PS3/25 – The Prudential Regulation Authority’s approach to policy

1: Overview

1.1 This Prudential Regulation Authority (PRA) policy statement (PS) provides feedback to responses the PRA received to Consultation Paper 27/23 – The Prudential Regulation Authority’s approach to policy (the CP). It also contains the PRA’s final Approach to Policy document (Approach document) in Appendix 1.

1.2 This PS is relevant to all PRA-regulated firms.

Background

1.3 The CP set out the approach that we, the PRA, propose to take to policy under the regulatory framework as amended by the Financial Services and Markets Act 2023 (FSMA 2023).^{footnote [1]} The CP built on Discussion Paper 4/22 – The Prudential Regulation Authority’s future approach to policy (DP4/22 or DP). The approach we consulted on in the CP was informed by the responses we received to the DP.

1.4 In the CP, we explained that our approach to policy is evolving because we are taking on wider rule making responsibilities and enhanced accountability requirements. This is a result of reforms to the UK’s financial services regulatory framework introduced through FSMA 2023. The Government introduced these reforms to ensure that the UK’s financial services regulatory framework is fit for the future, reflecting the UK’s position outside of the EU.

1.5 FSMA 2023 establishes the legal basis for a system of regulation that is tailored to the UK, with most technical rules made by operationally independent regulators within a framework set by Parliament. In practical terms, this means that a set of regulatory requirements which previously existed in statute are replaced in the PRA Rulebook (Rulebook); see Chapter 6 of the Approach document and the corresponding section of this PS for more information). This gives us the power to evaluate rules, amend rules if needed, or create new rules where required. This constitutes a step change in our rule making responsibilities.

1.6 Consequently, FSMA 2023 also introduces enhanced objectives and accountability requirements which support our transparency and accountability to Parliament. Among the new requirements is a secondary objective to facilitate the UK economy’s international competitiveness and its growth over the medium to long term, subject to alignment with international standards (the SCGO). We will periodically publish quantitative metrics to provide transparency around our work to facilitate competitiveness and growth, and we provided the list of metrics alongside the CP for information.

1.7 In the CP, we asked for feedback on the range of issues addressed in the draft Approach document (as amended following feedback to DP4/22), and in particular our approach to:

• the SCGO;
• implementing international standards (in particular, whether we should commit to achieving a ‘largely compliant’ rating at international fora); and
• stakeholder engagement.

1.8 The summary of responses section below contains a general account of the representations made in response to the CP. Chapter 2 of this PS (feedback to responses) contains the PRA’s feedback.

Summary of responses

1.9 We received 15 responses to the CP. The names of respondents to the CP who consented to their names being published are set out at Appendix 2. Respondents were broadly supportive of the PRA’s proposals. We received constructive feedback which we address through targeted changes to the Approach document. Respondents also made a number of requests for clarification which are addressed in Chapter 2 of this PS.

Changes to draft policy

1.10 We have made several changes to the Approach document. These include:

• updates to our approach to our secondary objectives, specifically the SCGO, in response to feedback to the CP and recommendations from the Bank’s Independent Evaluation Office (IEO);
• several changes throughout the document that further elaborate on or clarify our approach in response to feedback to the CP, including on our approach to stakeholder engagement and implementing international standards (summarised in section 2 of this PS); and
• updates to how we describe our ‘regulatory principles’ in Table 1, (ie removal of references to specific legal requirements that do not fit the definition of ‘regulatory principles’), and to reflect a new recommendations letter from HMT since the publication of the CP; and
• other clarification changes as well as minor amendments (eg to aid readability, fix typos, update or add references and examples, and ensure consistency across PRA publications).^{footnote [2]}

Implementation

1.11 The final version of the Approach document is published alongside this PS and takes effect on publication of this PS on 20 February 2025.

2: Feedback to responses

2.1 The PRA has considered the representations received in response to the CP. This chapter sets out the PRA’s feedback to those responses, and its final decisions.

2.2 The sections below have been structured to align with the chapters of the Approach document. The responses have been grouped as follows:

• our objectives and regulatory principles;
• our approach to our objectives and regulatory principles;
• our approach to international engagement and collaboration;
• the policy cycle; and
• delivering a first-rate PRA Rulebook.

Our objectives and regulatory principles

2.3 Chapter 2 of the Approach document sets out the legal basis of our objectives and regulatory principles, and how these objectives and regulatory principles relate to one another. We did not invite stakeholders to provide feedback on Chapter 2 of the Approach document given it is a factual description of our legal framework, as established by Parliament. We received a small number of comments asking us to describe our objectives and regulatory principles in more detail throughout the document. We address these through minor technical amendments in the Approach document (ie by referring to effective competition throughout the document and by clarifying that the PRA’s insurance objective is contributing to the securing of an appropriate degree of protection for those who are or may become policyholders in Chapter 2).

Our approach to our objectives and regulatory principles

2.4 Chapter 3 of the Approach document sets out our approach to our primary and secondary objectives, as well as to considering our regulatory principles. Respondents agreed that strong prudential standards are a vital safeguard of UK financial stability. Our approach to our primary objectives and the PRA’s secondary competition objective (SCO) therefore remains unchanged. We received feedback on our approach to the SCGO (having explicitly asked for feedback in the CP) as well on our approach to clustering regulatory principles, which we address in this section and in the updated Approach document.

Approach to the secondary competitiveness and growth objective

How the PRA facilitates international competitiveness and growth

2.5 Our Approach document identifies three channels through which the PRA can facilitate the international competitiveness and growth of the UK financial sector and/or wider economy: capital allocation; ability to sell; and ability to attract. Respondents largely recognised these as relevant transmission channels. Three respondents suggested that we update or expand the capital allocation channel to clarify its role in insurance, or that we amend it to include 'efficient levels of capital'.

