PRA Updates Webpages Following Implementation of CRD IV

On January 1, the CRD IV Directive came into force, following the Prudential Regulation Authority’s (PRA) webpage update on reporting requirements for firms within the scope of CRDIV.  Reporting Requirements.

Additionally, the PRA updated the following passporting webpages:

PRA Sets Out Its Approach Towards Non-EEA Branches

On October 17, the PRA published a speech given by Andrew Baily, Deputy Governor of the Bank of England, which sets out the PRA’s approach towards non-EEA branches.  In particular, the PRA intends to let Chinese banks open branches in the UK, part of a wider policy of liberalization.

The PRA tempered this, however, by adding that it does not intend to allow non-EEA branches to undertake critical retail banking functions, such as taking deposits, beyond de minimis levels without a satisfactory reason and high level of assurance, stating that such banks should be limited to wholesale banking.  Speech.

FCA Urges Firms to Update Status Disclosures to Reflect Creation of the FCA and PRA

On May 1, the FCA published a press release stating that it expects firms to review their regulatory status disclosures as a priority and ensure that they are up to date and accurate following the creation of the FCA and PRA and the renaming of the public Financial Services register. The FCA has stated that it recognises that there are exceptional circumstances where it may not have been possible to make all the required disclosure updates immediately upon the relevant change. However, the FSA, except for where transitional provisions are available, requires firms to be able to demonstrate that they intend to make the necessary updates at the earliest opportunity.

FCA and PRA Publish Respective Approaches to Regulatory Failure

On April 19, the FCA and PRA (who together have taken over the powers of the FSA) published their respective approaches to investigating and reporting on regulatory failure, as required under the Financial Services Act 2012 (FS Act).

Part 5 of the FS Act outlines the tests for determining when each regulator must carry out an investigation into possible regulatory failure and provide reports of its findings and recommendations to HM Treasury.  The tests are different for each regulator and will relate to their respective statutory objectives.  The FCA and PRA statements of policy satisfy the FS Act which requires each regulator to explain how it will meet its statutory requirement to investigate possible occurrences of regulatory failure and to produce a report.  PRA Approach.  FCA Approach.

The FSA and the Bank of England Publish Joint Review of Requirements to Enter Banking Sector

Coming as part of a UK government initiative to increase competition within the banking sector, the joint review covers reforms to the authorization process and prudential requirements for new banks.  Authorizations will be divided into two pathways, one suitable for firms which already have the means to set up a bank quickly, and the other involving a 3 stage incremental process intended for firms with fewer resources.  This will mean that less well resourced firms can receive an initial (although restricted) authorization without having to commit to assembling the onerous capital, IT and infrastructure requirements.

Turning to prudential requirements, the UK’s forthcoming prudential regulator, the PRA, will take a pragmatic view towards setting the capital requirements for new banks.  This will involve temporarily allowing new banks to hold leaner capital barriers than their larger, more established competition, in recognition of the lower systemic risk they pose.

A number of the reforms set out in the review have already been implemented by the FSA, and the remainder will be implemented after the UK financial regulation legal cutover date on April 1, 2013.

Memoranda of Understanding Between FSCS, PRA and FCA Published

On June 26, the FSA published a draft memorandum of understanding (“MoU”) between the Financial Services Compensation Scheme (“FSCS”) and the new Prudential Regulation Authority (“PRA”) and a second MoU between the FSCS and the new Financial Conduct Authority (“FCA”). MoU between FSCS and PRA. MoU between FSCS and FCA.

In particular the MoUs cover:

  • The roles of the FSCS, PRA and FCA;
  • Information sharing between the FSCS and the new regulators and confidentiality issues;
  • Policy making;
  • Funding the FSCS;
  • Co-ordination between the PRA and FCA on the oversight of the FSCS; and
  • Reporting obligations on the FSCS to the new regulators.

FSA Business Plan

On 22 March 2012, the FSA published its Business Plan for 2012/13.  It sets out the key priorities and identifies implications for the FSA’s budget.  The plan covers:

• delivering the regulatory reform programme (including the introduction of a twin-peaks model operating within the FSA from 2 April 2012 – the objectives to be closely aligned with those of the Prudential Regulation Authority (“PRA”) and the Financial Conduct Authority (“FCA”));
• influencing the international & European policy agendas;
• delivering financial stability (including the implementation of CRD IV and Solvency II in the UK);
• delivering market confidence (including work on the EU markets legislative proposals and strengthening the FSA’s client assets regime);
• delivering consumer protection and combating financial crime;

The FSA will hand over responsibility for prudential regulation to the PRA and conduct regulation to the FCA in the first half of 2013.