UK: PRA confirms approach to supervising insurers

Documents published over the summer provide some insight into how the PRA is supervising insurers.  In particular, firms should be aware of a new version of the PRA's "Approach to insurance supervision" (Approach Document) and of an update on the PRA's continuing transition from its current Handbook to a new, more concise Rulebook (PS5/14).

Key points

Key points for insurers include the following:

• A complex matrix of PRA rules, guidance, statements of policy and other information must be negotiated by firms in order to appreciate fully the standards the PRA expects them to meet. 
• In particular, experience over the last year demonstrates a need for insurers to have a detailed knowledge of the Approach Document, which underpins the PRA's approach to supervision and is relevant to all dealings with the regulator.
• The PRA's apparent use of the Approach Document to impose new regulatory obligations on firms seems to sidestep its statutory obligation to consult on changes to its rules.
• The transition of the PRA to its own Rulebook, including the replacement of high-level Principles by Fundamental Rules, marks the beginning of an inevitable divergence in PRA and FCA requirements.  Given increasing reliance by both regulators on high-level statements of principle, insurers will have to make sure that they understand the strategic objectives of each of their regulators and how they intend to give effect to those objectives.

Our briefing (which can be found here) considers some of the issues raised by the Approach Document and PS5/14 and, more generally, the PRA's approach to rule-making and the issue of guidance.