2.6 We agree that the capital allocation channel is important for both the insurance sector and the banking sector. For this reason, we have updated the Approach document to clarify that the capital allocation channel applies to both the banking and insurance sectors. This channel is underpinned by the notion of efficient markets. The PRA, by facilitating competition in the provision of banking and insurance services, can enhance the efficient allocation of capital in the economy. The capital allocation channel therefore also has a natural link to the SCO.

2.7 In our Approach document, we also set out three SCGO regulatory foundations, which represent direct actions that the PRA can take to activate the three transmission channels. These are: maintaining trust among domestic and foreign firms in the PRA and UK prudential framework; adopting effective regulatory processes and engagement; and adopting a responsive and responsibly open approach to risks and opportunities. Respondents welcomed the detail provided on these foundations, though six respondents suggested that the description of these foundations could be further expanded to address the need for ‘calibration of the overall regulatory framework’. It was suggested that a fourth foundation could capture the overall impact of PRA regulations on firms’ regulatory burden and their ability to allocate capital efficiently.

2.8 We consider that calibrating regulation to remove impediments to growth is captured within our first two regulatory foundations. The first foundation is about maintaining trust amongst domestic and foreign firms in different ways, including by choosing the appropriate design and calibration of standards. The second foundation is about reducing operational costs of firms where possible through efficient regulatory processes. As such, we have decided not to add a fourth foundation. However, we have updated the Approach document to clarify that proportionate calibration of the regulatory framework is embedded within the first two foundations.

2.9 Industry respondents agreed that being responsive and responsibly open (the third foundation) is a key mechanism for the PRA to facilitate competitiveness and growth. However, as we explained in our Approach document, and as noted by one respondent, facilitating overseas firms' access to the UK to advance the secondary objectives should not undermine our primary objectives of safety and soundness and insurance policyholder protection. Strong standards are important to maintain the attractiveness of the UK as a financial centre.

2.10 As another respondent suggested, our responsive and responsibly open approach should be premised on the idea that UK firms compete with foreign firms (ie both foreign subsidiaries and branches) on a level playing field in domestic markets, and that the regulatory burden should be equal for UK and international firms. We recognise the benefits that international firms can bring to the UK economy. In particular, the presence of foreign branches and subsidiaries in the UK can facilitate more effective competition, and this ultimately supports economic growth. However, we also recognise the risks of branches of foreign firms taking advantage of comparatively lower requirements in their home jurisdictions to outcompete UK firms. We also recognise that openness must be accompanied by financial and operational resilience to support sustainable economic growth and minimise risks to the PRA’s objectives. This is reflected in our Approach document.

2.11 In our Approach document, we also explain that innovation is a key element of our third foundation. One respondent suggested renaming the third foundation to: ‘taking a responsive and responsibly open approach to UK prudential risks and opportunities to innovate’. We did not make changes to the third foundation to avoid making it excessively narrow. We want the PRA to take a responsibly open approach to all risks and opportunities, not only those arising from innovation.

2.12 Two respondents also noted the benefits of regulatory sandboxes. We have clarified text in the Approach document that explains that we can use regulatory tools such as sandbox-like arrangements – to encourage innovation in line with our objectives.

Our proactive approach to the SCGO

2.13 In our Approach document, we explain that we intend to take a proactive approach to the SCGO, and this will have a material impact on how we develop policy. Respondents welcomed our proactivity, but four respondents requested clarification on what taking a proactive approach means in practice. Being proactive in advancing the SCGO means that we actively look for opportunities to facilitate competitiveness and growth in our regulatory framework and how we operate it. Where there is opportunity to do so, we can pursue initiatives purely to advance the SCGO, using the framework provided by the transmission channels and the regulatory foundations.

2.14 Respondents also asked whether the PRA could advance its secondary objectives if the impact on the primary objectives is neutral. As outlined in the Approach document, the answer is yes. We updated our Approach document to clarify that secondary objectives are relevant when we make new policy but also when reviewing existing policy. We can choose to review a policy based on our secondary objectives. When doing so, we can consider an amendment that raises or reduces prudential standards or has a neutral impact, provided that the updated policy maintains an appropriate level of safety and soundness, and an appropriate degree of insurance policyholder protection.

2.15 Taking a proactive approach to the SCGO also means that we:

• invest in research and internal analysis. To ensure in-house research in this field is advanced we use the Bank’s Research Hub and we are developing proposals for a research network of academics interested in competitiveness and growth.
• engage with our industry stakeholders. By engaging with firms we can learn about the barriers to competitiveness and growth they may face (see section below for more information on stakeholder engagement in the context of the SCGO as well as Chapter 5 of the Approach document for our approach to stakeholder engagement more broadly).

2.16 The insights we gain from research, internal analysis, and our engagement with industry stakeholders enables us to demonstrate thought leadership when engaging in international fora (see Chapter 4 of the Approach document and the corresponding section of this PS for information about the PRA’s approach to international engagement).

2.17 Five respondents suggested that the PRA should launch a ‘flagship’ policy to target the calibration of the prudential framework in support of competitiveness and growth. In the PRA response to the IEO evaluation, we clarified that we consider that the most appropriate way to advance the SCGO, while maintaining alignment with international standards, is to take forward a wide range of initiatives across our general functions, rather than via a single flagship initiative. That said, a number of our initiatives are large, for example our review of the Senior Managers and Certification Regime; our reforms to the Insurance Special Purpose Vehicles regime; and the proposals to reform our remuneration regime.

Stakeholder engagement in the context of the SCGO

2.18 Respondents suggested that the PRA should gather intelligence on how to further the UK as a financial centre through active and open minded engagement with external stakeholders. In the PRA’s response to the IEO evaluation we clarified that we have been refining our ability to gather industry perspectives to inform policymaking. We have built closer relationships with industry bodies, and we have set up new mechanisms for industry feedback. For example, we have set up a new email address for stakeholders to provide feedback on rule reviews (more information about rule review can be found in Chapter 5 of the Approach document and the corresponding section of this PS). Moreover, we held a pilot roundtable on innovation in July 2024 to gather industry views regarding the interaction between innovation and prudential regulation. We also established subject expert groups (SEGs) to collect feedback on policy development in different areas, such as insurance Matching Adjustments.

