The Bank of England’s approach to enforcement: proposed changes to statements of policy and procedure following the Financial Services and Markets Act 2023

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Responses are requested by 28 June 2024.

Responses can be sent by email to: FSMA2023enforcementpolicyCP@bankofengland.co.uk

Alternatively, please address any comments or enquiries to:
Enforcement and Litigation Division Policy Team
Bank of England
Threadneedle Street
London, EC2R 8AH

1: Overview

The Bank (including where it acts in its capacity as the PRA) has a range of investigatory and enforcement powers (including criminal powers) under various statutory regimes, such as the Financial Services and Markets Act 2000 (FSMA), the Banking Act 2009 (BA09), and the Financial Services (Banking Reform) Act 2013.^{footnote [1]} This consultation paper follows the recent enactment of legislation creating additional responsibilities for the Bank (including the PRA) in relation to enforcement.

The Bank’s existing approach to enforcement (which includes the PRA’s approach to enforcement) is set out in The Bank of England’s approach to enforcement: statements of policy and procedure (Policy Statement 1/24) published in January 2024. For the purposes of this consultation, we refer to that document as the ‘Enforcement SoPP’.

The Financial Services and Markets Act 2023 (FSMA 2023) introduced several important updates to the UK’s regulatory framework for financial services,^{footnote [2]} and certain of these changes create new, or expand existing, enforcement powers of the Bank (including the PRA). In particular, these enforcement powers arise in connection with the extension of Part 5 of the BA09 to apply in respect of recognised payment systems (RPS) using digital settlement assets (DSAs) and specified service providers to such RPS, and to apply to a new category of persons, namely DSA service providers (DSA SPs), as well as specified service providers to DSA SPs; the creation of a new Part 5A of the BA09 which confers powers on the Bank over entities involved in the wholesale distribution of cash; and the creation of a new regime for the oversight of critical third parties (CTPs). The Securitisation Regulations 2024^{footnote [3]} also contain PRA powers, including certain enforcement powers, in connection with the regulation of individuals and persons not authorised by the PRA involved in securitisations.

This consultation paper (CP) proposes changes to the Enforcement SoPP, to explain the Bank’s (including the PRA’s) proposed approaches to using the enforcement powers introduced or extended by FSMA 2023 or contained in the Securitisation Regulations 2024. To the extent possible, the proposed approaches to using these additional enforcement powers follow the Bank’s and the PRA’s approaches in the other contexts in which each has enforcement powers.

This CP is relevant to:

• persons who are not PRA-authorised persons, and who act as an originator, sponsor or Securitisation Special Purpose Entity (SSPE) for the purposes of the Securitisation Regulations 2024, and individuals involved in securitisation activities;^{footnote [4]}
• any person that is or may be recognised or specified, as appropriate, by HM Treasury as an RPS that uses DSAs, as a DSA SP, or as a service provider of an RPS that uses DSAs, or of a DSA SP;
• any person who is or may be recognised, or individual who is or may be specified, by HM Treasury in connection with the wholesale distribution of cash;
• any person designated or who may be designated by HM Treasury as a CTP;^{footnote [5]}
• PRA-authorised firms, qualifying parent undertakings, actuaries, auditors, and senior employees of those entities (including, but not limited to, authorised senior management function holders and certified employees under the Senior Managers and Certification Regime (SM&CR)); and
• Financial Market Infrastructures (FMIs).

This CP will be of interest to professional advisers who represent firms and individuals potentially subject to enforcement action taken by the Bank and/or the PRA.

The statements of policy consulted on in this CP include, among others, certain policies which the Bank (including the PRA), is required to publish under: regulation 46 of the Securitisation Regulations 2024, with respect to securitisation; section 198 of BA09, with respect to the extension of Part 5 of BA09 in relation to DSAs; section 206T of BA09, with respect to wholesale cash distribution (WCD); and section 312T of FSMA, with respect to CTPs.

While the Bank, including the PRA, is not proposing to make or change any rules through or following this particular consultation process (and therefore the Bank’s and PRA’s statutory duties to consult in respect of rule-making are not engaged) the Bank and the PRA have a duty to consult on the exercise of their general functions where it would be fair to do so. Furthermore, the PRA, in carrying out its policymaking functions, is required to comply with several legal obligations under FSMA. This consultation is intended to fulfil those obligations.

