“STABILITY AND CONSISTENCY”: PRA SETS OUT PROPOSALS FOR POST-BREXIT APPROACH TO INTERNATIONAL BANKS

The PRA has published a consultation paper (CP2/21) setting out proposals for its updated approach to supervising the UK activities of banks and PRA authorised investment firms that are headquartered outside of the UK or part of a non-UK group. The consultation paper includes a draft supervisory statement to supersede the existing PRA Supervisory Statement 1/18 (the PRA’s current supervisory statement on its approach to supervising international banks).

The consultation paper was accompanied by a speech from the PRA’s executive director for financial market infrastructure, David Bailey, in which he explained the rationale for the consultation and some of its key elements, including three principal reasons for the consultation:

• to replace the PRA’s existing statements on its approach to branches with a publication covering the full range of authorisation options for international banks;
• continued strong interest from international banks in establishing UK branches or subsidiaries; and
• the restructuring of firms’ operations following the end of the Brexit transition period, with the proportion of UK banking assets held in branches of international banks expected to increase significantly as a result of firms entering the temporary permissions regime (TPR) and seeking authorisation for UK branches.

Mr Bailey stressed that the proposals are intended to deliver “stability and consistency” and largely consolidate the PRA’s existing supervisory approach. The primary purpose of the supervisory statement is to provide additional clarity to international banks on how to structure their UK operations and satisfy the PRA’s threshold conditions. Among other things, the consultation sets out the PRA’s:

• general expectations for effective supervision of international banks, including supervisory equivalence and cooperation;
• firm-specific expectations for supervision, including information sharing, cooperation, governance, risk management and booking arrangements; and
• ability to adjust its approach and require a greater degree of independence for the UK business from the international business if it has concerns over cooperation or adequacy of risk controls.

In relation to firms in the TPR, the consultation states that “such firms will not need to meet the expectations in the proposed SS immediately, but will need to do so as soon as practicable…, and in any event by the time they are authorised by the PRA and exit the TPR.”

The PRA has requested feedback on the consultation paper by 11 April 2021, with implementation of the finalised policy expected in the second quarter of 2021.

This PRA consultation follows the FCA’s consultation paper on its approach to FCA-regulated international firms which was published in September 2020 (see our blog post here); the FCA is expected to publish a Policy Statement in due course.

The Financial Services Regulatory team at HSF continues to take an interest in this area, having contributed a chapter on the PRA’s approach to the authorisation of international branches and subsidiaries to an Oxford University Press practitioner law publication, “Brexit and Financial Regulation” (February 2020).