2.19 In our Approach document, we also explain that we value our multiple touchpoints for external engagement, such as Discussion Papers (DPs), Consultation Papers (CPs), roundtables and our Practitioner Panel and Insurance Practitioner Panel (‘the Practitioner Panels’). These mechanisms, complemented with effective aggregation of information internally, help us to be responsive and design policy tailored to the specificities of the UK context. One respondent suggested that the specialist team working on the SCGO should become more visible and consult with industry. We explained in the PRA response to the IEO evaluation that we will not adopt a model where information on the SCGO is gathered by only one team, but we will instead focus on maintaining and enhancing our multiple touchpoints, keeping the effectiveness of our operating model under review. This is designed to promote a culture where the SCGO is not the responsibility of a single team but is embedded effectively across the whole organisation.

2.20 Two respondents noted that the relevant regulators should be aligned on how to facilitate competitiveness and growth and they should consider the aggregate impact of their regulations. FSMA 2023 requires the PRA and the FCA to ensure a coordinated exercise of functions in their application of the SCGO. We also have a regular dialogue with the FCA on our approach and areas of joint interest in policy and supervision. And, as explained in our Approach Document, we also engage with the FCA and other regulators through the Financial Services Regulatory Initiatives Forum, which produces the Regulatory Initiatives Grid. The Grid sets out the regulatory pipeline so the financial services industry and other stakeholders can understand – and plan for – the timing of the initiatives that may have a significant operational impact on them.

2.21 We plan to continue engaging with industry and other interested stakeholders to ensure that their feedback on competitiveness and growth issues is reflected in our policymaking. Further information about our approach to stakeholder engagement more broadly can be found in Chapter 5 of the Approach Document and the corresponding section of this PS.

Embedding the SCGO

2.22 Our Approach document also explains our internal approach to embedding the SCGO within the PRA. The Financial Services and Markets Act 2000 (FSMA 2000) requires the PRA to consider its secondary objectives when exercising its general functions. General functions include making rules and technical standards, preparing and issuing codes, and determining the general policy and principles. The PRA’s general functions do not include supervisory firm specific decisions. We have updated the Approach document to clarify our general functions.

2.23 Two respondents requested further clarification on how the SCGO applies to different functions of the PRA, in particular on how the SCGO affects the supervisory approach. We updated our Approach document to clarify how the SCGO affects the supervisory approach. We explain that while the secondary objectives do not directly affect firm specific decisions or actions, we continue to be focused on engaging with firms in an open and constructive way. Supervision teams are encouraged to collect insights and views related to our secondary objectives when engaging with firms and pass them on to policy teams.

2.24 The Approach document also clarifies that maintaining and striving for increased operational efficiency in processes is another important way in which we advance the SCGO. This involves streamlining procedures and leveraging technology to enhance effectiveness, noting that efficient regulatory processes benefit both regulated entities and the broader economy by reducing unnecessary burdens and facilitating efficient interactions between financial institutions and the regulator. A key example where we intend to continue making positive progress is the efficient handling of authorisation processes, such as applications for approval under the Senior Manager Regime.

2.25 Some respondents felt that a cultural shift within the PRA is required to facilitate the advancement of the SCGO. We recognise the importance of accelerating adoption of the SCGO at an organisational level.^{footnote [3]} We have implemented significant internal changes to embed the SCGO in our ways of working, which demonstrate a strong top-down focus from the PRA’s senior leadership in delivering our primary objectives in a way that is consistent with facilitating competitiveness and growth. For example, we encourage staff to make sure that SCGO issues are considered early in the policymaking cycle and to engage with our in house centre of expertise on competitiveness and growth. One respondent suggested the appointment of an external member of the Prudential Regulation Committee (PRC) or PRA senior advisor to act as a SCGO champion. We recently appointed a new senior advisor who brings external experience from academia and regulation and will be dedicated to providing support, challenge, and advice on SCGO and SCO issues, including to our decision making committees.

2.26 Moreover, embedding the SCGO is a key priority for the PRA. We have rolled out SCGO training for all relevant staff in our policy and supervision functions.^{footnote [4]} More generally, our internal policy papers include a dedicated section with analysis on the secondary objectives to facilitate PRA policy committees’ discussions about the impact of individual policy initiatives.

Transparency and reporting on the SCGO

2.27 We are committed to be transparent on how we deliver the SCGO. In the CP, we explained that we will publish reports on our progress in implementing the secondary competitiveness and growth objective within the 12 and 24 months after it was brought into force (including quantitative metrics and an accompanying narrative), in line with our requirements under FSMA 2023. Looking further ahead, we proposed to report on our new objective via our annual reports, as we already have done for our SCO. Respondents were supportive of this approach.

2.28 Our secondary objectives report, published in July 2024, presented quantitative and qualitative metrics alongside relevant narrative that are helpful to monitor the PRA’s performance against the SCGO. The list of metrics that we report on includes those that have been agreed with HM Treasury (HMT) and reflects the feedback received by external stakeholders through HMT’s Financial Services Regulation: Measuring Success – Call for Proposals. The list of metrics was published as an appendix of the Policy Approach CP for information.^{footnote [5]} We received a wide range of comments on the list of metrics; the feedback we received demonstrates how challenging it is to find clear agreement in this area. We intend to continue reporting on the metrics which were previously consulted on and agreed with HMT. However, we will keep these metrics closely under review as we develop our approach to the SCGO. The PRA’s accountability framework has been recognised as world-leading^{footnote [6]} and we intend to remain open about the PRA’s performance against the objective over the medium to long term.

