PRA issues its first fine using the Early Account Scheme

The Prudential Regulation Authority has fined UK Insurance Limited (the “Firm”), a subsidiary and principal underwriter of Direct Line Group and now part of Aviva, £10.6m for miscalculating its Solvency II balance sheet during 2023 and 2024, resulting in overstating its solvency to the PRA and to the market by almost £100m. This is the PRA’s first fine in which the Early Account Scheme (EAS) has been used, allowing the Firm to qualify for an enhanced settlement discount of 50%. The EAS was introduced as a new option for firms and individuals for early cooperation under the PRA’s revised enforcement approach, which came into force on 30 January 2024. (Read our earlier blog post for more background on the EAS.) Without application of the EAS, the maximum settlement discount is 30%.

What happened?

The PRA found that there was an internal accounting miscalculation due to the mistaken double-counting of an asset in the Solvency II balance sheet used to determine Own Funds for regulatory reporting which led to an overstatement of the Firm’s Solvency Capital requirement Coverage Ratio. According to the PRA, this was due to ineffective preventative and detective controls and resourcing and expertise issues in its finance and actuarial functions which had become overstretched and under-resourced, exacerbated by changes to accounting standards as well as undertaking a significant new re-insurance business (Project Athena) in the Spring of 2022, the nature of which the Firm had never undertaken before. 

Despite opportunities to discover the miscalculation, it went undetected by internal controls for a significant period of time. The nature of the error meant it compounded and grew over the reporting cycles, so that the net overstatement went from £19.7m in Q1 2023 and grew to £99.9m by the end of 2023.  Following identification of the miscalculation, the Firm notified the PRA that a potential error had been identified and made a Regulatory News Service announcement to the market, acknowledging the miscalculation and the knock-on effect on the reported SCR Coverage Ratio, reporting the correct figure. 

What breaches did the PRA find?

Between June 2022 and August 2024 the Firm breached:

• PRA Fundamental Rule 6: A firm must organise and control its affairs responsibly and effectively:

  • The PRA found that the double-counting error exposed ineffective preventative and detective controls within the Firm, as well as the effect of resourcing issues in its finance and actuarial functions. The Firm’s detective controls were ineffective due to operating at too high a level. The Firm’s Solvency II Manual was too high-level and failed to document all the processes to be followed.

• Rule 6.1, Notifications part of the PRA Rulebook.

  • The Firm did not take reasonable steps to ensure that the information given to the PRA in its Quantitative Reporting Templates (QRTs) and the 2023 Solvency and Financial Condition Report (SFCR) was accurate; and

• Rules 2.4 and 3.2, Reporting part of the PRA Rulebook.

  • The Firm failed to ensure that the information about the level of its Own Funds and its SCR Coverage Ratio that it published pursuant to the PRA’s rules was relevant, reliable and comprehensive.

What about the penalty?

Step 1: Disgorgement - The PRA did not require disgorgement as no economic benefit was found.

Step 2: Seriousness - As the breach spanned the dates of the two PRA enforcement policies, the PRA applied both its September 2021 Policy and January 2024 Policy for the Step 2 calculation. Under the September 2021 Policy, the PRA determined that it would be disproportionate to use the Firm's 2023 revenue as a starting point to determine seriousness.  Instead, it took into account various factors, including the significant period of time that the breaches persisted before they were detected, weaknesses in accounting controls and related governance, and the importance the PRA attaches to timely and accurate submission of information in required notifications. Under the January 2024 Policy, the PRA does not consider a firm’s revenue but instead uses a matrix featuring a series of ranges, based on the firm’s size and seriousness of the misconduct. In this case, the PRA regarded the Firm’s misconduct as Level 1 seriousness and categorised it as a Category 2 firm (i.e., a ‘significant impact’ firm which faces a more rigorous approach to enforcement). Despite the significant differences in the approach undertaken by each policy, the PRA arrived at the same £25m figure.

Step 3: Mitigating and Aggravating factors - The figure was reduced by 15% as the PRA acknowledged the Firm’s proactive involvement of its senior management team; its “exemplary” cooperation with the PRA’s investigation (including providing additional material “above and beyond” the scope of information compelled by the PRA); senior management taking prompt and effective action immediately following the identification of the miscalculation; taking significant steps to remediate the issues identified; and not having any previous PRA disciplinary record.

Step 4: Deterrence - No adjustment was made for deterrence.

