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‘The PRA must be supported by the community it serves’

The Prudential Regulation Authority must gain the support from the public and Parliament that the FSA never received if it is to be a success, according to PRA chief executive designate Hector Sants.

Speaking at the launch of a briefing document on the PRA’s proposed approach to regulating banks in London last week, Sants said the FSA never received full Government or public backing.

He said: “A major issue for the FSA was that it never achieved the full support of Parliament or the public. There was a misalignment of understanding of the purpose and value of supervision.

“We need to ensure the PRA’s purpose is understood and supported by the community it serves, the UK society as represented by Parliament.”

He said the furore over the regulator’s inability to publish a report into the now state-owned Royal Bank of Scotland is a good example of a misunderstanding of the purpose of regulation.

Sants said it is “vital to recognise” the PRA is accountable to Parliament, the public and the Court of the Bank of England and that any suggestion of “regulatory capture”, where the industry exerts undue influence on the regulator, must be avoided.

He said: “This will be of particular importance when the consequences of its interventions will potentially be at variance with the public’s short-term aspirations. Removing the punchbowl from the party is not a popular act.”

Avoiding regulatory capture, he said, does not mean avoiding engaging with companies and when making rules, the PRA should fully understand their impact and set them out clearly.

Sants said: “We will set up the necessary consultation mechanisms to ensure the right industry people are involved.”

Anand Associates managing director Bhupinder Anand says: “As the political climate and people’s expectations of bodies such as the FSA change, it is always going to face a misalignment of understanding. The only way to avoid it is to constantly update the rules by which the regulator operates.”’The PRA must be supported by the community it serves’

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