The Prudential Regulation Authority (PRA) has today published a discussion paper (DP) that explores options for developing a simpler but no less resilient prudential framework for banks and building societies that are neither systemically important nor internationally active.
The existing regulatory approach in the UK, which is based on the approach adopted in the European Union, broadly applies the same requirements to all banks and building societies, irrespective of their size and activities. It does simplify certain prudential rules for smaller banks and building societies, but to a lesser extent than in some other jurisdictions.
The discussion paper sets out the PRA’s thinking about how it could deliver a simpler regime for the smallest non-systemic banks and building societies as a first step in building a “strong and simple” framework that could eventually extend simplification to larger, but still non-systemic UK domestic firms.
Any future changes designed to simplify prudential regulation for smaller firms will be balanced against the risk of increasing barriers to growth that may discourage smaller banks and building societies from becoming large enough to provide effective competitive challenge to largest banks and building societies.
The PRA would welcome comments on the ideas in the discussion paper from all interested parties. The period for comment runs until 9 July 2021, and a feedback statement based on comments received is planned for the autumn. After analysing responses, the next step will be to publish a consultation paper, setting out the proposed prudential rules for defining whether a firm is in scope of the simpler regime and some of the proposed requirements. Design and implementation is likely to take a number of years to complete.
Sam Woods, CEO of the Prudential Regulation Authority and Deputy Governor for Prudential Regulation, said:
“Making our regime for small firms simpler, but not weaker, will be good for safety and soundness and for competition. We therefore plan to simplify our rules, and have today set out many different ways in which we could do this for deposit-takers in order to stimulate a public debate about the best way forward. I have no doubt that any firms who might be affected will give us strong views on their preferences, and I also encourage everyone else with an interest in this topic to let us know what they think.”