2.29 There are other channels through which we are held to account on our new objective. We provide evidence in hearings to the Treasury Select Committee and to the new House of Lords Financial Services Regulation Committee, which has recently carried out an inquiry into the SCGO.

2.30 We are also subject to rigorous additional independent scrutiny. In December 2023 the Bank of England’s Court of Directors commissioned a report from the IEO on whether the PRA is set up for success with regard to the SCGO. The Bank of England’s internal audit department also monitors the appropriateness of the PRA’s reporting on the SCGO.

Approach to our regulatory principles

2.31 Our Approach document explains that we group our regulatory principles (as defined in the Approach document) into thematic groups to support the efficiency and presentation of our policymaking, as these groups capture overlaps where they exist. The CP’s proposed approach to the clustering of our regulatory principles was informed by our call for feedback in DP4/22.

2.32 We received few albeit generally positive comments on our approach to the regulatory principles. CP respondents agreed that our approach to clustering regulatory principles can be a helpful way of summarising activity in a resource-effective way. Some highlighted the importance of transparency when we present the judgements involved in our analysis of the regulatory principles, including through our annual reporting. We agree with the need for transparency and the Approach document explains that we seek to identify the appropriate level of detail for both undertaking and presenting our analysis. One respondent shared a concern that presenting our analysis in the proposed clusters risks some regulatory principles receiving less focus, as these clusters do not negate the requirement to consider each regulatory principle on its own merits. As explained in the Approach document, we recognise and carefully consider the nuances of individual regulatory principles.

Our approach to international engagement and collaboration

Our approach to implementing international standards

2.33 In the CP we requested feedback on our approach to implementing international standards. Specifically, we asked whether we should target at least a ‘largely compliant’ rating under assessments of the UK regulatory framework carried out by relevant international bodies.

2.34 Respondents generally agreed with our approach to implementing international standards. They highlighted the overriding benefits of consistent implementation, both to the UK as a global financial centre and the international financial system. Several industry respondents echoed messages in our Approach Document, including that a level playing field across jurisdictions benefits UK growth and competitiveness – particularly for internationally active firms – and that deviations from international standards should be on an exceptional basis and backed by evidence.

2.35 Respondents shared a range of views on our proposal to target at least ‘largely compliant’ implementation. We received supportive feedback from respondents who felt that the proposal struck a fair and pragmatic balance between the importance of implementing international standards faithfully, while giving the PRA space to adjust the implementation of international standards, eg to account for the UK’s specific market circumstances. We also received feedback from respondents who felt that a ‘argely compliant target was either too restrictive or too ambiguous, and that the PRA should instead commit to largely achieve the intended outcomes sought by international standards.^{footnote [7]}

2.36 After careful consideration of the range of views expressed, we have decided to retain the minimum largely compliant target in our Approach document. In our view, the benefits of consistent implementation outweigh any short-term benefits of noncompliance. The SCGO also requires us to facilitate competitiveness and growth subject to alignment with relevant international standards, which in our view is inconsistent with a non-compliant rating.

2.37 The target can help bolster the UK’s credibility as a global financial centre and make the UK an attractive destination for international firms to operate and invest.

• The target helps set a strong commitment to implementing international standards. We are mindful of how other jurisdictions will consider the assessments of the UK by international bodies and how that might impact the degree to which they choose to rely on the PRA as a regulator.^{footnote [8]}
• Defining alignment as being either ‘compliant’ or ‘largely compliant’ gives us flexibility to implement standards in a way that accounts for UK market circumstances. We proposed our approach in response to previous feedback from stakeholders,^{footnote [9]} who shared concerns that a commitment to implement international standards to the letter of the global agreement limits our flexibility.
• Articulating a tangible target provides domestic and international stakeholders with greater clarity and predictability, including about how we intend to implement international standards over the medium to long term.

How does the minimum largely compliant target affect our implementation in practice?

2.38 Respondents asked us to further clarify how we apply the minimum largely compliant target in practice, including by describing circumstances in which the PRA would adjust its implementation relative to the international standard, ie so that the UK approach is more or less conservative than the international standard. Respondents also asked us to provide more clarity about precisely what level of compliance the PRA will seek to achieve on any one international standard.

2.39 We consider adjustments relative to the international standards in line with our framework of statutory objectives and regulatory principles, as described in Chapter 2 of the Approach document. We act when the data we have collected suggests the standard is not proportionate to the risk, or where the evidence shows that the standard does not account for the UK’s specific market circumstances. When developing our proposals for implementation of standards in the UK, we seek stakeholders’ input, and we also consider the approach taken in other jurisdictions. Our appetite for adjustments, overall, is guided by the goal of achieving at least a largely compliant grade.

2.40 For example, our recent Basel 3.1 package demonstrates how we consider individual policy decisions on a case-by-case basis.^{footnote [10]} Our aim is that, overall, these decisions are aligned with the international standard we had a significant role in creating.

Assessments of the UK framework by international bodies

2.41 Some respondents raised questions and concerns about the methodology of international assessments of the UK framework. For example, one respondent noted that since Basel standards are agreed as minimum requirements, the RCAP assessments are designed in a way that a largely compliant rating for any given international standard would not preclude the PRA from exceeding (or gold-plating) the international standard in certain areas.

2.42 We understand the nature of concerns raised by industry respondents about our implementation exceeding baseline international standards in a way that could harm UK growth and competitiveness. We acknowledge that achieving a largely compliant rating does not preclude us from exceeding international standards where we think this is necessary in pursuit of our statutory objectives and regulatory principles, but we would not make such decisions without strong evidence. Adjustments relative to international standards are not a course of action we pursue lightly.

