In a speech delivered earlier this week, David Bailey, Executive Director of Prudential Policy at the UK Prudential Regulation Authority (PRA), outlined how the regulator is working to support innovation in the banking and insurance sectors while reinforcing its core mandate of safety and soundness.
"If we support innovation in the right way," he said, "it will help strengthen our financial system, whilst also making it more diverse, efficient and competitive." Bailey discussed this agenda within the context of the PRA's Secondary Competitiveness and Growth Objective, introduced in 2023. While much attention has focused on reducing regulatory burdens, he emphasized the broader goal of enabling firms to innovate, grow, and adapt.
The PRA, Bailey said, avoids a one-size-fits-all model. It chooses different regulatory responses depending on the risk posed by the innovation at hand. In areas like AI, the PRA has opted for a flexible, technology-agnostic stance, relying on existing standards. By contrast, the treatment of cryptoassets has called for more restrictive initial measures.
The emphasis on innovation extends to internal operations as well, Bailey explained. The PRA is applying natural language processing to enhance its regulatory review and drafting process. And with AI, the PRA has streamlined its intensive and traditionally manual supervisory data analysis processes. However, Bailey stipulated that these systems always operate with “a human in the loop.”
"[W]e will continue to deliver changes that lessen the regulatory burden on firms by making regulation more efficient and proportionate," Bailey concluded. "But it is also important we also focus on how we can support the firms we regulate to innovate to do better things, and to do things better. We will seek to do so in a flexible and responsive way; relying on close engagement with industry to inform the balance we strike."
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