This Discussion Paper (DP) explores options for developing a simpler prudential framework for banks and building societies (firms) that are considered by the Prudential Regulation Authority (PRA) to be neither systemically important nor internationally active. The objective of this framework would be to maintain the resilience of those firms and of the UK financial sector while using simplified prudential regulation, thereby enabling a dynamic and diverse banking sector in the UK. The PRA therefore refers to it as the ‘strong and simple’ framework. Any changes to simplify prudential regulation for smaller firms should be balanced against the risk those changes may create barriers to growth, which could discourage or prevent smaller firms from becoming large enough to provide effective competitive challenge to larger firms. The intention is to develop a strong and simple framework that is fully consistent with the Basel Core Principles for Effective Banking Supervision, but simpler than the Basel standards that apply to large and internationally active banks.
Since this would be a major change in prudential policy applying to banks and building societies in the UK, the PRA is seeking input first through this DP. The aim is to invite firms’ and other practitioners’ views on the various options, to help the PRA understand preferences and wider implications. Those comments will help as the PRA undertakes the detailed design work ahead of consultation and implementation of any proposals in the future.
Implementation, responses, and next steps
The PRA welcomes comments on this DP, including answers to the questions laid out in it. Those comments, and other views that the PRA obtains as a result of interaction with PRA-regulated firms, trade bodies, and other stakeholders during the commenting period, will help the PRA consider how best to design and implement a strong and simple prudential framework. After the end of the period for receiving comments, the PRA plans to publish a summary of the comments received, in an anonymised way, to stimulate further debate.
Please address any comments or enquiries to DP1_21@bankofengland.co.uk by Friday 9 July 2021.
The PRA is currently considering building the strong and simple framework by starting with a simpler regime for the smallest firms, and the next step would be to publish a consultation paper. This would set out the proposed prudential rules for defining whether a firm is in scope of the simpler regime (ie the scope criteria) and the proposed requirements under this regime. Design and implementation is likely to take a number of years to complete.