Step 5: Early Account Scheme - The PRA agreed to the Firm’s request to participate in the EAS finding that it met the criteria for the maximum enhanced settlement discount of 50% to apply. In doing so, the PRA took into account various factors including:

• the Firm engaged proactively and candidly with the PRA, providing a comprehensive, timely, accurate and fulsome Account;

• by providing the Account, the Firm materially assisted with the PRA in the efficient and effective conduct of the investigation;

• shortly following the production of the Account, and significantly in advance of any settlement proposal being put to the Firm by the PRA, it made admissions, both as to relevant facts and regulatory rule breaches;

• the PRA was satisfied that the Firm “neither repeated nor failed to stop the behaviour giving rise to the breach”; and  

• the PRA was satisfied that the Firm carried out adequate and prompt remediation. 

What are the key takeaways?

Keep regulatory reporting in focus 

The PRA remains focused on ensuring that firms provide complete, timely and accurate regulatory reporting, and this is the latest example of a firm facing a steep financial penalty for failing to ensure the accuracy of financial information provided to its regulator For example, in 2023 the PRA censured Weylands Bank for, among other things, failing to report large exposure limits and in 2024, the PRA fined HSBC £57.4m for failing to accurately identify deposits that were eligible for the Financial Service Compensation Scheme (FSCS) - see our earlier blog post.  Here, although the erroneous SCR Coverage Ratio reported to the PRA remained within the Group’s risk appetite range and the failings did not result in any crystalised harm to policyholders, the Final Notice emphasises that the failure to accurately record and report financial information undermines the PRA’s ability to effectively supervise and can result in firms misunderstanding their true financial position and relevant prudential risks. 

Proceed with caution when introducing new lines of business

The introduction of significant new lines of business or products and business transformation change projects remain an area of high risk. Firms should ensure they have appropriate controls in place and expertise in both the first and second line functions ahead of launching new business initiatives. Boards and senior management must also receive sufficient information to facilitate robust oversight of the business and informed decision-making.  Where operational (or other) risks remain, firms should ensure risk acceptances are understood and clearly documented.

Maintain appropriate resourcing and expertise

Appropriate resourcing and expertise (here, in the finance and actuarial functions) are crucial to the identification of risks and detection of control failings. This is particularly important in the context of challenging market environments, business growth and expansion, and changes to regulatory requirements (including the introduction of new reporting requirements). 

Early Account Scheme – the need for speed (and admissions)

While it is helpful that the PRA has at long last published a Final Notice where the EAS framework was engaged, there is not a great amount of detail to provide clarity or meaningful guidance to the market on many of the key considerations for firms when faced with an enforcement investigation by the PRA.  Perhaps unsurprisingly, the Notice provides little insight as to how the EAS worked in practice in this case – issues such as the scope and timing of delivering a comprehensive “Account” to the PRA, PRA participation in interviews, and the Senior Manager attestation process are not addressed.  Nor does the Notice shed much light on what it takes for the PRA to consider cooperation with an investigation “exemplary” and warranting the full EAS settlement discount (the Notice cites showing a commitment to self-reflection and contrition, as well as the provision of “additional” material.)

What can be gleaned is (1) timely notification of issues and errors, prompt root cause analysis and commitment to comprehensive remediation provide a crucial foundation for a firm to succeed in a request to participate in an EAS (which is at the PRA’s discretion); and (2) and admissions of both facts and regulatory rule breaches appear to be key to unlocking the maximum 50% settlement discount. Interestingly, the Notice states that the firm’s admissions were made “shortly following the production of the Account and significantly in advance of any settlement proposal being put to the Firm”.  It is therefore clear that admissions need not be included in the Account itself in order to benefit from the EAS; this is likely to alleviate some of the risk associated with engaging with the EAS process at the outset of a PRA investigation, as firms would be able to commit to producing the detailed factual account of the matters under investigation without necessarily conceding any regulatory breaches.

Finally, an overarching theme is the emphasis on proactivity in engaging with the PRA and remediating issues. Here, the PRA took into account two factors – the firm’s high degree of cooperation and prompt and effective remediation – at both Step 3 (Adjustment for aggravating or mitigating factors) and Step 5 (reductions for early settlement / EAS) of the penalty analysis, ultimately reducing the fine from £25 million to £10.6 million. This sends a clear message that firms found in the crosshairs of an enforcement investigation can materially benefit to the extent they are able to (swiftly) put all of their cards on the proverbial table. Although participation in an EAS will be a risk-based decision for firms based on the specific facts and matters under investigation (as explained in our earlier blog post), this Final Notice demonstrates that under the right circumstances the new EAS framework provides a compelling route to settlement.

The PRA Final Notice is available here.

The PRA press release published on 11 March 2026 is available here.