To advance our objectives, our supervisory approach follows three key principles – it is: (i) judgement-based; (ii) forward-looking; and (iii) focused on key risks.

Judgement-based

28. Our approach relies significantly on judgement. Supervisors reach judgements on the risks that a firm is running, the risks that it poses to our objectives, whether the firm is likely to continue to meet the Threshold Conditions, and how to address any problems or shortcomings.

29. Our supervisory judgements are based on evidence and analysis. It is, however, inherent in a forward-looking system that, at times, the supervisor's judgement will be different to that of firms. Furthermore, there will be occasions when events will show that the supervisor's judgement, in hindsight, was wrong. To minimise such outcomes, our strategies and judgements are subject to regular review by those independent from supervising the firm in question, and our major judgements and decisions involve our most senior and experienced staff and directors.

30. We also engage with the boards and senior management of firms in forming our judgements, using this dialogue both to ensure that we take account of all relevant information, and to clearly communicate the rationale for our judgements. Firms should not, however, approach their relationship with us as a negotiation.