2.43 We have also made a minor update to the Approach document to further clarify that the target rating is indeed a minimum target. In the case of the Basel Committee on Banking Supervision (BCBS) Regulatory Consistency Assessment Programme (RCAP) assessments, for example, this means that we aim to implement relevant international standards in a way that is likely to result in either a largely compliant or compliant a rating.

2.44 Another respondent asked us to clarify to what extent the PRA can influence the outcomes of such assessments. We have updated the Approach document to explain how we engage with international assessments of our framework. While such assessments are factual and independent, there is scope for the assessed jurisdiction to issue a response.For examples, this can be used to explain how country specific adjustments might still achieve the intended outcomes of the international standard.

2.45 We also received requests to further clarify the scope of the largely compliant target, ie to which international standards it applies and whether data reporting requirements are captured. We intend to implement all relevant international standards, including data reporting requirements. This covers banking sector specific standards set by the BCBS as well as insurance sector specific standards set by the IAIS. We have also updated the Approach document to more clearly map the target rating to the terminology used in assessments by the International Monetary Fund (IMF) and by the International Association for Insurance Supervisors (IAIS), as requested by two respondents.

Our international engagement

2.46 Our Approach document describes our approach to engaging with international institutions and networks, as well as with regulatory and supervisory authorities in other jurisdictions. Respondents were very supportive of our proposed approach and acknowledged the importance of the PRA’s proactive engagement with other authorities and international standard setting bodies.

2.47 Two respondents suggested that we should set out in more detail the PRA's strategic objectives for regulatory dialogues with overseas authorities and negotiations at international standard setting bodies. We also received requests to clarify the relationship between our statutory objectives and our approach to international engagement. Some respondents suggested that we should consider implications for competitiveness and growth during our international engagement.

2.48 The Approach document already explains why we engage internationally and that developing international standards and implementing these with our international partners can advance our statutory objectives. For example, our international engagement can facilitate UK competitiveness by contributing to a level playing field for international firms. Our Approach document also explains that our secondary objectives are engaged when the PRA exercises its general functions. We have updated the Approach document to further clarify and define our general functions, which are set in statute. We share more detailed information about our international activities through other channels, including our Annual Reports and Business Plans. We can, on occasion, also use speeches to share our views about international developments and our evolving understanding of emerging risks and opportunities.

2.49 One respondent suggested that the PRA should engage with its counterparts in other jurisdictions to promote faithful implementation of international standards in support of a level playing field and to facilitate market access. We agree and the Approach document already explains that we support efforts (both bilaterally and multilaterally) to monitor and assess implementation and discuss areas of shared concern.

2.50 Some respondents also shared views on the PRA’s approach to engaging with international standard setting bodies. For example, one respondent suggested that our role in such bodies should not only focus on the development of international standards, but also to support international bodies in demonstrating more transparency and accountability, including through their engagement with industry. We agree and actively support such efforts, including through public consultations and by participating in relevant industry engagement events.^{footnote [11]}

2.51 We received suggestions to explicitly reference our relationship with specific international stakeholders in the Approach document. We have updated the Approach document to further clarify that we cooperate closely with a broad range of supervisory agencies, including relevant European Supervisory Authorities (ESAs). Beyond this, and as explained in the Approach document, senior PRA officials engage proactively with their counterparts at relevant regulatory bodies in support of cooperation and coordinated international action.

Our approach to informing assessments of other jurisdictions’ regulatory frameworks

2.52 In our Approach document, we explain that we advise HMT on assessments of other jurisdictions’ regulatory frameworks and that our advice is informed by an outcomes-based approach. Respondents were generally supportive of our approach and recognised the benefits of our advice to HMT. We have made minor changes to the Approach document to update and clarify the language used to describe this process.

2.53 Three respondents suggested that the PRA should adjust its approach to international engagement in order to influence the delivery or outcome of HMT’s designations or trade agreements. HMT leads negotiations with other jurisdictions on trade or market access issues. In the context of recognising other jurisdictions’ regulatory frameworks,HMT is ultimately responsible for making designations, whereas^{footnote [12]} we engage with HMT and other jurisdictions to facilitate and inform our advice to HMT.^{footnote [13]}

2.54 Our Approach document explains that we enter into Memoranda of Understanding (MoUs) with overseas supervisory authorities. These MoUs facilitate supervisory cooperation and information sharing required for the day to day supervision of overseas branches and subsidiaries based in the UK, as well as UK branches and subsidiaries in other countries. One respondent suggested that the PRA should 'enhance' its MoUs with other jurisdictions as this supports UK growth. We agree that effective cross-border engagement and co-operation facilitates an open economy, which supports competitiveness and growth. We report annually on how we update and maintain our MoUs.

The policy cycle

2.55 Chapter 5 of the Approach document describes our approach to creating and maintaining our prudential policy framework, which we refer to as the ‘policy cycle’. We describe how our approach to policymaking consists of four phases: initiation, development, implementation and evaluation.

2.56 We categorise feedback received on our approach to creating and maintaining our prudential policy framework into the following themes: stakeholder engagement, rule review, cost benefit analysis, data, and transparency.

Cost benefit analysis approach

2.57 In our Approach document, we explain that cost benefit analysis (CBA) is an integral part of developing the policy approach, and the results of CBA shape our policy. The PRA has established and maintains a CBA Panel, whose role is to make recommendations to improve CBA. As required by FSMA we have also published a Statement of Policy on the PRA’s Approach to CBA (CBA SoP). We have made changes to the Approach document to ensure consistency with the CBA SoP.

2.58 CP respondents noted their strong support of the enhanced transparency and independent scrutiny of the PRA’s CBA, and welcomed the requirement to publish a CBA SoP. We welcome feedback on our CBA SoP, which can be emailed to BankCostBenefitAnalysis1224@bankofengland.co.uk by 30 September 2025.

