Fewer Rules, More Costs? PRA Outline Priorities

April 22, 2022
Smaller banks are set to offer cheaper mortgages as the Bank of England’s Prudential Regulation Authority (PRA) commits to easing rules following the UK's withdrawal from the EU.

Smaller banks are set to offer cheaper mortgages as the Bank of England’s Prudential Regulation Authority (PRA) commits to easing rules following the UK's withdrawal from the EU.

The PRA is set to prioritise proportionality issues for small banks, such as variations in the use of risk-weights and internal models, the regulator’s annual report confirmed.

According to the document, there will be a renewed push on reducing barriers to growth as well as firms that need to exit the market, as the PRA commits to working together with the Bank of England’s Resolution Directorate.

The PRA says this will help facilitate a more dynamic mid-tier banking sector, where new and growing firms are able to better compete with larger and more established banks, while struggling firms can also fail without undermining the rest of the sector.

The PRA has also committed to developing its policies on competition (both domestically and internationally) to advance safety, soundness, competition and competitiveness, while also ensuring that the UK is an attractive place in which to do business.

This ease of access for smaller banks spurs from the UK’s withdrawal from the EU, which Sam Woods, PRA chief, has been keen to emphasise.

The government’s Future Regulatory Framework, still due to be approved by the UK’s parliament, will “enable us to adopt a more British style of rule-making, with less fine detail in legislation and more ability for us to maintain and develop a coherent and dynamic rulebook,” Woods said.

Woods’ intervention is a fresh approach. Recently, the International Monetary Fund (IMF) took an opposite stance, arguing that "fast-growing fintech" needs greater regulation, as it poses systemic risks.

The regulator did, however, state that the PRA is committed to keeping pace with innovation and emerging risks.

This includes the ongoing digitalisation of financial services and the growth of crypto-assets, the increasing use of artificial intelligence and machine learning and developments in fintech, such as work to manage the risks to firms’ safety and soundness from climate change.

Levy increase to fund additional staffing

As part of its move to prioritise climate change, the PRA has said that its approach to climate-related financial risk will switch from assessing implementation, to actively supervising against the threats this year.

“The assessment of a firm’s management of climate-related financial risks will be included in the relevant elements of the supervisory cycle,” Woods said.

“In order to deliver these, and in particular an expanded role as a rule-maker and an increased focus on operational resilience, we will need to increase our resources this year with a budget that will allow us to employ around 100 more staff than last year’s budget.”

He continued that the PRA sympathises with concerns about this move, considering that it results in a material increase in the levy, which regulated entities need to pay, of around 8 percent.

The supervisor does not take this lightly, he acknowledged. “The reality is that this change cannot be delivered without a slightly larger team. Levy-payers have the chance to offer any views on this in response to our fees consultation and I encourage them to do so, noting also the significant rebate we are providing for the year just passed.”

The PRA is consulting on regulated fees and levies until May 20.

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