CP11/23 – PRA statement on the review of rules

Privacy statement

By responding to this consultation, you provide personal data to the Bank of England. This may include your name, contact details (including, if provided, details of the organisation you work for), and opinions or details offered in the response itself.

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Please indicate if you regard all, or some of, the information you provide as confidential. If the Bank of England receives a request for disclosure of this information, we would take your indication(s) into account but cannot give an assurance that confidentiality can be maintained in all circumstances. An automatic confidentiality disclaimer generated by your IT system on emails would not, of itself, be regarded as binding on the Bank of England.

Responses are requested by 29 September 2023.

Please address any comments or enquiries by email to:
CP11_23@bankofengland.co.uk.

Alternatively, please address any comments or enquiries to:
Competition and Quantitative Impact Team
Prudential Regulation Authority
20 Moorgate
London
EC2R 6DA

1. Overview

1.1 Under the Financial Services and Markets Act 2023 (FSM Act), the Prudential Regulation Authority (PRA) will take on wider rule-making responsibilities in areas that were previously covered by retained EU law. The PRA will become subject to additional accountability measures, and it recognises the importance of, and welcomes, these measures.

1.2 The PRA is considering how to shape its approach to policymaking following the enactment of the FSM Act. The PRA wants to have an open dialogue with all stakeholders to inform its approach. In September 2022, the PRA started this dialogue by publishing a Discussion Paper (DP) 4/22 – The Prudential Regulation Authority’s future approach to policy, which sets out its intended future approach to policymaking.

1.3 This consultation paper (CP) sets out the PRA’s proposed approach to reviewing its rules^{footnote [1]}, as required by the FSM Act. The review of PRA rules and supervisory statements (‘rule review’) is already a familiar part of the PRA’s existing approach to policy making.^{footnote [2]} The PRA reviews existing rules to assess if they are operating effectively and delivering their intended impact. Rule review can lead to major changes or minor adjustments to the PRA Rulebook depending on the circumstances and evidence base. Rules may be reviewed for various reasons, including whether:

• the rules have not adequately addressed the risk for which they were designed or if new information emerges to inform the calibration of the rules compared to the risk they address;
• the rules have given rise to unintended consequences;
• firms are arbitraging or avoiding the rules in unanticipated ways;
• the structure of the economy or financial system has evolved;
• relevant international standards affecting the rule have changed; or
• the nature of the issue addressed by the rules has evolved.

1.4 Rule review is not a new concept for the PRA. In recent years, the PRA has reviewed a range of its existing rules, some of which have resulted in revisions or enhancements of these rules. For example, the PRA and the Financial Conduct Authority (FCA) published DP1/23 – Review of the Senior Managers and Certification Regime (SM&CR) to obtain stakeholder feedback on whether the regime was achieving its intended objectives. It was preceded by an earlier evaluation of the SM&CR. The PRA has also participated in international reviews of key elements of the prudential regulatory framework, such as for banks following the 2007-08 global financial crisis which resulted in the Basel III reforms. The PRA also contributes to reviews led by the Government, such as HM Treasury’s review in December 2021 of the functioning of securitisation regulation.

1.5 As the PRA takes on wider rule-making responsibilities, there will be more opportunities for it to review rules. Once requirements are set in PRA rules rather than in retained EU law, the PRA can also review those rules when the need arises, enabling it to be more responsive. At the same time, the PRA is also mindful of the costs for firms of regulatory change that occurs too frequently, and the need to prioritise reviews to ensure efficient use of its own resources and of that of regulated firms. This would enable particular focus on the most important reviews. The PRA aims to use this consultation to gather responses from all stakeholders on how it can enhance its approach to rule review and benefit from these new opportunities.

How the PRA undertakes rule review

1.6 Annex 1 sets out the PRA’s proposed framework for undertaking rule reviews. It consists of four key steps:

• regularly looking for indications suggesting the possible need to review a rule, or set of rules;
• prioritising and selecting which rules to review;
• determining the appropriate methods and timing for the review; and
• executing the review and, where applicable, proposing changes to the PRA Rulebook.

Stakeholder engagement in rule review

1.7 Stakeholder engagement is a key element of the PRA’s approach to rule reviews and policy evaluation more broadly as it requires input from those affected by the existing rules and possible changes. Affected stakeholders, including but not limited to PRA-regulated firms, can provide practical evidence to show whether, and what aspects of, a rule would benefit from review. Moreover, they can provide evidence which supports the PRA’s understanding of the practical consequences of its policies. Other interested parties (eg, academics and other researchers) may also be able to identify suitable areas for rule reviews.

1.8 The PRA will engage with stakeholders on its review of rules in several ways. It will:

• make use of existing channels, including the opportunity for firms to respond to public consultations, use existing structured formats through which industry engages the PRA, to raise issues bilaterally with the PRA’s policy function or to engage via their PRA supervisors;
• receive input via relevant panels, such as the PRA Practitioner Panel and Insurance Practitioner Panel; and
• establish new engagement channels specifically for rule reviews. The PRA will organise a roundtable with interested stakeholders to seek their input, arguments, and evidence. It will help the PRA identify rules that could benefit from a review. The PRA will also establish a dedicated email address for stakeholders to submit supporting evidence indicating the case to review certain rules.

Transparency on rule review

1.9 Stakeholder engagement on rule review is also important for the PRA’s accountability. Publishing information on rule review demonstrates what the PRA is learning from past experience. It also shows that it is enhancing its regulatory framework over time to respond to market developments. The PRA will create a webpage on the PRA’s public website dedicated to its rule review activities. This will include information on the outcomes of rule reviews that the PRA determines appropriate to publish.

Consultation questions

1.10 The PRA welcomes views from all interested parties on its proposed statement on rule reviews, as set out in Annex 1. The PRA invites responses on any aspects and, in particular, the following questions:

Q1: What type of information should the PRA be collecting to inform its reviews?

Q2: Do you have any views on how the PRA prioritises and select rules to review?

Q3: Do you have views on how the PRA select review methods?

Q4. Do you have views on the channels for stakeholders to engage with the PRA on rule reviews?

Q5: Do you have views on the way the PRA communicates its ongoing reviews and outcomes of past reviews?

1.11 The proposals in this CP would result in the PRA publishing a statement on its approach to rule reviews. The PRA will not share responses to this consultation with other organisations.

1.12 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.

1.13 This consultation closes on Friday, 29 September 2023. Please address any comments or enquiries to CP11_23@bankofengland.co.uk.