FSMA 2023 includes new powers for the Bank to create a SM&CR in respect of individuals working at FMIs, and those new powers include certain enforcement powers. The Bank will consult on those new powers at a later date.

Structure of the CP

This chapter explains the reason for the CP, providing an overview of the CP’s structure, and explaining how you can respond to it. Chapter 2 of the CP is a more detailed summary of the different proposals on which we are consulting.

The Appendix to this CP shows the proposed changes as a marked-up version of the Enforcement SoPP. A reference to a numbered ‘Annex’ in this CP is a reference to the relevant Annex of the Enforcement SoPP. We consider this to be the clearest way of demonstrating the effect of the proposed changes. To the extent that the proposals amend and/or extend an existing chapter of the Enforcement SoPP, we indicate the proposed changes in blackline (ie with new text shown with an underline, and any proposed deletions showing with strike-through). To the extent that a policy proposed in this CP would result in an entirely new chapter or annex to the Enforcement SoPP, we show it as entirely underlined for the purposes of this consultation.

Legal obligations

In carrying out policymaking functions, the Bank and the PRA are required to comply with several statutory obligations. Chapter 3 of this CP therefore explains how the Bank and the PRA have had regard to the obligations applicable to the development of the statements of policy and procedure included in this consultation.

Implementation

We propose that the implementation date for the changes resulting from this CP would be 2024 Q4, after we have considered the responses to the consultation.

Responses and next steps

This consultation closes on Friday, 28 June 2024. The Bank, which (as appropriate) includes the PRA, invites feedback on any or all of the proposals set out in this consultation. Please address any comments or enquiries to FSMA2023enforcementpolicyCP@bankofengland.co.uk

Please also 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.

2: The Bank’s and the PRA’s proposals

The Bank’s approach to enforcement supports and supplements our regulatory and supervisory tools by ensuring that we have credible mechanisms for holding those firms and individuals in relation to which the Bank and the PRA have powers to account (where they do not meet our requirements and expectations) and providing a wider deterrent effect. The proposals consulted on in this CP reflect the Bank’s expanded enforcement remit following the changes introduced by FSMA 2023, and additional enforcement powers contained in the Securitisation Regulations 2024.

In relation to the Bank, the new and expanded enforcement powers arise in connection with its functions as a public body with responsibility for UK monetary and financial stability, as the issuer of currency, with responsibility for the oversight of WCD, as the UK supervisor of FMIs, and as one of the regulators responsible for the oversight of entities designated by HM Treasury as CTPs.

In relation to the PRA, the new and expanded enforcement powers arise in connection with its functions as the prudential regulator for banks, building societies, credit unions, insurers and certain PRA-designated investment firms, as well as in the context of the PRA’s new responsibility (which is legally separate from that of the Bank) for the oversight of entities designated by HM Treasury as CTPs. In practice, however, the Bank and PRA will exercise their respective oversight responsibilities in respect of CTPs jointly. Additionally, with respect to the enforcement powers under the Securitisation Regulations 2024, the proposals also include a role for the PRA with respect to persons not authorised by the PRA involved in securitisations, and with respect to any individual.

The four proposals are summarised in the sections that follow.

Proposals

Proposal 1: Enforcement policy and procedure in connection with the Securitisation Regulations 2024

The relevant regulator for this proposal is the PRA.^{footnote [6]}

The Securitisation Regulations 2024 (the Regulations) contain enforcement powers for the PRA in respect of persons not authorised by the PRA, and who act as an originator, sponsor or SSPE for the purposes of the Regulations, and in respect of individuals.

The PRA’s enforcement powers under the Regulations include a power (in regulation 37) for the PRA to impose temporary prohibitions on individuals, prohibiting them from holding an office or position involving responsibility for taking decisions about the management of an originator, sponsor or SSPE. The Regulations also contain a power for the PRA to impose financial penalties on individuals and persons not authorised by the PRA (in regulation 42).^{footnote [7]}

The PRA is required, under regulation 46 of the Regulations, to prepare and issue a statement of policy with respect to the imposition and duration of prohibitions under regulation 37, and with respect to the imposition and amount of penalties under regulation 42. The proposals contained in this CP include the proposed statements of policy required by regulation 46.

