representation at board level.
4. (iv) Evidence of other weaknesses in board or senior management behaviour and influence on firm culture, including incentives and their adherence to the firm’s values.
5. (v) Any other evidence of failings in culture identified by the PRA’s supervisory approach.

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The PRA considers a variety of factors to identify failings in culture, including governance, incentives, risk awareness, and the ability to challenge senior management. The PRA also contributed to development of the Financial Stability Board’s Guidance on Supervisory Interaction with Financial Institutions on Risk Culture⁷, which identified a sound risk culture as one that supports appropriate risk awareness, behaviours and judgements about risk-taking within a strong risk governance framework.

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A skilled person report may also be used to further help the PRA identify concerns. Further details are given in the next section.