Prudential Regulation Authority Rulebook

2.1

The PRA expects firms to develop and document an investment strategy which describes at least:

• investment objectives and strategic asset allocation;
• consideration of investment constraints when setting investment objectives and strategic asset allocation;
• alignment of the investment strategy with the business model and, where appropriate, how the strategy takes into account the nature and duration of a firm’s liabilities and obligations, and the best interests of policyholders;
• alignment of investment strategy with board risk appetite, risk tolerance limits and investment risk and return objectives; and
• a complete list of assets and how those assets have been invested in accordance with the PPP (in line with the requirements set out in Article 309(2)(e) of the Commission Delegated Regulation (EU) 2015/35).

2.2

A firm should review its investment strategy on an annual basis and additionally, where appropriate, following a major external event or material change in the firm’s risk profile.

2.3

The continuing appropriateness of, or significant changes to, the investment strategy should be challenged, approved and controlled by the board or relevant sub-committee of the board. These changes might include, but are not limited to, situations where the firm is planning to invest in a new asset class, make a material, non-routine investment or materially alter the composition of its investment portfolio. A firm wishing to invest in asset classes not already approved by its board should conduct a comprehensive risk assessment to ensure all the necessary expertise, systems and processes are in place to value the asset, and to identify, measure, manage, monitor, control and report associated risks.

2.4

A firm must demonstrate that it complies with the Investments Part of the PRA Rulebook.^[29] While the PRA is not seeking to impose additional reporting requirements, it considers that a firm’s board cannot make effective decisions if it receives information piecemeal. Accordingly, the PRA expects that firms document compliance in a way that enables the board to effectively engage with, understand and challenge the material. Firms should be able to provide evidence of this compliance to the PRA on request.