In particular, the proposals contained in this CP include a new Chapter 6 which we propose would be added to the ‘PRA’s approach to enforcement: statements of policy and procedure’ document, in Annex 1 of the Enforcement SoPP. This new chapter would set out the PRA’s policy on the imposition and amount of penalties under regulation 42(2) and (3) of the Regulations. The proposed policy, as set out in full in the Appendix, details the PRA’s proposed method for calculating the amount of any financial penalty in this context. Since the persons to which this policy would apply do not fall within the PRA’s firm categories (ie Categories 1–4 that all PRA-authorised firms are divided into on the basis of potential impact) the proposal does not follow the PRA’s policy that applies in the context of PRA-authorised firms. We propose to apply the existing approach to calculating penalties in relation to individuals. For relevant persons who are not PRA-authorised, our proposal is to apply an approach to calculating penalties that does not use firm categorisation as a factor. The proposal also outlines the approach the PRA would take in relation to settlement and, where appropriate, the proposed approach follows existing PRA and Bank policies that apply in other contexts where we have the power to impose financial penalties.

The proposals amend references to the PRA’s Early Account Scheme (EAS), in Chapter 2 of the PRA’s approach to enforcement: statements of policy and procedure (ie Annex 1 of the Enforcement SoPP), to clarify that the EAS may be used, at the PRA’s sole discretion, in investigations into persons not PRA-authorised involved in securitisation and, in appropriate circumstances, in multi-party investigations including persons not PRA-authorised involved in securitisation.

This CP also includes a proposal to add a new Chapter 9 to Annex 1 of the Enforcement SoPP, setting out the PRA’s proposed policy concerning the imposition and period of temporary prohibitions imposed under regulation 37. The proposal sets out the factors to which the PRA may have regard when determining the period/duration of a temporary prohibition. These factors are similar to those that apply in other contexts where the PRA has the power to impose a suspension and must determine the period of that suspension.

The proposal also outlines the statutory notice procedures that would apply in respect of decisions to impose a financial penalty or a temporary prohibition, and indicates the rights of an affected person or individual to refer the matter to the Upper Tribunal.

To the extent possible, the proposed new statements of policy follow our existing policies on the imposition and duration of temporary prohibitions, and on the imposition and amount of financial penalties, which apply in other contexts where the Bank and PRA have enforcement powers.

To reflect the existence of the PRA’s powers under regulations 37 and 42 of the Regulations, other parts of the Enforcement SoPP would also need to be amended (for example, to show that those other parts also apply in respect of enforcement action in this context). Those additional consequential amendments are also shown in the blackline version of the Enforcement SoPP included in this consultation.

Proposal 2: Enforcement policy and procedure in respect of digital settlement assets

The relevant regulator for this proposal is the Bank of England.

FSMA 2023 extends Part 5 of BA09 to RPS using DSAs, specified service providers of such RPS, recognised DSA SPs, and specified service providers of such DSA SPs. The amendments expand the types of payment system that HM Treasury may by order designate as an RPS^{footnote [8]} for the purposes of Part 5 of BA09 to include arrangements or proposed arrangements designed to facilitate or control the transfer of DSAs (in addition to arrangements or proposed arrangements designed to facilitate or control the transfer of money), and create a new power for HM Treasury to recognise a DSA SP for the purposes of Part 5 of BA09.^{footnote [9]} The amendments also modify HM Treasury’s power to specify service providers to include service providers of RPS that use DSAs, and service providers of recognised DSA SPs.

