PRA proposes RFB policy updates

PRA has proposed rule and policy updates in respect of the establishment and maintenance of third-country branches and subsidiaries within RFB sub-consolidation groups.

HM Treasury is consulting on legislative changes that would allow RFBs to establish entities in third countries able to compete with international and domestic banking groups. In parallel, PRA is consulting on changes to its rules that will integrate with the changes to legislation proposed by HM Treasury. They aim to ensure that the benefit can be realised in a manner that supports the PRA’s primary objective of promoting the safety and soundness of the firms it regulates. This would happen through:

  • A new rule aimed at mitigating the risks to an RFB’s provision of core services in the UK that could emerge from resultant international operations;
  • An amendment to SS8/16, with further expectations of RFBs that establish a financial services branch or subsidiary in a third-country; and
  • A non-exhaustive set of considerations to which PRA will have regard when determining whether a material risk is posed to the RFB.

The HM Treasury proposes

  • increasing the ring-fencing deposit threshold from £25bn to £35bn of “core deposits”
  • introducing a secondary threshold to exempt from the regime retail-focussed banks with trading assets of less than 10% of tier 1 capital (unless part of a G-SIB);
  • a de minimis threshold to allow RFBs to incur exposure of up to £100,000 to a single RFI at any one time;
  • to allow RFBs to establish operations outside the UK or EEA;
  • to introduce a 4 year transition period when a RFB group acquires a bank that is not within the regime;
  • to permit a wider range of activities and exposures.

Consultation closes on 26 November for the Treasury and 27 for PRA.

Vida Fatemi