The Financial Services Authority and the Bank of England have announced their plans for the Prudential Regulation Authority.

In a report published today the FSA and Bank of England set out how the PRA will supervise banks, building societies and investment firms.

The paper ‘The Bank of England, Prudential Regulation Authority-Our approach to banking supervision’ outlines the PRA’s approach to policy-making, supervision, authorising firms and their risk assessment framework.

When it comes into force next year, the PRA will be responsible for over 2,000 firms including 157 UK-incorporated banks, 48 building societies and 652 credit unions.

It was created to replace the FSA, which is being closed down, and will be a division of the Bank of England.

Hector Sants, chief executive of the FSA and PRA chief executive designate, said: “The PRA’s purpose is fundamentally different from that of previous regulatory regimes and will lead to a significantly different model of supervision to that which was in use pre-2007. In designing this new model we have incorporated both the lessons learned from the last financial crisis and those from firm failures of the past.

“PRA has a single objective to promote the stability of the UK financial system and in consequence will be a very focused organisation.”

Andrew Bailey, FSA director of UK banks and building societies and the PRA deputy chief executive designate, said: “Maintaining financial stability is an objective in public policy which we should all value highly. We have seen what happens when we lose it. But achieving and maintaining financial stability does not mean that we have an industry in which no-one can fail.”

The British Bankers’ Association said that the report was an important step forward in the future of banking.

It also highlighted the importance of accountability and transparency, balancing the regulatory authorities core statutory objectives and working on relationships with other EU members.

Angela Knight, chief executive of the BBA, said: “The banking industry in the UK is fully supportive of sensible and considered reform and has already made significant strides in overhauling and enhancing its own working practices.

“Today’s announcement, setting out the authorities approach to banking supervision in the future, is a welcome step forward offering a real opportunity to progress the lessons we have all learned to create a stronger regulatory framework for the future.”