PRA Collective Suitability: What It Means for Board Appointments at Banks and Insurers
At banks, building societies and insurers, the regulators don’t just assess whether each board candidate is suitable. The Prudential Regulation Authority also asks whether the board as a whole has the knowledge, skills and experience to oversee the firm. That means every board appointment at a dual-regulated firm has to be justified twice: on the candidate’s own merits, and on how they complete the board. This post explains what collective suitability means in practice and how boards can plan for it.
What Collective Suitability Means
Dual-regulated firms are supervised by both the Prudential Regulation Authority and the FCA. The PRA’s focus is safety and soundness, and it sees an effective board as central to that. Its rules and supervisory expectations, set out in the PRA Rulebook and related statements, require boards to have, collectively, adequate knowledge, skills and experience to understand the firm’s activities and main risks.
In practice, that means the board as a whole should cover the firm’s key risks, such as credit, insurance, market, liquidity, operational and conduct risk, and its business model, strategy, financial reporting, governance and regulatory environment. No single director needs to know everything, but the board together must.
How It Affects Individual Appointments
When a dual-regulated firm applies for approval of a board-level Senior Manager, such as the Chair or a committee chair, the regulators assess the individual against the fit and proper test. The PRA will also want to understand how the candidate fits with the existing board, what gap they fill, and how the board’s collective suitability will look after the appointment.
| The question | What the PRA is looking for |
|---|---|
| Is the candidate fit and proper? | Honesty, competence and financial soundness for the specific role |
| What do they add to the board? | Skills or experience the board needs, particularly in areas of weakness |
| How does the board look afterwards? | Collective coverage of the firm’s activities and risks |
| Do they have time? | Capacity given other commitments |
| Are they independent, where required? | Freedom from relationships that could compromise challenge |
The PRA often interviews candidates for chair and committee chair roles at significant firms, and may explore their understanding of the firm’s risks and how they see their role on the board.
How to Show Collective Suitability
Keep a Current Skills Matrix
A skills matrix is the clearest way to show how the board covers the firm’s activities and risks, and where it doesn’t. Our board skills matrix template includes areas specific to banks and insurers, such as capital and liquidity, credit risk and reserving, which you can adapt.
Link Every Appointment to a Gap
Before recruiting, use the matrix to identify what the board needs. Build the role specification around those gaps, and explain in the approval application how the candidate fills them.
Plan for Departures
Collective suitability can weaken suddenly when an experienced director leaves. Track terms and plan succession so the board doesn’t lose key expertise without a replacement lined up.
Use Training and Advisers
Where the gap is narrow or temporary, targeted training or an external adviser to a committee may be enough. For larger or lasting gaps, an appointment is usually needed.
Common Gaps at Dual-Regulated Boards
- Technology and cyber: increasingly important as operational resilience expectations grow.
- Prudential risk: particularly at smaller banks and building societies with boards drawn from the local community.
- Insurance-specific expertise: underwriting, reserving and capital modelling at insurers.
- Conduct and customer outcomes: following the Consumer Duty.
- Climate-related financial risk: an area of supervisory focus.
A mid-size building society’s risk committee chair and its only board member with treasury experience are both due to retire within a year. The skills matrix shows that after they leave, nobody on the board will have deep liquidity or capital experience. The board recruits a new risk committee chair with treasury and prudential experience a year ahead, so the approval application can explain exactly how the appointment preserves the board’s collective suitability. The PRA interviews the candidate and approves the appointment before the retirements take effect.
Planning a Dual-Regulated Board Appointment
Board appointment checklist for dual-regulated firms
- Update the skills matrix and identify the gap the appointment must fill
- Write the role specification around that gap
- Confirm whether the role carries a Senior Manager Function needing approval
- Check the candidate’s time commitment and any directorship limits that apply
- Prepare to explain in the application how the candidate fits the board
- Prepare the candidate for a possible PRA interview
- Allow enough time: approvals can take up to three months once complete, plus interview time
- Plan induction so the new director contributes quickly
Smaller Banks, Building Societies and Insurers
Smaller dual-regulated firms face the same expectation with fewer board seats, which can make collective suitability harder to achieve. A board of seven or eight has to cover the same core risks as a much larger one. Many smaller firms find that adding one carefully chosen independent non-executive, focused on their biggest gap, makes a significant difference. NED Capital, a sister practice of SMF Capital, specialises in non-executive appointments. SMF Capital leads where the role carries a Senior Manager Function. See chair and committee chair recruitment.
Lloyd’s and Insurance Groups
Lloyd’s managing agents and insurance groups face similar expectations, with Lloyd’s adding its own oversight of managing agents’ boards. Board composition needs to satisfy the PRA, the FCA and, for managing agents, Lloyd’s.
Executive Directors Count Too
Collective suitability covers the whole board, executives included. The chief executive, finance director and other executive directors bring knowledge of the business and its risks that non-executives may not have. When an executive director leaves, the board can lose expertise just as it does when a non-executive retires. Include executive directors in the skills matrix, and consider their departures in succession planning. The same applies to group executives who sit on a subsidiary’s board.
What It Means for Candidates
For candidates, collective suitability changes how to approach a board role at a dual-regulated firm. Expect to be asked not just about your own experience, but about what you’ll add to this particular board and how you’ll work with its existing members. Read the firm’s annual report and any published information on its board, understand its main risks, and be ready to explain where you’ll contribute most. Candidates who can show they understand the board’s needs, not just their own strengths, tend to do much better in regulator interviews.
Dual-Regulated Boards
Guides and services for board appointments at banks, building societies and insurers. Every SMF search is led personally by Adrian Lawrence FCA
Board Roles
Chairs, committee chairs and NEDs.
→ Chair and committee chairs
→ NEDs at FCA-regulated firms
Board Tools
Planning the board’s composition.
→ Board skills matrix template
→ NED time commitment
Getting Approved
What the regulators assess.
→ The fit and proper test
→ SMF appointment timeline
Every SMF search is led personally by Adrian Lawrence FCA
Frequently Asked Questions
Does collective suitability apply to FCA-only firms?
The PRA’s collective suitability expectation applies to the firms it regulates. FCA-only firms are still expected to have boards with appropriate skills, and a skills matrix is good practice for any regulated firm.
Will the PRA interview our board candidate?
It often does for chair and committee chair roles at significant firms. Preparation makes a real difference.
Can a candidate be rejected because of the board’s composition?
The regulators assess the individual, but the fit with the board is part of the picture. A clear explanation of how the candidate strengthens the board helps the application.
About the Author
Adrian Lawrence FCA is the founder of SMF Capital. He is a Chartered Accountant and Fellow of the ICAEW, holds a practising certificate in his own name, and is a former listed-company Finance Director with a BSc from Queen Mary College, University of London. He founded FD Capital in 2018 and has since built a network of five specialist recruitment practices. He leads every SMF Capital board search personally, including chair and committee chair appointments at dual-regulated firms. View Adrian’s ICAEW profile.
Planning a Board Appointment at a Dual-Regulated Firm?
We’ll help you identify the gap, find the candidate who fills it and prepare for the regulators’ assessment. Get in touch for a confidential conversation.
Adrian Lawrence FCA is the founder of SMF Capital and a Fellow of the Institute of Chartered Accountants in England and Wales and holds an ICAEW practising certificate in his own name. He holds a BSc from Queen Mary College, University of London, and has over 25 years of experience working with boards, investors and business owners across the UK. He founded SMF Capital to help FCA and PRA-regulated firms appoint the Senior Managers the regulators expect, with the fit and proper assessment built into every search, and personally leads every Senior Manager Function search.
