Prudential Regulation Authority sets cost benefit analysis framework and limits routine panel review to proposals above GBP 10 million annualised net direct cost

The Prudential Regulation Authority has published a statement of policy setting out how it will conduct cost benefit analysis for rule changes, when it will quantify costs and benefits, and when it may decide that a full analysis is not required. The framework confirms that PRA cost benefit analysis will focus on the net economic impact of prudential policy, with the main benefit assessed being the effect on UK financial stability and economic output, while costs will cover direct compliance costs for firms and the PRA, wider market effects including competition and international competitiveness, and macroeconomic effects. The policy sets out a structured approach based on the case for action, assessment of costs and benefits, and an overall judgement on net impact, using quantitative estimates where impacts can reasonably be estimated and it is reasonably practicable to do so, and qualitative analysis where they cannot. It also explains that the Prudential Regulation Authority may not undertake a cost benefit analysis where costs are expected to be none or of minimal significance, or where delay would prejudice its primary objectives. Cost benefit analysis will be published in consultation papers, with updated analysis where final rules differ significantly from proposals. The Prudential Regulation Authority will generally consult its Cost Benefit Analysis Panel on proposed rule change analyses, but will usually not do so where the annualised net direct cost to PRA firms is assessed at plus or minus GBP 10 million or less, and it will not consult the panel on rules setting the Financial Services Compensation Scheme management expenses levy limit.