2.59 Three respondents asked that CBA be conducted at an earlier stage of the policy cycle. We have updated the Approach document to highlight that the PRA’s internal policies, as well as the need to engage with the CBA Panel, ensure that work on CBA begins at an early stage of policy development.

2.60 Some respondents supported the role of CBA while suggesting that the PRA should provide more transparency on how policy judgements are reached and ’show its workings’. The CBA SoP underscores the PRA’s commitment to transparent cost-benefit analysis and proportionate consideration of the economic impacts of its policy proposals.

2.61 One respondent highlighted the need for CBAs to focus on operational compliance costs. As explained in the CBA SoP, the PRA has developed a Standard Cost Model to assist policymakers in quantifying operational compliance costs. As also explained in the CBA SoP, the level of costs to PRA firms is the key determinant of whether CBAs are sent to the CBA Panel.

2.62 One respondent requested that CBAs provide success criteria to signal the need for a review of the rules. Since publishing the CP, we have consulted on and published a statement on the PRA’s approach to the review of rules.

2.63 One respondent requested that the PRA’s Annual Report on the SCGO should provide an update on CBAs over the preceding year. The PRA’s first SCGO Report summarised CBAs undertaken in the prior year and we anticipate that the second SCGO Report will do the same. One respondent requested that the PRA report in detail on the recommendations of the CBA Panel. PRA CPs will note how CBAs reflect feedback from the CBA Panel. The CBA Panel publishes an annual report.

Transparency

2.64 A small number of respondents suggested that our views can sometimes appear fixed by the time we publish CPs or even DPs (especially if they are long and detailed), or that we could do more to justify our judgements in PSs.

2.65 We are open to views at or before consultation,including those which challenge our thinking on potential policy options,particularly when stakeholders provide evidence to support their assertions. This is why we engage with stakeholders across a range of mechanisms and through the policy cycle to explain our views and seek feedback (see the stakeholder engagement section in Chapter 5 of the Approach document and the corresponding section of this PS for more detail).

2.66 As explained in our Approach document, it is our intention to provide transparency on how policy judgements are reached, including through detailed explanations in our publications. However, we are sensitive to the risk (raised by one respondent), that stakeholders may not want to develop high-effort counterproposals in response to CPs if these are seen as unlikely to be considered by the PRA. We have therefore updated the Approach document to further emphasise that we value the engagement and challenge we receive via the consultation process, and to explain how we engage with consultation responses.

Data

2.67 In the CP, we explained that responsive and dynamic policymaking requires data from firms. We also require data from firms to meet our accountability requirements and to inform evaluation (as well as for a range of other functions that are not in scope of the Approach document, including the day to day supervision of firms).

2.68 Industry respondents welcomed our commitment to efficient data collection, including by streamlining regulatory data returns where possible while still meeting our objectives. Respondents prompted us to be bold in evaluating the benefit of regulatory returns, the ease of presenting the information, and the level of duplication with similar regulatory returns. Some respondents shared feedback about specific reporting requirements, which we have noted.

2.69 Our aim is to ensure regulatory reporting provides the PRA the data it needs to effectively supervise the firms it regulates, and to develop and evaluate policy, while streamlining collections where there are opportunities to remove duplicated or unused data.

2.70 Respondents also acknowledged that the PRA may need to supplement its regulatory returns data through additional ad hoc data requests. Respondents noted that ad hoc data requests should be limited only to cases where this is necessary.

2.71 We agree that ad hoc data requests should be limited to cases where this is necessary. We will primarily source information from firms through existing data in regulatory returns but note that in certain instances, such as rule review, the PRA may require supplementary data. The PRA has internal governance processes in place so that ad hoc data collection requests are scrutinised in terms of impact and necessity before being made of firms. This is to ensure that the rationale for the collection is robust and that we do not duplicate data requests unnecessarily.

Data use transparency and engagement

2.72 Industry respondents said that clear communication about the purpose of data collections helps firms better understand how data requests support the PRA’s objectives. We recognise the need to be transparent with industry when making data requests and it is our intention to clearly communicate why such collections are necessary.

2.73 Some industry respondents told us that they prefer to be involved in data collection decisions and process. For example, it was suggested that industry bodies could support the PRA in facilitating data collection among their members. Some respondents noted that industry should be consulted on the form and benefit of data collection.

2.74 We welcome the willingness of industry bodies to facilitate data collection on behalf of their members and recognise such groups often have specialist expertise on specific topics, which can provide valuable insights and information. Input from industry bodies can be particularly useful when we develop reporting policy proposals.

2.75 When introducing new rules based reporting, the PRA is legally required to consult on its proposals. This forms part of the consultation process and provides firms the opportunity to respond to the design and content of the templates and instructions. When the need for ad hoc data collection arises, we will communicate the need for it to firms, but because it is typically needed on a timely basis and is voluntary in nature, it would not be subject to consultation.

2.76 In the CP, we explained that the Regulatory Initiatives Grid provides information that can help stakeholders anticipate certain data requests. Respondents agreed that the Grid helps with planning around implementation timelines and forthcoming consultations but noted that it does not always contain enough detail to facilitate granular planning for data requests. We have updated the Approach Document to clarify the purpose of the Grid. More granular data requests, including ad hoc data requests, are communicated to firms separately.

Global data standards

2.77 One respondent suggested that the PRA should lead on developing global data standards for financial services. They argued that inconsistent use of data standards in financial services centres across the world raises the costs of regulatory data reporting, and that this fragmentation also weakens the effectiveness of prudential oversight.

2.78 We recognise the benefits that global data standards could bring to the financial services industry. This is why we established an Industry Data Standards Committee, to understand the industry’s perspective on how we can incorporate standards into our data collections to improve data quality and reduce cost. We also hold discussions with international regulators on potential areas for international coordination.

