Prudential Regulation Authority (PRA)

PRA Consults on Revisions to Branch Returns for International Banks

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On April 8, the Prudential Regulation Authority (PRA) published a consultation paper (CP8/19) on the revision of the branch return for international banks.

The PRA’s proposals relate to PRA-supervised branches of deposit-takers and designated investment firms that are not UK-headquartered firms.

The PRA proposes to change the format and the content of the branch return form for these firms and to provide additional guidance for completing the form. The changes are intended to improve the quality of the information provided by firms and to enhance the return’s ability to assist the PRA in its supervision of international banks. The changes include aligning the concepts used in the return with concepts used in the PRA’s wider reporting framework, clarifying that firms must report within 30 business days and replacing the current Excel reporting format with the XBRL reporting format.

The PRA Rulebook instrument containing the relevant changes to the Third Country Firms and Regulatory Reporting Parts (the CRR Firms: Non CRR Firms: Branch Rules Instrument 2019) is set out in Appendix 1 to CP8/19. An alternative version of the instrument, which will apply if there is a no-deal Brexit, is set out in Appendix 2. Appendixes 3 to 5 of CP8/19 contain proposals for the revisions to the branch return form and to the PRA’s supervisory statement on guidelines for completing regulatory returns (SS34/15), as well as draft reporting guidance for the branch return form.

The deadline for responses is July 7.

Bank of Tokyo-Mitsubishi UFJ and MUFG Securities Fined by PRA

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On February 9, 2017, the Prudential Regulation Authority (“PRA“) issued a notice imposing fines of £17.75m and £8.925m on Bank of Tokyo-Mitsubishi UFJ (“BTMU“) and MUFG Securities EMEA (“MUFG“), respectively, for failing to be open and cooperative. The fines related to enforcement action by the New York Department of Financial Services (“NYDFS“) against both BTMU and MUFG, following which the PRA deemed that the two banks were in breach of the PRA Fundamental Rules.

In particular, it was deemed that they had breached Fundamental Rule 6, which states “a firm must organize and control its affairs responsibly and effectively,” and Fundamental Rule 7, which outlines “a firm must deal with its regulators in an open and cooperative way and must disclose to the PRA appropriately anything relating to the firm of which the PRA would reasonably expect notice.”

It was found by the PRA that BTMU failed to put in place appropriate procedures, systems and controls for communicating information relating to the NYDFS action, and failed to deal with the PRA openly following it. This was despite the action being linked to BTMU’s conduct in New York.

MUFG was fined by the PRA for a similar offense, as it was deemed to have not been open and cooperative in relation to a NYDFS investigation into an individual at the firm. It was deemed that the PRA had not been informed in a timely manner and was therefore deprived the opportunity to rule on the fitness of the individual.

This is the first time the PRA has issued a fine in breach of Fundamental Rules 6 and 7, and this sends out a warning that the PRA should be informed of any sanctions by the regulator in a timely manner, irrespective of the jurisdiction of the regulator.

The full notice is available here.

Capital Requirements (Capital Buffers and Macro-prudential Measures) (Amendment) Regulations 2015 Published

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On January 13, 2015, the Capital Requirements (Capital Buffers and Macro-prudential Measures) (Amendment) Regulations 2015 were published.

The Regulations amend the Capital Requirements (Capital Buffers and Macro-prudential Measures) Regulations 2014 to introduce a systemic risk buffer (SRB) that will apply to ring-fenced banks (RFBs) and certain large building societies. This measure implements Articles 133 and 134 of the Capital Requirements Directive IV (CRD IV).

The Financial Policy Committee (FPC) will be responsible for setting out the framework for determining which institutions should hold the buffer and, if so, how large the buffer should be. It will need to publish this methodology by May 31, 2016. The Prudential Regulation Authority (PRA) will be responsible for applying the framework and will have ultimate discretion over which firms must hold the buffer and its size.

The Regulations were made on January 12, 2015 and come into force, unless otherwise stated, on May 31, 2016. The systemic risk buffer is applicable from January 1, 2019.  Regulations.

HM Treasury Consultation Paper on the Macroprudential Directive Tools of the FPC

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HM Treasury has published a consultation paper on the tools available to the Financial Policy Committee (FPC) to address systemic risks to the stability of the financial system entitled ‘The Financial Services Bill: the Financial Policy Committee’s macro-prudential tools’ (the “Consultation Paper”).

The Financial Service Bill provides the FPC with two primary powers.  The first of these is the power to make recommendations (which can be made on a comply-or-explain basis) to the Prudential Regulation Authority (PRA), the Financial Conduct Authority (FCA), the Treasury and the Bank of England.  The second is the power to direct the PRA and FCA to take action, and the tools that the PRA should have under this power (the “directive tools”) are the subject of the Consultation Paper.

In December 2011, the Bank of England published a discussion paper entitled ‘Instruments of Macroprudential Policy’.  The Consultation Paper builds on the responses to the discussion paper and proposes directive tools that the FPC should have, including:

  • o    control over the level of the UK’s counter-cyclical capital buffer;
  • o    a direction-making power to impose sectoral capital requirements; and
  • o    once international standards are in place, the power to set, and vary over time, a leverage ratio cap.

HM Treasury invites responses to its Consultation Paper by December 11.