role and responsibilities has been appropriately defined to avoid any “ under - laps ” and that the correct balance has been struck between them. let me now move on to the second subject – what style of supervision will the pra adopt and how will it affect insurers? let me start by drawing the distinction between regulation and supervision in our world. regulation is about the framework of rules and policies against which we operate. supervision is about how we apply that framework every day. they are not the same thing. rules are for the most part in our world the product of international agreement, eventually. there are good reasons for this in terms of seeking to ensure comparable standards of protection where services can be provided across borders, and where encouraging free trade in services is consistent with open economies. when it comes to supervision the pra will be applying judgement around the framework of rules. this is important for a number of reasons, but above all against a background of inexorable increases in rule making we must have the determination to be focussed on the key risks that matter to our objectives. one of my commitments is that we must be focussed on the ( i hope ) small number of big risks that threaten our objectives of safety and soundness and policyholder protection. i don ’ t have any difficulty with intensive and intrusive supervision where it is focussed and justified by the risks. we are not, however, substitute compliance officers – that is the job of firms, and one that we will expect to see in place and functioning along with risk and audit functions. another key aspect of judgemental supervision is that it must be forward - looking to the risks that may arise. this is crucial, and was not properly incorporated into the pre - crisis regime of supervision. let me give a few current examples of this for insurers. we are focussed on the impact of very low interest rates staying with us for a protracted time, and when i say this i am offering no view whatsoever on the likely course of monetary policy. likewise, we want to know that the prudential position of firms also captures the possible impact of an unexpected upward shift in the slope of the yield curve, and again i am offering no view on monetary policy. my third example is different : we are watching the range of possible outcomes on flood insurance in this country for their prudential implications. judgment in supervision is not, however, without its challenges when it comes to the practice of supervision. there are two

##urers. it leads me to two initial conclusions. first, that in a world of proportionate supervision, we should take a more enhanced and intensive approach for these large and complex firms. this is what the pra will do, and it does not contradict our policyholder protection objective which, as i indicated earlier, gives us in my view a somewhat different objective in respect of small insurers versus small banks. second, this degree of complexity inevitably raises important questions around our resolution tools where we face dealing with large - scale run - downs. in this context, i am aware that the pra will need to be very clear how it interprets and puts into effect its policyholder protection objective in the context of insurers that enter run - off or require some other means to draw the business to a close. in conclusion, i hope this description has given you a sense of the pra ’ s intended approach to supervising insurers, and some of the big issues that we see ahead. we have grown all too accustomed to focusing heavily on banks, reflecting their capacity for damaging spillovers and externalities. whether, or how much, insurers share some of these characteristics is the subject of extensive debate. i am yet to be persuaded that the similarities of insurers and banks are more important that the differences. but i am persuaded that insurance is a critical financial service provided by firms that have considerable complexity in terms of financial risks. this alone demonstrates why we care about the prudential supervision of insurers. i should stress that we are looking forward to the challenge. thank you. bis central bankers ’ speeches