Section 182 of BA09, as amended, defines a ‘digital settlement asset’ as a ‘digital representation of value or rights, whether or not cryptographically secured, that (a) can be used for the settlement of payment obligations, (b) can be transferred, stored or traded electronically, and (c) uses technology supporting the recording or storage of data (which may include distributed ledger technology)’.^{footnote [10]} Section 182(4B) clarifies that a digital settlement asset includes a right to, or an interest in, a digital settlement asset. Section 182 also provides definitions of a ‘DSA service provider’^{footnote [11]} and a ‘digital settlement asset exchange provider’.^{footnote [12]}

Under Part 5 of BA09, the Bank’s powers to publish principles^{footnote [13]} and codes of practice,^{footnote [14]} to require operators of recognised payment systems to establish rules for the operation of the system,^{footnote [15]} and to give written directions to operators of a recognised payment system or a service provider to such a system,^{footnote [16]} now apply in respect of DSA SPs and entities specified by HM Treasury as service providers to DSA SPs. Following the enactment of FSMA 2023, the Bank issued a discussion paper (DP) on the regulatory regime for systemic payment systems using stablecoins and related service providers. The period for responses to that DP closed on 12 February 2024. The present CP does not constitute the Bank’s response to the DP feedback. Its scope is limited to the Bank’s relevant enforcement policies, and does not extend to the wider aspects of the regime presented in the DP. However, the authors of this CP have had sight of the DP feedback insofar as it relates to matters concerning enforcement.

At the time of publishing this consultation, no DSA SPs have been designated, nor have any service providers of RPS using DSAs, or of DSA SPs, been specified by HM Treasury. However, in light of the fact that the amendments to Part 5 of BA09 have been passed into law, we are proposing to consult on our enforcement policies and procedures with respect to the new regime to provide clarity in respect of entities which may be designated or specified in the future.

The present proposal is concerned only with the enforcement aspects of the Bank’s extended powers in respect of RPS using DSAs, recognised DSA SPs, and specified service providers of such RPS and DSA SPs. The relevant enforcement powers in this context are the Bank’s powers:

• under section 198 of BA09, to impose a financial penalty on the operator of an RPS using DSAs, on a DSA SP, or on a specified service provider of such an RPS or DSA SP, in respect of a compliance failure within the meaning of section 196 of BA09;
• under section 199 of BA09, where the Bank thinks that a compliance failure either threatens the stability of, or confidence in, the UK financial system, or has serious consequences for business or other interests throughout the United Kingdom, to give a closure order to the operator of an RPS using DSAs, to a DSA SP or to a specified service provider to such an RPS or DSA SP; and
• under section 200 of BA09, to make a management disqualification order prohibiting a specified person from being the operator of an RPS using DSAs, or from being a DSA SP; or prohibiting a specified person from holding a management position at an RPS using DSAs, at a recognised DSA SP, or at a specified service provider of such an RPS or DSA SP.

The effect of the proposed amendments, set out in full in the Appendix, is to apply certain of the Bank’s existing policies, concerning the use of enforcement powers under Part 5 of BA09, to operators of an RPS using DSAs, DSA SPs and specified service providers of such RPS or of DSA SPs as appropriate. These statements of policy and procedure are contained in Annex 2 to the Bank of England’s approach to enforcement: statements of policy and procedure which is the part of the Bank’s enforcement policy dealing specifically with enforcement in respect of FMIs.

Under section 198(3) and (4) of BA09, the Bank is required to prepare and publish a statement on its website setting out the principles it will apply in determining whether to impose a penalty and the amount of a penalty. Our proposal in this CP is that the Bank's existing policy for FMIs would apply to operators of RPS using DSAs, DSA SPs, and specified service providers of such RPS and DSA SPs, as appropriate. The effect of the relevant amendments proposed in the Appendix of this CP would be to apply the Bank’s existing policy with respect to FMIs to DSA SPs and specified service providers of DSA SPs, as appropriate. For the avoidance of doubt, where the existing policy uses the term ‘recognised payment system’, we propose that this would, following the approach taken in Part 5 of BA09, be taken to include RPS using DSAs. The relevant existing policy on the imposition and amount of financial penalties under Part 5 of BA09 deals with the Bank’s approach to determining whether to impose a financial penalty, its amount/calculation method, the availability of a settlement discount, the relevance of serious financial hardship, etc.

