Overview
As set out in Discussion Paper (DP) 1/21, the Prudential Regulation Authority (PRA) is seeking to mitigate the ‘complexity problem’ that can arise when the same prudential requirements are applied to all firms. The PRA aims to achieve this through its ‘strong and simple’ initiative that would seek to simplify the prudential framework for non-systemic domestic banks and building societies, while maintaining their resilience. Since this would be a major change in prudential policy applying to banks and building societies (hereafter ‘firms’) in the UK, taking a number of years to develop and implement, the PRA is starting to achieve its aim by developing a ‘simpler regime’ for the smallest firms. This approach aims to ensure the benefits of simplification are experienced by the largest number of firms as soon possible.
In this Consultation Paper (CP) the PRA sets out its proposals for introducing a definition of a ‘Simpler-regime Firm’. The PRA’s implementation of this proposed definition would be the first step in designing a strong and simple framework.
The proposals in this CP would introduce a new definition, Simpler-regime Firm, in the PRA Rulebook.
The CP is relevant to PRA-authorised banks and building societies, and prospective entities interested in, and currently applying for, authorisation as a deposit-taker.
The proposals in this CP relate to a definition of a type of firm – a Simpler-regime Firm that would be subject to a simpler, but robust, set of prudential rules in the future. That regime would advance the PRA’s safety and soundness, and secondary competition objectives. The PRA considers that publishing the proposed definition also provides the benefit of giving firms early visibility of a key building block of the future simpler regime. The PRA considers the introduction of the Simpler-regime Firm definition should not create significant additional costs because the criteria in the definition should be based on information that firms are already having to calculate or required to report.
The PRA has considered the interaction between its primary and secondary objectives and the ‘have regards’, including in relation to international standards, relative standing of the UK, and finance for the real economy. Overall, the PRA considers the proposals in this CP to be a necessary and appropriate step towards the introduction of future measures to enhance the proportionality of the PRA’s regulatory framework, while maintaining firms’ safety and soundness.
Implementation
The PRA plans to consult on other aspects of the simple regime layer of the strong and simple framework, including the requirements that would apply under this regime, in early 2023. The second set of proposals are likely to follow in 2024.
The PRA will publish a Policy Statement on the definition of a Simpler-regime late 2022 or early 2023
The PRA would also need to take account of other changes to prudential regulation that are planned.
Responses and next steps
This consultation closes on Friday 22 July 2022. The PRA invites responses on the proposals set out in this consultation. Please address any comments or enquiries to CP5_22@bankofengland.co.uk. Please indicate in your response if you believe any of the proposals in this consultation paper are likely to impact persons who share protected characteristics under the Equality Act 2010, and if so, please explain which groups and what the impact on such groups might be.
Unless otherwise stated, any remaining references to EU or EU-derived legislation refer to the version of that legislation which forms part of retained EU law.
Consultation Paper 5/22