Prudential Regulation Authority Rulebook

2.1

Under the PRA-regulated Activities Order, the Prudential Regulation Authority (PRA) may designate certain persons for prudential supervision by the PRA under CRR (other than those in article 4(1)(2AA) (a), (b) and (c) CRR). Before the PRA does so, the condition set out in article 3(2) of the PRA-regulated Activities Order must be satisfied. This is, broadly speaking, that the person has, or has applied for, permission to deal in investments as principal.

2.2

In this statement of policy, a person meeting the condition in article 3(2) is referred to as an ‘Eligible Investment Firm’.

2.3

Provided this condition is met, the PRA may designate an Eligible Investment Firm if the PRA ‘considers that it is desirable that the activity of dealing in investments as principal, when carried on by [the Eligible Investment Firm], should be a PRA-regulated activity’ (article 3(1)(c)), so that upon designation taking effect the Eligible Investment Firm becomes a ‘designated investment firm’. A designated investment firm is a PRA-authorised person and is subject to CRR. In taking designation decisions the PRA has regard to its statutory objectives and the matters set out in article 3(4) of the PRA-regulated Activities Order, which are:

1. (a) the assets of the Eligible Investment Firm; and
2. (b) where the Eligible Investment Firm is a member of a group:
   1. (i) the assets of other Eligible Investment Firms within the group;
   2. (ii) whether any other members of the Eligible Investment Firm’s group have been designated; and
   3. (iii) whether the Eligible Investment Firm’s activities have, or might have, a material impact on the ability of the PRA to advance any of its objectives in relation to PRA-authorised persons in its group.

2.4

The PRA-regulated Activities Order also:

1. (a) requires the PRA to keep under review all designations (article 5); and
2. (b) provides for the PRA to withdraw a designation if the PRA considers it ‘appropriate to do so’ (article 6).

2.5

In taking designation decisions the PRA-regulated Activities Order requires the PRA to have regard to the factors set out in paragraph 3. It also requires the PRA to have regard to this statement of policy in taking decisions to designate or withdraw designation or in reviewing designations. But these factors are not exhaustive. The PRA may also have regard to other considerations in deciding whether it is desirable for an Eligible Investment Firm to be designated or appropriate for a designation to be withdrawn.

2.6

In principle HM Treasury may add other PRA-regulated activities to the PRA-regulated Activities Order or make other changes to it under sections 22A and 428(3) of the Financial Services and Markets Act 2000 (FSMA).

2.7

Under the Bank of England Act 1998 (as amended by the Financial Services Act 2012), the Financial Policy Committee (FPC) can make recommendations to HM Treasury regarding the boundary between regulated and non-regulated sectors of the UK financial system – the regulatory perimeter. Such recommendations may concern what is a regulated activity under FSMA and also which particular activities are prudentially regulated by the PRA. The regime for designating investment firms for regulation by the PRA provides that the PRA may consult the FPC on any proposed revisions to this Statement of Policy.