Published on 28 March 2018
International banks: the Prudential Regulation Authority’s approach to branch authorisation and supervision - PS3/18
Overview
This Prudential Regulation Authority (PRA) Policy Statement (PS) provides feedback on responses to Consultation Paper (CP) 29/17 ‘International banks: the Prudential Regulation Authority’s approach to branch authorisation and supervision’. The PRA received seven responses to the CP. The respondents supported the proposed approach set out in the CP with some requests for clarification.
The new Supervisory Statement (SS) 1/18 ‘International banks: the Prudential Regulation Authority’s approach to branch authorisation and supervision’ is included as a link in the Appendix and replaces SS10/14 ‘Supervising international banks: the Prudential Regulation Authority’s approach to branch supervision’.
This statement is relevant to all PRA-authorised banks and designated investment firms not incorporated in the UK which form part of a non-UK headquartered group (‘international banks’) and which are operating in the UK through a branch, as well as any such firm looking to apply for PRA authorisation in the future.
Background
In CP29/17 the PRA set out the general approach to branch authorisation and supervision. In addition, it also proposed the PRA’s approach to authorising and supervising systemic wholesale branches, building on its general approach.
On the basis of their existing business and structures and current degree of supervisability, including the level of supervisory cooperation already in place, the PRA does not expect the new approach to affect any of the non-EEA international banks currently authorised to operate in the UK through branches.
Changes to the proposals
The PRA has not made any material changes to the proposals as set out in CP29/17. The PRA has made a number of minor amendments to the draft SS in light of the feedback received to add further clarity. These clarifications are explained in the following chapter, regarding the approach to retail activities, home state supervisory and regulatory equivalence, the approach to systemic wholesale branches, assurance over resolution arrangements, and other responses.
The PRA does not consider the changes to be significant and, as a result, has not updated the assessment of impact on mutuals or the cost benefit analysis from CP29/17.
When the new approach comes into effect
The new approach comes into effect from 29 March 2018. For European Economic Area (EEA) firms currently branching into the UK under ‘passporting’ arrangements and intending to apply for PRA authorisation in order to continue operating in the UK after the UK’s withdrawal from the European Union (EU), this approach will be relevant to authorisations for this purpose.
The PRA will keep the policy under review to assess whether any changes will be required due to changes in the UK financial system or regulatory framework, including those arising once any new arrangements with the EU take effect.
Policy Statement 3/18Appendix
Published on 20 December 2017
International banks: the Prudential Regulation Authority’s approach to branch authorisation and supervision - CP29/17
Overview
In this consultation paper (CP), the Prudential Regulation Authority (PRA) seeks views on its proposed new approach to authorising and supervising international banks, which includes a focus on those that undertake wholesale banking activities in the United Kingdom via branches.
Expanding on the PRA’s general framework as set out in its banking approach document, this CP includes a draft supervisory statement (‘SS’) which sets out the PRA’s new approach to authorising and supervising international bank branches. When it is finalised, having taken into account consultation feedback, it will replace SS10/14 ‘Supervising international banks: the Prudential Regulation Authority’s approach to branch supervision’.
The proposals are relevant to all PRA-authorised deposit-takers and designated investment firms operating in the United Kingdom that are part of non-UK headquartered groups (‘international banks’) and to international banks that may seek PRA authorisation in the future.
Summary of Proposals
This CP and accompanying draft SS set out the PRA’s proposals for a new approach to branch authorisation and supervision. These proposals include an assessment of factors that are relevant both at the time of authorisation and on an ongoing basis during supervision. Accordingly, the factors are described below in the context of an approach to branch authorisation and supervision.
The proposals contain a general approach, applicable to all branches. The proposals also cover the PRA’s additional expectations for significant retail and systemic wholesale branches. For the latter, the key additional expectations concern the PRA’s requirement for a greater degree of supervisability. This focuses on ensuring the PRA has an appropriate degree of influence and visibility over the supervisory outcomes for the firm as a whole and the wider group, so far as relevant to the safety and soundness of the firm and necessary to achieve the PRA’s objectives. In addition, the proposals contain the PRA’s expectations on booking arrangements.
Implementation
The PRA is proposing that the new approach takes effect after the completion of the consultation period and following publication of the final SS. In particular, for those EEA firms that are currently branching into the UK under the ‘passporting’ arrangements, and which are intending to apply for PRA authorisation in order to continue operating in the UK after the UK’s withdrawal from the European Union, the PRA would apply the new approach set out in the final SS in assessing the firm’s applications. Authorisation under the new regime would come into effect after the UK withdraws from the EU.
Responses and next steps
This consultation closed on Tuesday 27 February 2018. The PRA invites feedback on the proposals set out in this consultation. Please address any comments or enquiries to CP29_17@bankofengland.co.uk.
The proposals in this CP have been designed in the context of the current UK and EU regulatory framework. The PRA will keep the policy under review to assess whether any changes would be required due to changes in the UK regulatory framework, including those arising once any new arrangements with the EU take effect.