The proposals also include amendments that would extend the application of certain other enforcement policies, that currently apply to FMIs, to operators of RPS using DSAs, DSA SPs, and specified service providers of such RPS or of DSA SPs. These include the Bank’s statements of procedure in relation to settlement, enforcement decision-making, and the giving and publication^{footnote [17]} of enforcement statutory notices in the context of enforcement decisions under Part 5 of BA09. The policies also deal, where relevant, with the rights of the recipients of enforcement statutory notices to refer the relevant decision to the Bank’s Enforcement Decision Making Committee (EDMC), and/or the Upper Tribunal.

Proposal 3: Enforcement policy in connection with the wholesale distribution of cash

The relevant regulator for this proposal is the Bank of England.

FSMA 2023 amends the BA09 to confer new powers on the Bank to oversee certain participants in the wholesale cash industry recognised by HM Treasury by order as having market significance which perform relevant functions in relation to WCD activity (recognised persons), and individuals who are specified by HM Treasury by order (specified persons). The relevant provisions have been inserted into the BA09 as a new Part 5A, which includes the power to publish principles and codes of practice of general application, the power to give directions, and the power to require the provision of information. The relevant policies consulted on in this CP are concerned only with the enforcement aspects of the new regime. Accordingly, this CP is to be read in conjunction with the Bank’s supervisory approach to market oversight for wholesale cash distribution.

At the time of publishing this consultation, no persons have been designated or specified by HM Treasury to perform functions in relation to a WCD activity. However, in light of the fact that Part 5A of BA09 has been passed into law, we are proposing to consult on our enforcement policies and procedures with respect to the new WCD regime to provide clarity in respect of entities which may be designated or specified in the future.

The relevant enforcement powers covered by the proposals in this CP are the power to impose sanctions in respect of compliance failures within the meaning of section 206R of BA09, and the power to make a management disqualification order in respect of a specified person within the meaning of section 206V of BA09.

A compliance failure is defined as a failure by a recognised person to: (a) comply with a code of practice under section 206L; (b) comply with a direction under section 206M; or (c) ensure compliance with a requirement under section 206Q (concerning the appointment of an independent expert to produce a report). If there has been a compliance failure by a recognised person, the Bank has the power to: (a) publish details of that failure under section 206S of BA09; (b) impose a financial penalty in respect of that failure under section 206T of BA09; and/or (c) issue a closure order under section 206U of BA09.

Under section 206T(3) and (4) of BA09, the Bank is required to prepare and publish a statement on its website setting out the principles it will apply in determining whether to impose a penalty and the amount of a penalty. The proposals contained in this CP include the new enforcement statements of principles required in connection with this regime, in the form of a new Annex 3 to Chapter 2 of the Enforcement SoPP (which is the chapter setting out the Bank’s statements of policy and procedure with respect to its regulatory enforcement powers).

In particular, the proposed policy, as set out in full in the Appendix to this CP includes a chapter detailing the Bank’s proposed policy for determining whether to impose a financial penalty, and the method for calculating the amount of any financial penalty in the context of WCD. This policy closely follows the Bank’s existing policy in respect of its approach to financial penalties under Part 5 of BA09 (in respect of FMIs). The proposal outlines the approach the Bank would take in relation to settlement, serious financial hardship and, where appropriate, the proposal that the Bank intends generally to apply a similar approach and procedure as the PRA, including the use of the Early Account Scheme in appropriate cases.

The proposed policy also includes chapters detailing proposed procedures in relation to enforcement decision-making, detailing the approaches to giving and publishing enforcement statutory notices, and indicating the rights of an affected entity or person to refer the matter to the Upper Tribunal.

To reflect the existence of these new powers in respect of WCD, other parts of the Enforcement SoPP would also need to be amended (for example, parts of the Enforcement SoPP listing the various regimes under which the Relevant Regulators have enforcement powers). Those minor consequential amendments are shown in the blackline version of the Enforcement SoPP included in this consultation.

Proposal 4: Enforcement policy and procedure with respect to critical third parties

Each of the Bank of England and the PRA is a Relevant Regulator for the purposes of Proposal 4.

