Several recent publications from The Basel Committee on Banking Supervision to note: (a) a consultation paper on the prudential treatment of banks' cryptoasset exposures; (b) some high level considerations on proportionality; and (c) principles for the effective management and supervision of climate-related financial risks (including those relating to corporate governance, internal control and risk assessment).
Yesterday the Government published for consultation various reform proposals as part of its Future Regulatory Framework Review for financial services: see here (pdf).
The paper endorses the current regulatory model as set out in the Financial Services and Markets Act 2000, which reflects the reforms made following the financial crisis over ten years ago - the creation of the FCA, PRA and a greater role for the Bank of England. It does, nevertheless, propose introducing new statutory objectives for the FCA and PRA linked to growth and competitiveness. The regulatory principles are to be amended to provide that growth should occur in a way consistent with the Government commitment to achieve a net zero economy by 2050. The paper also proposes increasing the mechanisms through which the regulators are accountable to Parliament.
And, unsurprisingly, we are to see much current retained EU law transferred to the regulators' rulebooks, with the regulators given new rule-making powers as required. This process - to be achieved through secondary legislation - is expected to take several years.
The Prudential Regulation Authority has, today, published an update in respect of its approach to distributions by the UK's largest banks: see here (pdf). The statement, which is made alongside the publication the latest Financial Stability Report from the Financial Policy Committee, notes that banks remain well capitalised and resilient; it is noted, too, that the level of uncertainty, while considerable, has reduced. As such, the PRA has decided to remove, with immediate effect, the additional restrictions (known as the extraordinary guardrails) put in place last year in respect of bank distributions.
The Prudential Regulation Authority has published a discussion paper the purpose of which is to start exploring options for the creation of a simpler prudential framework for banks and building societies that are neither systemically important nor internationally active: see here (pdf).
The Financial Services Bill received Royal Assent last Thursday thereby becoming the Financial Services Act 2021. A copy of the Act is available here (pdf). The accompanying explanatory memorandum has not yet been published; reference can, instead, be made to the briefing paper provided by the House of Commons Library: see here (pdf).
The Prudential Regulation Authority has published a policy statement and supervisory statement regarding banks' and insurers' approaches to managing the financial risks from climate change: see, respectively, here and here.A little over a year ago, the Government directed the Prudential Regulation Authority to undertake a review of the supervision of the Co-operative Bank between 2008 and 2013: see here and here. Mark Zelmer, a former Deputy Superintendent of the Office of the Superintendent of Financial Institutions in Canada, was appointed to complete the review. The findings of that review, which makes recommendations for the Bank of England and the Prudential Regulation Authority designed to enhance the current supervisory regime, were published today by HM Treasury: see here (pdf). The Bank and PRA have resonded - see here (pdf) - as has the Financial Conduct Authority: see here.
The Solvency 2 and Insurance (Amendment, etc.) (EU Exit) Regulations 2019 were made yesterday and come into force on exit day: see here or here (pdf). The accompanying explanatory memorandum - available here (pdf) - explains the purpose of the Regulations as follows (paras. 2.1 to 2.3):...to address deficiencies in retained EU law in relation to the prudential regulation of the insurance sector arising from the withdrawal of the United Kingdom (UK) from the European Union (EU), ensuring the legislation continues to operate effectively once the UK leaves the EU.
The Solvency II Directive (Directive 2009/138/EC) and Delegated Regulation EU No. 2015/35 implemented a harmonised prudential framework for insurance and reinsurance firms in the EU. It is designed to provide a high level of protection for policy holders by requiring firms to provide a market-consistent valuation of their assets and liabilities, understand the risks they are exposed to, and to hold capital that is sufficient to absorb shocks. Solvency II was transposed into UK law by the Solvency II Regulations 2015 (No. 575) and through the Prudential Regulation Authority (PRA) Rulebook.
Current UK Solvency II legislation is drafted on the basis that the UK is a member of the EU, and treats countries in the EEA differently to other third countries. Once the UK has left the EU, this will no longer be appropriate. To ensure that Solvency II regulation continues to operate effectively once the UK is outside of the EU, certain deficiency fixes to the legislation are necessary".
The Prudential Regulation Authority has published a consultation paper in respect of its proposed expectations regarding firms' governance and risk management of algorithmic trading: see here (pdf). The consultation paper includes, as an appendix, the supervisory statement that the PRA intends to publish. The PRA is proposing that a firm's governing body should be required to explicitly approve the governance framework for algorithmic trading. A review of firms by the PRA completed between November 2014 and March 2017 revealed that not all firms’ algorithmic trading activities were adequately captured in their governance frameworks.
The Prudential Regulation Authority has published Policy Statement 1/18 Strengthening Individual Accountability in Insurance - Optimisations to the SIMR: see here (pdf). The statements confirms various changes being made to the PRA Rulebook in respect of insurers, including requiring the separation of the chief executive and chairman roles at large insurance firms and, for solvency II firms and large non-directive insurers, to put in place a policy promoting diversity on the governing body.
The Prudential Regulation Authority has today published several documents (containing policy statements and rules) which together set out its recovery and resolution planning framework: see here. The statements and rules are relevant for holding companies, mixed financial holding companies, mixed activity financial holding companies, banks, building societies, and PRA-designated investment firms.
The European Central Bank has published its second quarterly report in respect of the implementation of the Single Supervisory Mechanism (SSM) Regulation: see here (pdf). This notes, amongst other things, that in April the ECB published a regulation setting out a framework for cooperation between the ECB and national competent authorities and national designated authorities: see here (pdf).
The European Systemic Risk Board recommendation regarding intermediate objectives and instruments of macro-prudential policy (ESRB/2013/1) has been published in the Official Journal of the European Union: see here (pdf).
BaFin, the Federal Financial Supervisory Authority, has provided a summary (in English) of the Financial Stability Act (Gesetz zur Überwachung der Finanzstabilität – FinStabG) and its provisions, some of which came into force earlier this month: see here. Amongst other things, the new Act creates a German Financial Stability Committee with members drawn from the Federal Ministry of Finance, the Bundesbank and BaFin.