Stakeholder engagement

2.79 In the Approach document, we explain that we take a flexible and proportionate approach to stakeholder engagement as we consider which form of engagement is appropriate, and when, in any given circumstance. We also explain that we engage a wide range of stakeholders to ensure our policy is informed by a diversity of viewpoints. Feedback to the CP showed general support for our approach and respondents reflected positively about their current level engagement with the PRA.^{footnote [14]} While the feedback suggests that our general approach is appropriate, we received some requests to explain in more detail how, when and with whom we engage. We address these requests in this feedback statement and through targeted changes to the Approach document.

How we engage

2.80 The formal consultation process remains the primary mechanism through which stakeholders inform our policymaking. We consider a number of factors when determining the structure, timing and length of our public consultations, including whether the chosen approach gives respondents sufficient time to provide considered feedback.^{footnote [15]} However, as explained in the Approach document and as observed by one respondent, we must also consider external circumstances, such as when we have to act quickly to meet an international deadline, to align with government’s overall legislative timetable, or to respond to an emerging risk.^{footnote [16]}

2.81 The Approach document explains that, where appropriate, we supplement the formal consultation process with other forms of engagement if we think this can help us better understand different perspectives on our judgements. The Approach document lists a range of engagement methods that we choose from on a case-by-case basis. When deciding how to engage with stakeholders outside the formal consultation process, we consider resource constraints (within the PRA and external stakeholders), timelines, and the complexity and scope of the policy area.

2.82 CP respondents offered suggestions and made requests to prioritise certain engagement mechanisms throughout the policy cycle. Several respondents noted the benefits of structured industry engagement in the form of roundtable events, standing committees, or SEGs. We agree that SEGs can be helpful when the parameters of policy development are known and have updated the Approach document with an example of when we used them to leverage external expertise. Structured industry engagement in the early stages of the policy cycle is likely more feasible when we are seeking general input on the regulatory framework, including on long-term emerging risks and opportunities. Roundtables in particular can be a helpful way to get a range of views from a broader selection of stakeholders.^{footnote [17]}

2.83 Some respondents asked us to set up standing committees that would meet on a recurring basis to discuss a broad range of policy themes (eg a Credit Risk Standing Committee). Some suggested that this would facilitate a more dynamic form of policymaking, and that industry representatives should be actively involved in setting up and steering such groups. We do not currently intend to establish a comprehensive programme of open ended standing committees as we think targeted and issue specific engagement is likely to remain more effective and proportionate. We recognise industry’s appetite for standing committees and will continue to evaluate the need for structured engagement on a case by case basis (drawing on the range of engagement mechanisms listed in the Approach document). We encourage industry to continue sharing views on the relative merits of specific engagement mechanisms through our existing channels, eg through ongoing bilateral engagement with the PRA or in CP responses.

2.84 Industry respondents also asked us to clarify how the SCGO would affect our approach to stakeholder engagement and suggested new engagement channels to exchange views and opinions on how the PRA can advance this objective. Chapter 3 of the Approach document sets out our approach to the SCGO and the corresponding section in this PS explains how we have updated the Approach document in light of feedback to the CP.

2.85 Regardless of the specific engagement mechanism, we intend to engage in a way that is inclusive, accessible, open and transparent.^{footnote [18]}

When we engage

2.86 In our Approach document, we explain how we engage stakeholders throughout the policy cycle. We describe the benefits to engagement in the earlier stages of the policy cycle, and that early engagement is more feasible in some circumstances. Respondents reacted positively to these messages, noting in particular that early engagement can be helpful in informing how we prioritise and initiate new areas of policy.

2.87 We may engage early in the policy cycle to address emerging risks and opportunities, outline strategic priorities, and gather initial perspectives from stakeholders. For example, we have on occasion chosen to share our emerging views on specific policy through DPs or speeches. In our Approach document, we explain that broader engagement pre consultation is generally not possible when we need to act urgently or when this relates to specific policy proposals, given we cannot confer an advantage to selective stakeholders or expose market sensitive information. We might also judge that early engagement is not needed where the issues under consideration are already well understood and have been subject to significant public debate.

2.88 We can also seek feedback from our Practitioner Panels before consulting more broadly as members have signed a declaration of secrecy. One respondent suggested that we can further facilitate early input into policymaking and the broad direction of travel by enabling Practitioner Panel members to share information and draw on expertise within their organisations. We agree and seek to facilitate information sharing between Practitioner Panel members and subject matter experts in their organisations where appropriate and legally permitted, in line with our information security requirements. We have updated our Approach document to address CP feedback on this issue and to further emphasise the role of the Practitioner Panels in providing early industry feedback.

2.89 Some respondents raised questions about how we use, and report on, advice from our Practitioner Panels. Feedback from the Practitioner Panels is a valuable input into the policy recommendations that we take through our internal governance. We have a statutory requirement to disclose Practitioner Panel engagement in CPs; and there is a requirement for the Practitioner Panels to publish annual reports which we include on our website. We have updated our Approach Document with additional detail on how we engage with the Practitioner Panels and how we facilitate transparency in their reporting.

Who we engage

2.90 Respondents generally agreed with our approach to engagement with a wide range of stakeholders from a cross-section of society.

2.91 One respondent noted the advantages of gathering feedback from non-industry groups such as consumer groups, while also noting that there are costs associated with proactively engaging with these groups. We acknowledge the importance of obtaining balanced feedback and already note in our Approach document our interest in gathering input from voluntary, community or social enterprise organisations and other civil society groups. We understand that many of these non-industry groups are not adequately resourced to engage with technical financial regulation. We will therefore, on occasion, seek to tailor our engagement to facilitate effective feedback from civil society groups.

2.92 Respondents shared suggestions for other stakeholder groups that we should engage with proactively throughout the policy cycle, many of which are already included in the list of sector specific specialists in our Approach document (Approach to stakeholder engagement). While this is not intended to be an exhaustive list, we have updated the list to include trade bodies.

