The Bank of England plans to tighten rules for non-European banks seeking a foothold in the U.K. by introducing a series of tests to ensure financial stability.
The Prudential Regulation Authority, a unit of the central bank, will examine whether the supervision of a firm in its home country is “equivalent to that of the PRA” and if the bank can be wound down “in a way that reduces the impact on financial stability in the U.K.,” it in a document published today.
“It is important that we get the right balance between maintaining our place as an open financial market while delivering our statutory objective of promoting safety and soundness in the firms we supervise,” said Andrew Bailey, the PRA’s chief executive officer.
“This is crucial for the stability of the U.K. financial system.”
Global regulators have encouraged banks to open subsidiaries rather than branches in other jurisdictions since the 2008 financial crisis because it gives the local regulator greater powers to set capital and liquidity rules.
In contrast, branches are supervised by the regulator of the home country of their parent. Branches of international banks operating in the U.K. account for about 31 percent of the total assets of the nation’s banking system.
That’s about double the level in Belgium and Luxembourg, the next most open financial markets, according to the BOE. U.K. and Dutch depositors were compensated by their governments after the failure of Iceland’s Landsbanki Islands hf in 2008 left their savings in limbo.
National Interests U.K. branches of banks headquartered outside of the European Economic Area, which consists of the 28-member European Union, Iceland, Liechtenstein and Norway, will be expected to “focus on wholesale banking and to do so at a level that is not critical to the U.K. economy,” the PRA said in its report.
The PRA will consider authorization for foreign branches based on how the home supervisor is “aligned to delivering PRA objectives,” how much banking activity it wants to carry out and whether the central bank has “certainty that the home state will not put national interests” ahead of those of U.K. depositors and creditors, the PRA said.
Both existing branches as well as those that may be set up in the future will be assessed on the same criteria, the BOE said.
Branches that don’t comply will be forced to exit the market or convert to subsidiaries, which are subject to “a full suite of supervisory tools and legal powers.”
A branch with total assets of less than 2 billion pounds ($3.3 billion) will incur a one-off cost of about 525,000 pounds, and an annual 150,000-pound fee to become a subsidiary, according to the report.
bloomberg.com
The Prudential Regulation Authority, a unit of the central bank, will examine whether the supervision of a firm in its home country is “equivalent to that of the PRA” and if the bank can be wound down “in a way that reduces the impact on financial stability in the U.K.,” it in a document published today.
“It is important that we get the right balance between maintaining our place as an open financial market while delivering our statutory objective of promoting safety and soundness in the firms we supervise,” said Andrew Bailey, the PRA’s chief executive officer.
“This is crucial for the stability of the U.K. financial system.”
Global regulators have encouraged banks to open subsidiaries rather than branches in other jurisdictions since the 2008 financial crisis because it gives the local regulator greater powers to set capital and liquidity rules.
In contrast, branches are supervised by the regulator of the home country of their parent. Branches of international banks operating in the U.K. account for about 31 percent of the total assets of the nation’s banking system.
That’s about double the level in Belgium and Luxembourg, the next most open financial markets, according to the BOE. U.K. and Dutch depositors were compensated by their governments after the failure of Iceland’s Landsbanki Islands hf in 2008 left their savings in limbo.
National Interests U.K. branches of banks headquartered outside of the European Economic Area, which consists of the 28-member European Union, Iceland, Liechtenstein and Norway, will be expected to “focus on wholesale banking and to do so at a level that is not critical to the U.K. economy,” the PRA said in its report.
The PRA will consider authorization for foreign branches based on how the home supervisor is “aligned to delivering PRA objectives,” how much banking activity it wants to carry out and whether the central bank has “certainty that the home state will not put national interests” ahead of those of U.K. depositors and creditors, the PRA said.
Both existing branches as well as those that may be set up in the future will be assessed on the same criteria, the BOE said.
Branches that don’t comply will be forced to exit the market or convert to subsidiaries, which are subject to “a full suite of supervisory tools and legal powers.”
A branch with total assets of less than 2 billion pounds ($3.3 billion) will incur a one-off cost of about 525,000 pounds, and an annual 150,000-pound fee to become a subsidiary, according to the report.
bloomberg.com
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