FSMA 2023 creates a new regime under which the Relevant Regulators will oversee the services provided by CTPs to the UK’s financial services sector.^{footnote [18]} To achieve this, FSMA 2023 inserted a new Chapter 3C into Part XVIII of FSMA. Under this regime, CTPs are those entities designated as such by HM Treasury under section 312L of FSMA. The Relevant Regulators have powers to take enforcement action where they consider that a CTP has contravened applicable regulatory requirements. The proposals in this CP relate to the Bank and the PRA only. The FCA has consulted on its own enforcement proposals in its Quarterly Consultation Paper published on 1 March 2024.

At the time of publishing this consultation, no entity has been designated by HM Treasury as a CTP. However, in light of the fact that the relevant amendments to Part XVIII of FSMA granting the Relevant Regulators powers in respect of the CTP regime, have been passed into law, we are proposing to consult on our enforcement policies and procedures with respect to the new regime to provide clarity in respect of entities which may be designated in the future.

The substantive regime for the oversight of CTPs, including proposed draft fundamental rules for CTPs, was the subject of a separate consultation issued jointly by the Relevant Regulators and the FCA on 7 December 2023.^{footnote [19]} The period for responding to that consultation closed on 15 March 2024. The present CP deals with matters which did not form part of the previous consultation, relating to the exercise of enforcement and related powers, by the Relevant Regulators in relation to CTPs. The Relevant Regulators’ enforcement and related powers would likely be exercised in response to a breach by a CTP of an applicable rule (eg a CTP Fundamental Rule, drafts of which were proposed in the separate consultation). The authors of this CP have, therefore, had sight of responses to the earlier CP insofar as that feedback relates to matters concerning enforcement.

Section 312T of FSMA requires the relevant regulators to prepare and publish a statement of policy with respect to the exercise of the power of censure under section 312Q of FSMA, and with respect to the use of disciplinary powers under section 312R of FSMA. The statements of policy proposed in this CP are intended to include the statements required by section 312T of FSMA. We have set out the proposed statements in relation to CTPs in a new Annex 4, which we propose will form part of Chapter 2 of the Enforcement SoPP. (The proposed text is set out in full in Appendix of the of this CP.) We propose that Annex 4 would, following the consultation process, form part of the Bank’s Enforcement SoPP.

In addition to the statements of policy required under section 312T of FSMA, Annex 4 includes other proposed statements of policy relating to other processes and procedures in the context of enforcement. The reason for including these proposed policies is to provide statements of policy and procedure specifically aimed at CTPs, acknowledging that CTPs may not otherwise be aware of or familiar with the Relevant Regulators’ enforcement processes or procedures. Where appropriate, these policies for CTPs follow the Bank’s and the PRA’s existing approaches to enforcement in other contexts.

Mirroring the framework established for the Bank and PRA’s approach to enforcement in other contexts, the proposed Annex 4 includes statements in relation to: (i) the approach to information gathering in enforcement investigations concerning CTPs; (ii) the exercise of enforcement powers against CTPs; and (iii) decision-making, settlement process and publicity. These statements also include the factors the Relevant Regulators will have regard to when determining whether to take enforcement action against (or in respect of) a CTP. The proposed statements also deal with rights of referral to the EDMC, and/or the Upper Tribunal, as appropriate.

However, the policies do not include a statement on the imposition or amount of financial penalties because the Relevant Regulators’ powers in respect of CTPs do not include a power to impose financial penalties.

To reflect the creation of these new powers in respect of CTPs, other parts of the Enforcement SoPP would also need to be amended (for example, parts of the Enforcement SoPP listing the various regimes under which the Relevant Regulators have enforcement powers). Those additional consequential amendments are shown in the blackline version of the Enforcement SoPP included in this consultation.

3: Legal obligations

Bank objectives analysis

The proposals in the CP relate to the Bank’s (including the PRA’s) enforcement powers. Enforcement is an important component in the Bank’s regulatory toolkit, and it can be used (in appropriate cases) to address risks identified by the Bank (for example, prudential risk, operational risk, non-financial risk, misconduct) as well as financial stability risk across the Bank’s regulated populations.