2.93 The Approach document also states that we engage with HMT and the FCA. One CP respondent suggested that UK regulators should align further and consider the aggregate effect of regulation. As explained in the Approach document, and in line with our statutory requirements under FSMA 2023, we already engage closely with domestic regulators on a wide range of subject matters, including on our approach to implementing international standards. We also coordinate with other regulators as a member of the Financial Services Regulatory Initiatives Forum, through which we regularly publish the Regulatory Initiatives Grid.

Rule review

2.94 Our Approach document summarises our approach to rule review in the evaluation phase of the policy cycle. Responses to the CP contained specific comments on the PRA’s approach to rule review, including on the need for these to be proportionate, periodic, and informed by an analysis of the policy’s costs and benefits. Since publishing the CP, we have also published PS4/24 – PRA statement on the review of rules which introduces the PRA’s statement on the review of rules. These publications set out in more detail our framework for undertaking rule reviews, including how the PRA engages with stakeholders on rule reviews and address comments received in response to our draft Approach Document. We have updated the Approach document to ensure consistency with these publications.

2.95 Respondents asked how they could engage with us to propose specific rule reviews. Some also suggested that we create new mechanisms for stakeholders to engage with us during the evaluation phase of the policy cycle, for example to propose rule reviews. We are committed to engaging with a broad range of stakeholders to seek input on rule reviews. As part of this commitment, we have set up a new channel for stakeholders to make representations to the PRA on rule reviews.^{footnote [19]} We encourage stakeholders to use this channel to share their insights, specific to a rule, a set of rules or a supervisory statement. Stakeholders can also make representations on the review of rules via other channels, including engaging with the PRA via public consultations, DPs on specific topics or industry roundtables. PRA-regulated firms can also engage via their PRA supervisors.

Delivering a first-rate PRA Rulebook

2.96 Chapter 6 of the Approach document outlines our approach to the PRA Rulebook. Respondents reacted positively to our proposals. The Approach document has been updated to reflect that some of the proposals have already been implemented as part of the refreshed PRA Rulebook website, which was launched in April 2024.

2.97 Respondents supported the proposed principles for developing the Rulebook over time (ease of access, efficiency, and usability and clarity). One respondent suggested expanding these principles to include relevancy. Some respondents also shared general remarks about the content of the Rulebook. This included a suggestion that the PRA could avoid making new rules by reviewing existing rules rather than ‘bolting on’ new regulations. We agree that the Rulebook should remain relevant to the regulatory environment, and also note that the first principle (ease of access) already has an explicit focus on allowing users to identify relevant, current regulatory material. We also agree with the importance of evaluating existing rules (see both the evaluation section in Chapter 5 of the Approach document and the PRA’s Statement on the Review of Rules). However, there are occasions when it is appropriate to introduce new rules, for example in response to an emerging issue (if changing the underlying rule would be less efficient for firms), or to enable the PRA to respond quickly.

2.98 Respondents also noted that the repeal and replacement of relevant assimilated law is an opportunity to streamline and simplify the Rulebook. They observed that the effect and intention of assimilated law should not be changed without appropriate consultation. Where EU material is transferred to the Rulebook or policy material, the PRA consults in line with its statutory obligations. For example, we have consulted on Securitisation: General Requirements (July 2023), Solvency II: Reform of Matching Adjustments (published September 2023) and Review of Solvency II: Restatement of Assimilated Law (April 2024), Strong and Simple capital regime (September 2024), Definition of Capital (September 2024), Streamlining the P2A framework (September 2024) and Capital Buffers (September 2024).

2.99 Respondents recognised the benefits of an easy to use website, streamlined policy document formats, and a clear and consistent approach to structure and language. In the CP, we explained that we are not proposing to prioritise purpose statements at this time. Purpose statements would be designed to summarise the purpose of our rules, and help respondents understand how the rules advance our objectives. One respondent requested that we re-prioritise work on purpose statements. Given modest support for this proposal, and the significant resource demands of the Rulebook reforms already under way, we will not prioritise purpose statements at this point. However, they remain a longer term consideration, and we will continue engaging with our stakeholders on this topic.

2.100 Respondents shared supportive feedback on ongoing work to enhance the Rulebook and some suggested further enhancements. For example, one respondent suggested a filtering feature to enable users to see which rules apply to a given authorised entity, in particular for international bank branches. We are not currently proposing to develop a function for firms to filter rules according to types of firms, since each firm is responsible for identifying and complying with the rules applicable to them.

2.101 We also received a request to consolidate Statements of Policy (SoPs), Supervisory Statements (SSs) and letters to executives of regulated firms into a single structured repository to provide a consolidated regulatory text. The PRA is digitising and incorporating SSs and SoPs on the new PRA Rulebook website. Our Dear CEO letters provide (non-legally binding) information about the PRA’s approach and are available on the Bank of England website.

2.102 Some respondents indicated that they would benefit from a mapping of retained and removed policy, eg in the form of an archive of EU regulatory guidelines. We do not provide a comprehensive mapping of revoked and replaced provisions of assimilated law, but individual CPs and PSs have explained the approach taken.^{footnote [20]} We have also set out our approach to EU Guidelines and Recommendations after the UK’s withdrawal from the EU and provided a non-exhaustive list of relevant guidelines and recommendations that have been retained and removed, together with links to copies of the documents.^{footnote [21]} The new PRA Rulebook website now also includes an easier to use ‘time-travel’ function which helps firms track changes to rules in the Rulebook.

2.103 We are grateful for suggestions on how we can further enhance access to the Rulebook and improve its usability. There are several channels available to engage with us as we embed our approach to the Rulebook, including:

• through contacts in PRA supervision or other contacts in the PRA;
• annual firm feedback surveys; and
• through ad-hoc surveys or the contact details on the PRA Rulebook website.