The Views of the PRA on Risk Culture and Risk Governance in Banks and Insurers

Andrew Bailey and John Sutherland

This chapter introduces the role of the Prudential Regulation Authority (PRA) and its interest in risk culture. The importance the PRA attaches to those banks it supervises that have an effective risk appetite framework (RAF) is discussed, as is the role of the board in the overall context of risk management. The chapter also explores the kinds of questions that boards should ask, and looks at the issues raised by matrix management, covering business lines, entities and geographies. Finally, reference is made to insurance failures as seen through the problems those boards suffered, showing a close similarity with the failings seen on banks boards and the need for similar regulatory expectations regarding risk governance, risk appetite and risk culture for insurers as for banks.


Banks are essentially risk-taking businesses and this chapter concerns risk in banks, the presence of which defines the reason for having a prudential regulator such as the PRA. History abounds with examples of banks that have failed because they have taken on more risk than they had resources to manage. The shortfall in resources might have been in the balance sheet, not enough capital

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