General Information & Client Services
  • Americas: +1.212.553.1653
  • Asia: +852.3551.3077
  • China: +86.10.6319.6580
  • EMEA: +44.20.7772.5454
  • Japan: +81.3.5408.4100
Media Relations
  • New York: +1.212.553.0376
  • London: +44.20.7772.5456
  • Hong Kong: +852.3758.1350
  • Tokyo: +813.5408.4110
  • Sydney: +61.2.9270.8141
  • Mexico City: +001.888.779.5833
  • Buenos Aires: +0800.666.3506
  • São Paulo: +0800.891.2518
July 10, 2017

PRA published remarks of Sam Woods, the Deputy Governor for Prudential Regulation and Chief Executive Officer of PRA, which were published for the May 2017 Building Society Association Annual Conference. He discussed the importance of supervision in banking and insurance sectors and examined how supervision differs from regulation. He also highlighted that “financial institutions will always be able to innovate faster than we are able to modify the prudential rulebook,” warning that some innovation is “pure regulatory arbitrage.”

Mr. Woods explained that regulation concerns the framework of rules and legal standards that govern the way in which firms operate whereas supervision is the dynamic pursuit of the relevant authority’s statutory objectives, through oversight of firms’ activities. In his view, supervision without regulation, or vice versa, in financial services would be futile. He added that some innovation is “pure regulatory arbitrage," highlighting that firms innovate to reduce specific regulatory requirements without any commensurate reduction in their risk. He gave a few examples of such behavior that might be problematic, despite compliance with the specified rules. For instance, he mentioned that some banks are seeking out funding that matures just beyond the time horizon used to calculate regulatory liquidity requirements. Another example he gave was about how some special purpose vehicles, derivatives, agency structures, or collateral swaps carry material credit risk, which escapes the detailed aspects of the capital framework. He also exemplified that some insurance firms have sought to amend the existing contracts to extend the (Solvency II) contract boundary and recognize more future profit, as firms cannot recognize future premiums on unit-linked savings policies that do not include any insurance cover or financial guarantee of benefits. In this context, he stated that “Consistent with the PRA’s statutory duty, firms should expect questions and should be prepared to defend them according to our principles of prudence, effective risk management, and adequacy of financial resources at all times.”


He observed that “The supervisory approach for banks, building societies, and insurers in the UK has meandered down different paths, at different times—and each at a different pace. Indeed, even when regulation has been laid down in statute, each supervisory agency has taken time to develop and embed its own approach.” PRA supervisors also pay close attention to the emerging trends and potential future risks and supervisors will continue to keep a close eye on the effects of issues on the viability of business models and future strategy for building societies. Finally, he reinforced “that supervision—as distinct from regulation—is vital if we are to ensure that the framework of regulation operates effectively and as intended. Supervisors have an important job to do—defending the reforms put in place following the most recent crisis.”


Related Link: Speech (PDF)

Keywords: Europe, United Kingdom, PRA, Supervision, Banking, Insurance, Regulatory Arbitrage

Related Insights

IAIS Publishes Drafts of Revised ICP 8, ICP 15, ICP 16, and ICP 20

IAIS published the drafts of revised Insurance Core Principles on Public Disclosure (ICP 20), Investments (ICP 15), Enterprise Risk Management for Solvency Purposes (ICP 16), and Risk Management and Internal Controls (ICP 8), along with a revised draft of the glossary on enterprise risk management (ERM).

November 14, 2018 WebPage Regulatory News

MAS Amends Notice 637 on Capital Adequacy Requirements in Singapore

MAS published the final, revised Notice 637 on the risk-based capital adequacy requirements in Singapore.

November 13, 2018 WebPage Regulatory News

ESMA Updates Q&A on Implementation of CSD Regulation and MAR

ESMA updated questions and answers (Q&A) documents on the implementation of the Central Securities Depository (CSD) Regulation and Market Abuse Regulation (MAR).

November 12, 2018 WebPage Regulatory News

FSB Finalizes and Publishes the Cyber Lexicon

FSB published a cyber lexicon, following the public consultation earlier this year.

November 12, 2018 WebPage Regulatory News

SRB Updates Liability Data Reporting Template for 2019

SRB published version 2.7.1 of the Liability Data Reporting (LDR) Template.

November 12, 2018 WebPage Regulatory News

ECB to Conduct Comprehensive Assessment of Six Bulgarian Banks

ECB will undertake a comprehensive assessment of six Bulgarian banks. The exercise, comprising an asset quality review and a stress test, follows Bulgaria’s submission of a request to establish close cooperation with ECB on July 18, 2018.

November 12, 2018 WebPage Regulatory News

IMF Publishes Reports on the 2018 Article IV Consultation with Chile

IMF published its staff report and selected issues report under the 2018 Article IV consultation with Chile.

November 09, 2018 WebPage Regulatory News

PRA Issues PS27/18 on Implementing the Extension of SM&CR to Insurers

PRA published the policy statement PS27/18, which provides feedback to responses to the consultation paper CP20/18, on implementing the extension of the Senior Managers and Certification Regime (SM&CR) to insurers (Part 2).

November 09, 2018 WebPage Regulatory News

EBA Single Rulebook Q&A: First Update for November 2018

EBA published answers to seven questions under the Single Rulebook question and answer (Q&A) updates for this week.

November 09, 2018 WebPage Regulatory News

FED Finalizes the Large Financial Institution Rating System

FED finalized the new supervisory rating system for Large Financial Institutions (LFIs), to better align with the current supervisory programs and practices for these firms.

November 09, 2018 WebPage Regulatory News
RESULTS 1 - 10 OF 2204