What is the difference between prudential regulation and nonprudential regulation?

Prudential regulation focuses on ensuring the stability and soundness of financial institutions by setting capital requirements, risk management standards, and liquidity rules to prevent failure and protect depositors. In contrast, nonprudential regulation addresses broader market conduct issues, such as consumer protection, anti-money laundering, and fair competition, without directly targeting the solvency of institutions. While prudential regulation aims to safeguard the financial system's integrity, nonprudential regulation seeks to promote fairness and transparency in financial markets.