The Bank must exercise its FMI functions (defined in section 30D(3) of Bank of England Act 1998 (BoE Act)) in a way that advances its financial stability objective. The Bank’s FMI functions include determining the Bank’s general policy and principles by reference to which it performs its functions in respect of FMI entities. FSMA 2023 introduced new accountability obligations when the Bank is exercising FMI functions. It also amended the BoE Act to introduce a new secondary innovation objective and regulatory principles to which the Bank must have regard when exercising FMI functions. Proposal 1 (relating to securitisations), Proposal 2 (relating to the extension of Part 5 of BA09 in respect of DSAs) and Proposal 3 (relating to the wholesale distribution of cash) of this CP do not involve the exercise of FMI functions since these are not measures in respect of FMI entities as defined under the BoE Act. Proposal 4 (relating to CTPs) does involve the exercise of FMI functions, since it deals with new enforcement powers affecting FMI entities as defined under the BoE Act. In relation to Proposal 4, the Bank has therefore considered the relevant objectives and factors to which it is required to have regard under the BoE Act.

In advancing the Bank’s financial stability objective, the Bank must have regard to the impact its actions may have on the financial stability of other countries where FMIs are established or provide services, and the desirability of regulating FMI entities in a way that is not determined by the location of their members. The Bank must also, so far as reasonably possible, act in a way which, as a secondary objective, facilitates innovation in the provision of FMI services. The Bank considers the proposals to be consistent with sections 30D and 30E in the BoE Act. In general, there are extraterritorial limits to the Bank’s investigatory and enforcement powers. Therefore, the proposals are unlikely to have effects on the financial stability of other countries or territories in which FMI entities or other entities are established or provide services.

The Bank considers that the proposals are unlikely to have a material impact on innovation, facilitating fair and reasonable access to FMI services, or impact on growth. Any increased transparency and efficiency in our enforcement processes, is likely to reinforce a credible regulatory framework, which is central to instilling trust and confidence among investors and the regulated community.

The Bank has also had regard to the regulatory principles set out in section 30E of the BoE Act, in particular the need to use the resource of the Bank in the most efficient and economic way, the principle of proportionality, the desirability of exercising FMI functions in a way that recognises differences in the nature and objectives of businesses carried on by different persons, and the principle of transparency.

PRA objectives analysis

In discharging its general functions, the PRA must, so far as reasonably possible, act in a way that advances its general objective to promote the safety and soundness of PRA-authorised persons; and in the context of insurance, to contribute to policyholder protection. The proposals in this CP, which set out new or revised statutory and non-statutory statements of policy and principle in various discrete enforcement contexts, are intended to support robust and effective regulation, increase the efficiency of both PRA enforcement action and the allocation of decision-making, and the transparency of related processes. Enforcement action contributes to the PRA’s objectives of promoting the safety and soundness of firms and, where applicable, securing an appropriate degree of protection for policyholders. Thus, the PRA considers that the proposals in this CP relevant to the PRA advance its general objective.

When discharging its general functions, the PRA is legally required, as far as is reasonably possible, to facilitate effective competition in the markets for services provided by PRA-authorised persons in carrying on regulated activities (ie the competition objective in sections 2H(1)(a) and 2H(1A) of FSMA). The PRA has assessed whether the proposals in this CP relevant to PRA-authorised persons facilitate effective competition and considers that there is no significant impact on competition in the markets for services provided by PRA-authorised persons arising from these proposals. The PRA anticipates minimal impact on the secondary competition objective from any of the proposed changes.

FSMA 2023 introduced an additional secondary competitiveness and growth objective, now set out in sections 2H(1)(b) and 2H(1B) of FSMA 2000. This new secondary objective requires the PRA (in discharging its general functions in a way that advances its primary objectives and so far as reasonably possible) to act in a way that facilitates (subject to aligning with relevant international standards): (a) the international competitiveness of the economy of the UK (including in particular the financial services sector through the contribution of PRA-authorised persons); and (b) its growth in the medium to long term.

The PRA has considered whether the proposals set out in this CP would facilitate the international competitiveness of the UK economy and its growth in the medium to long term. The PRA considers the changes proposed in this CP are unlikely to have a material impact on UK growth or international competitiveness in and of themselves. However, the PRA considers increased transparency and efficiency in its enforcement and decision-making processes would reinforce strong prudential standards, which are key to instilling trust and confidence among investors, firms, and other regulators. Therefore, the PRA considers the proposals would have a positive impact on ensuring that the UK remains competitive and attractive as a place to do business, with a robust, effective, and trusted regulatory regime.

