Supervision

Find out about our market-based approach to supervising firms.

Our priority in supervising firms is to ensure consumers are at the centre of a firm’s business. We aim to deliver a sustainable supervision programme with a market-based approach, rather than just concentrating on individual firms. We seek to tackle risks before they cause harm.

We make risk-based judgements about whether:

  • the firm’s business model and how it is run results in fair treatment for consumers, and 
  • the firm upholds market integrity and, if it is a firm we prudentially regulate, whether it is financially sound.

Conduct supervision

We are responsible for supervising over 56,000 firms. We supervise the market using different approaches. Our three main approaches are:

  • Pillar 1 – proactive supervision for the biggest firms.
  • Pillar 2 – event-driven, reactive supervision of actual or emerging risks according to our risk appetite.
  • Pillar 3 – thematic work that focuses on risks and issues affecting multiple firms or a sector as a whole.

We intervene early where we see poor behaviour, taking action to prevent harm to consumers and markets, and getting redress where appropriate.

We have allocated all authorised firms to one of two conduct categories:

Fixed portfolio firms

Fixed portfolio firms have a named supervisor and we proactively supervise them using firm-specific continuous assessment. For each firm, we evaluate our firm-specific supervisory strategy and underlying work programme at ‘governance checkpoints’ during the regulatory cycle.

We address Pillar 2 issues in line with our risk appetite and regulatory obligations. We may also include firms in Pillar 3 activity where appropriate.

Read more about our Approach to supervision for fixed portfolio firms.

Flexible portfolio firms

We supervise flexible portfolio firms through thematic and market-based work, along with programmes of communication, engagement and education aligned to the key risks we’ve identified in the relevant sector.

Read more about our Approach to supervision for flexible portfolio firms.

Prudential supervision

We are responsible for the prudential regulation of over 24,000 firms, including asset managers, financial advisers, and mortgage and insurance brokers. By number of firms, this makes us the largest prudential regulator in Europe. As with our conduct supervision, our prudential supervision goes beyond a quantitative analysis of firms’ financial resources. We consider systems and controls, governance arrangements, and risk management capabilities including the risk of misconduct.

In essence, we assess how well a firm understands the risks it is running, how well placed it is to manage those risks, and how well it can avoid large, unexpected costs.

We allocate firms that we solely regulate to one of three prudential categories:

  • P1 - firms whose failure would cause lasting and widespread financial and reputational damage to their customers, client assets and the marketplace beyond. We subject them to periodic capital and, if applicable, liquidity assessment. Our prudential specialists conduct these tests every 24 months.
  • P2 - firms whose disorderly failure would damage consumers and client assets but are more easily dealt with than the failure of a P1 firm. We subject them to periodic capital and, if applicable, liquidity assessment. Our prudential specialists conduct these tests every 48 months.
  • P3 - firms whose failure, even if disorderly, would be unlikely to cause significant harm to consumers or market integrity. We supervise these firms on a reactive basis.