Patrick Connolly

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Patrick Connolly




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Presentations text content in Patrick Connolly

Slide1

Patrick ConnollyManager, Retail General Insurance Team

1. The

PRA Approach to

Supervision for Smaller Insurers

Slide2

Topics:

1.1 The Regulatory Framework1.2 Firm Categorisation1.3 The Supervisory Approach1.4 Regulatory Co-ordination1.5 Communication

The PRA Approach to Supervision

Slide3

1.1 The Regulatory Framework

Source:

Bank of England Quarterly Bulletin, Q4 2012

The PRA Approach to Supervision

Key: FPC Financial Policy Committee

FCA Financial Conduct Authority

Slide4

1.1 The Regulatory Framework

The PRA’s statutory objectives:-General objective: “promoting the safety and soundness of PRA-authorised firms”Insurance objective:“contributing to the securing of an appropriate degree of protection for those who are or may become policyholders”

The PRA Approach to Supervision

Slide5

1.2 Firm Categorisation

Cat 5 Firms

All firms

The PRA Approach to Supervision

Slide6

1.2 Firm Categorisation

Category 4Insurers whose size …….. “very little capacity individually to cause disruption to the UK financial system. ……………”.Category 5Insurers whose size, interconnectedness, complexity and business type give them almost no capacity individually to cause disruption to the UK financial system by failing or by carrying on their business in an unsafe manner, but where difficulties across a whole sector or subsector may have the potential to generate some disruption. They have no capacity to cause disruption to the interests of a substantial number of policyholders.

The PRA Approach to Supervision

Slide7

Category 4 firms: Annual supervisory assessment visit Desk-based reviews of returns and Management InformationIssue-driven meetings and reactive work Peer group and trend analysisCategory 5 firms: Firm Enquiries Function for routine queriesBroadly reactive supervision in response to crystallised risks Some proactive analysis and assessment at solo and peer-group level

The PRA Approach to Supervision

1.2 Firm Categorisation

Supervisory Models

Slide8

1.2 The Supervisory Approach

Firm Enquiries Function

Queries relating to:ReturnsAuthorisation processThe HandbookFirst reporting of crystallised risks

Supervision Team

AuthorisationsChanges in ControlApproved persons (red channel)Part VII transfersCapital issuesStrategic issuesFCA interaction

The PRA Approach to Supervision

Slide9

1.3 The Supervisory Approach

“Forward-looking and judgement-based supervision…” What does this mean in practice?

The PRA Approach to Supervision

Slide10

1.3 The Supervisory Approach

Cat 5

Cycle

PSM = Periodic Summary Meeting, sets our supervisory strategy

The PRA Approach to Supervision

Slide11

1.3 The Supervisory Approach

Minimum requirements that firms must meet at all times in order to be permitted to carry out regulated activitiesFirms will need to meet both PRA-specific and FCA-specific threshold conditionsPRA-specific threshold conditions:Legal statusLocation of officesPrudent conductSuitabilityEffective supervisionThe PRA will assess firms against the threshold conditions on a continuous basis

The PRA Approach to Supervision

Threshold Conditions

Slide12

1.4 Regulatory Co-ordination

Effective delivery of our approach requires co-ordination with the FCAFocussed at firm levelMoU and colleges to ensure statutory duty to co-ordinate is effectiveFirm-specific supervision alone is not sufficient to deliver financial stability. Must be complemented by an effective macroprudential regimeTwo-way flow of information and exchange of views between the PRA and the FPCPRA responsible for implementing relevant FPC recommendations on a ‘comply or explain’ basisFPC has powers to direct the PRA

The PRA Approach to Supervision

Slide13

1.5 Communication

Our main objectives are to:Communicate the PRA objectives and expectations to industry clearly.Understand market trends in order to inform our forward-looking approach and communicate supervisory priorities for the sector.Raise awareness of the information and support available to smaller insurers.

The PRA Approach to Supervision

Slide14

Patrick ConnollyManager, Retail General Insurance Team

1.

The

PRA Approach to

Supervision for Smaller Insurers

Slide15

Topics:

1.1 The Regulatory Framework1.2 Firm Categorisation1.3 The Supervisory Approach1.4 Regulatory Co-ordination1.5 Communication

The PRA Approach to Supervision

Slide16

1.1 The Regulatory Framework

Source:

Bank of England Quarterly Bulletin, Q4 2012

The PRA Approach to Supervision

Key: FPC Financial Policy Committee

FCA Financial Conduct Authority

Slide17

1.1 The Regulatory Framework

The PRA’s statutory objectives:-General objective: “promoting the safety and soundness of PRA-authorised firms”Insurance objective:“contributing to the securing of an appropriate degree of protection for those who are or may become policyholders”

The PRA Approach to Supervision

Slide18

1.2 Firm Categorisation

Cat 5 Firms

All firms

The PRA Approach to Supervision

Slide19

1.2 Firm Categorisation

Category 4Insurers whose size …….. “very little capacity individually to cause disruption to the UK financial system. ……………”.Category 5Insurers whose size, interconnectedness, complexity and business type give them almost no capacity individually to cause disruption to the UK financial system by failing or by carrying on their business in an unsafe manner, but where difficulties across a whole sector or subsector may have the potential to generate some disruption. They have no capacity to cause disruption to the interests of a substantial number of policyholders.

The PRA Approach to Supervision

Slide20

Category 4 firms: Annual supervisory assessment visit Desk-based reviews of returns and Management InformationIssue-driven meetings and reactive work Peer group and trend analysisCategory 5 firms: Firm Enquiries Function for routine queriesBroadly reactive supervision in response to crystallised risks Some proactive analysis and assessment at solo and peer-group level

The PRA Approach to Supervision

1.2 Firm Categorisation

Supervisory Models

Slide21

1.2 The Supervisory Approach

Firm Enquiries Function

Queries relating to:ReturnsAuthorisation processThe HandbookFirst reporting of crystallised risks

Supervision Team

AuthorisationsChanges in ControlApproved persons (red channel)Part VII transfersCapital issuesStrategic issuesFCA interaction

The PRA Approach to Supervision

Slide22

1.3 The Supervisory Approach

“Forward-looking and judgement-based supervision…” What does this mean in practice?

The PRA Approach to Supervision

Slide23

1.3 The Supervisory Approach

Cat 5

Cycle

PSM = Periodic Summary Meeting, sets our supervisory strategy

The PRA Approach to Supervision

Slide24

1.3 The Supervisory Approach

Minimum requirements that firms must meet at all times in order to be permitted to carry out regulated activitiesFirms will need to meet both PRA-specific and FCA-specific threshold conditionsPRA-specific threshold conditions:Legal statusLocation of officesPrudent conductSuitabilityEffective supervisionThe PRA will assess firms against the threshold conditions on a continuous basis

The PRA Approach to Supervision

Threshold

Conditions

Slide25

1.4 Regulatory Co-ordination

Effective delivery of our approach requires co-ordination with the FCAFocussed at firm levelMoU and colleges to ensure statutory duty to co-ordinate is effectiveFirm-specific supervision alone is not sufficient to deliver financial stability. Must be complemented by an effective macroprudential regimeTwo-way flow of information and exchange of views between the PRA and the FPCPRA responsible for implementing relevant FPC recommendations on a ‘comply or explain’ basisFPC has powers to direct the PRA

The PRA Approach to Supervision

Slide26

1.5 Communication

Our main objectives are to:Communicate the PRA objectives and expectations to industry clearly.Understand market trends in order to inform our forward-looking approach and communicate supervisory priorities for the sector.Raise awareness of the information and support available to smaller insurers.

The PRA Approach to Supervision


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