PRA ‘Have regards' analysis

In developing these proposals, the PRA has had regard to the FSMA regulatory principles, and the aspects of the Government’s economic policy set out in the HM Treasury recommendation letter from December 2022. During the development of these proposals, the PRA also had regard to the aspects of the Government’s economic policy set out in the HM Treasury recommendation letter from March 2021 and the supplementary recommendation letter sent in April 2022. The following factors, to which the PRA is required to have regard, were significant in the PRA’s analysis of the proposals outlined above:

1. Efficient and economic use of resources (FSMA regulatory principles and Legislative and Regulatory Reform Act 2006): The PRA’s proposals are designed to explain the PRA’s policy and procedure with respect to the potential use of various enforcement powers. Publishing these statutory and non-statutory statements of policy and procedure, and providing explanations of the relevant powers and processes, should result in a more efficient use of PRA resources. The application of the existing enforcement policies, where relevant and appropriate, to the additional enforcement powers introduced under FSMA 2023 is also intended to achieve the same outcome, of increasing efficiency by using existing frameworks and resources where appropriate.
2. Proportionality (FSMA regulatory principles): The PRA considers these proposals (as distinct from the introduction of the additional enforcement powers through legislation) would not, in and of themselves, impose any additional burden on firms and individuals. As indicated above, the PRA is required by statute to prepare and publish many of the statements of policy and procedure included in this consultation. Other statements included in this consultation mirror existing statements that apply in comparable enforcement contexts. The PRA considers that these statements are necessary and proportionate to achieve the desired outcome of effective, transparent enforcement. As noted in the non-statutory cost benefit analysis (CBA), the associated potential costs for firms resulting from the proposals in this consultation are likely to be minimal or none.
3. Transparency (FSMA regulatory principles and Legislative and Regulatory Reform Act 2006): The PRA’s proposals would clarify its approach to using the additional enforcement powers, reinforce current practice and create greater transparency regarding the use of enforcement powers, the approach to determining appropriate sanctions and settlement processes. The proposals relate to PRA policy material that it is proposed would be published on our website and freely accessible. This creates transparency for affected firms or individuals in connection with the PRA’s use, or contemplated use, of the relevant enforcement or investigative powers.
4. Government commitment to reach net-zero emissions: FSMA 2023 added a regulatory principle to section 3B of FSMA, relating to the UK’s net-zero emissions target. The PRA considers the changes proposed in this CP are unlikely to have a material impact on the UK’s target to reach net-zero emissions by 2050.

Non-statutory cost benefit analysis

As the proposals do not create any new rules or requirements, the Bank (including the PRA) is not under a statutory obligation to conduct a CBA. However, the Bank has considered, as a matter of good practice, what the costs and benefits of the proposed changes are likely to be.

The Bank (including the PRA) considers that these proposals help to clarify enforcement powers and processes. The proposals update the existing Enforcement SoPP, reflecting the additional enforcement powers following Parliament’s enactment of FSMA 2023, and certain powers contained in the Regulations. They do not introduce new powers or impose new obligations on firms. Instead, they provide transparency for firms. We, therefore consider that the associated costs for PRA-authorised firms, FMIs, CTPs and other firms and individuals directly in scope of our proposals are likely to be minimal or none.

Statutory panels

The PRA considers that the proposals included in this CP, to the extent that they meet various statutory requirements to prepare and publish statements of policy and procedure, do not trigger the requirements to consult the PRA Practitioner Panel, Insurance Panel or the statutory panels of the FCA or the Payment Systems Regulator.

Impact on mutuals

The PRA considers that the impact of the proposals on mutuals is expected to be no different from the impact on other firms.

Equality and diversity

The Bank (including in its capacity as the PRA) has considered the equality and diversity issues that may arise from the proposals in this consultation. We do not consider that the proposals in this CP raise any concerns with regards to equality and diversity.