1.1 The PRA is considering the appropriate prudential framework for smaller PRA-regulated banks and building societies ('firms') that are neither systemically important nor internationally active, with the intent to maintain their resilience while simplifying prudential regulation of those firms and supporting those among them wishing to grow.

1.2 This paper outlines the reasons why the prudential framework at present may be overly complex for smaller firms, and the implications of this for the PRA's objectives. It outlines a vision for how the prudential framework in the UK could be changed to mitigate the complexity problem while maintaining resilience and not creating further barriers to growth, and focuses on options for simplifying prudential regulation for the smallest firms.

1.3 This paper is about the prudential framework for banks and building societies only. A review of the Solvency II prudential regime for insurers is currently being carried out by the UK government. It is possible that review will include consideration of whether there is scope to simplify to some extent requirements for small insurers. That question would be addressed as part of the Solvency II review once responses to the call for evidence have been considered.

1.4 Simplifying prudential requirements must not come at the expense of PRA-regulated firms' resilience, nor broader financial stability in the UK. The policy options discussed in this paper are intended to lessen complexity in the existing prudential framework while maintaining resilience. This is why the long-term vision for prudential regulation of non-systemic firms is referred to here as a 'strong and simple' prudential framework.