Greg Kilminster
Head of Product - Content
CP11/24: PRA consults on its approach to international banks
The Prudential Regulation Authority (PRA) has issued a consultation paper (CP)11/24 proposing updates to its approach to international banks. This is particularly relevant to existing or prospective PRA-authorised banks and designated investment firms that are headquartered outside of the UK or are part of a group based outside of the UK.
Some context
The PRA's supervisory statement (SS) 5/21 – International banks set out their expectations for receiving information regarding the risks in the wider group and cooperation from other supervisory authorities concerned with the firm or its wider group. This SS also outlines expectations of international banks in meeting the threshold condition on the prudent conduct of business, including their systems and controls and risk management.
The PRA has been reviewing these expectations following lessons learned from the failure of Silicon Valley Bank (SVB) UK in March 2023, industry developments, and firms' requests for further clarity.
Key takeaways
The proposals in this CP do not alter the overall framework in SS 5/21. The proposed updates include:
- Introduction of additional indicative criteria that the PRA would consider when determining whether it would be appropriate for an international bank to operate in the UK as a branch rather than a subsidiary.
- Clarifications to the expectations of firms' booking arrangements and extension of their formal application to a subset of UK banks.
- Amendments to the PRA branch return designed to improve the collection of whole-firm liquidity data.
- Minor amendments to SS 5/21 to clarify some of the PRA's existing expectations and processes.
The PRA proposes that the changes to SS 5/21 resulting from this CP would be implemented during 2025 Q2. The changes to the material relating to branch reporting would be implemented on 31 December 2025.
Next steps
The deadline for feedback is 30 October 2024.
To note: Other initiatives could impact the existing text in SS 5/21, and the PRA aims to introduce the proposed amendments at the same time as changes proposed in this CP.
Other initiatives include:
- Senior Managers and Certification Regime (SM&CR) review, which the PRA and Financial Conduct Authority (FCA) are due to consult on during 2024.
- Review of the deposit limit: PRA is due to review the deposit limit by January 2025 and will consult on this later in the year.
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PRA update on insurance sector regulatory reporting
The Prudential Regulation Authority (PRA) has issued updates on regulatory reporting for the insurance sector, focusing on the Bank of England Insurance Taxonomy v2.0.0.
This taxonomy outlines the technical implementation of the requirements in policy statement 3/24 – Review of Solvency II: Reporting and disclosure phase 2 near-final, which will come into effect on 31 December 2024.
In response to feedback and inquiries from firms, the PRA has developed a Q&A document and a known issues log covering templates and instructions. These resources will be continually updated to support firms in complying with the new Solvency UK regulatory reporting requirements.
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BoE publishes Enforcement Decision Making Committee report
The Bank of England (the Bank) has published its fifth report of the Enforcement Decision Making Committee (EDMC), covering the period from 1 March 2023 to 29 February 2024.
The report includes:
- Details of the frequency of Committee meetings and the members involved.
- Information on resourcing, recruitment, and costs.
- Number of cases referred from the PRA, FMI, Resolution, and the S&NI banknote regime.
- Number of statutory notices handled.
- Any challenges to the EDMC's decisions.
- Situations involving conflicts of interest.
- Any other relevant matters communicated to the EDMC Chair by the Bank’s Court of Directors (Court).
- Any other issues the Committee feels the need to bring to the Court's attention.
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FRC publishes annual Tier 1 audit firm inspection results
The Financial Reporting Council (FRC) has released its annual review of audit quality, focusing on the inspection and supervision results of the Tier 1 audit firms (BDO, Deloitte, EY, Forvis Mazars, KPMG, and PwC).
Key findings:
- 74% of the audits inspected were categorised as good or requiring limited improvements, with Deloitte at 94%, EY at 76%, KPMG at 89%, and PwC at 76%.
- Audit quality for the FTSE 350 has shown improvement, increasing from 81% to 87% year on year.
- However, the audit results for BDO significantly declined from 69% to 38%, and Forvis Mazars also experienced a decline from 56% to 44%.
The FRC emphasises in the report that, considering their strategic importance to the audit market, both BDO and Mazars need to urgently address the causes of these declines and implement substantial audit quality improvement plans, which will be closely monitored by the FRC.
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A review of recent FDIC proposals
The Federal Deposit Insurance Corporation (FDIC) Board of Directors approved several proposed rules and final guidance. Below is a summary of each issuance.
Enhancing resolution planning at large banks
Final guidance aimed at bolstering resolution planning for certain large banks has been approved. This guidance, formulated in collaboration with the Federal Reserve, is designed for domestic and foreign banks with assets exceeding $250 billion. It specifically addresses the unique risks these banks pose and is organised around critical areas such as capital, liquidity, and operational capabilities needed for resolution.
The guidance differentiates between single point of entry (SPOE) and multiple point of entry (MPOE) resolution strategies, acknowledging the preferred home country-led resolution for foreign banks. This approach ensures these banks can incorporate their global resolution plans into their US strategies effectively.
Additionally, the FDIC has extended the deadline for these banks to submit their resolution plans from 31 March 2025, to 1 October 2025, allowing adequate time for banks to align their plans with the new guidance.
Request for information on uninsured deposits
In a move to enhance risk and liquidity monitoring, the FDIC has issued a request for information (RFI) regarding uninsured deposits. This initiative seeks more detailed data on deposit composition and characteristics, which were pivotal in the failures of large regional banks in 2023.
The FDIC aims to gather insights on how more granular reporting could improve the sensitivity of deposit insurance pricing, inform the cost-benefit analysis of additional deposit insurance coverage, and provide transparency for analysts and the public.
Proposed amendments to the Change in Bank Control Act
The FDIC has proposed amendments to the regulations under the Change in Bank Control Act. These changes would mandate advance notice to the FDIC for certain acquisitions of voting securities of FDIC-supervised institutions, ensuring the agency can fully exercise its oversight capabilities.
Currently, transactions reviewed by the Federal Reserve or those involving passivity commitments have been exempt from FDIC notice requirements. The proposed rule seeks to remove these exemptions and invites public comment on the FDIC’s approach to changes in control affecting its supervised institutions.
Revisions to Section 19 regulations
In alignment with the Fair Hiring in Banking Act (FHBA), the FDIC has revised its Section 19 regulations, which govern the participation of individuals with criminal convictions in the banking sector. Key changes include:
- Older offences: Exclusion of certain older offences based on the time elapsed since the offence or release from incarceration.
- Expunged, sealed, and dismissed records: Harmonisation of standards to exclude such convictions.
- De minimis offenses: Conforming changes to exclude minor offences from Section 19’s scope.
- Criminal offenses involving dishonesty: Exclusion of misdemeanours committed over a year before application and offences involving simple possession of controlled substances.
These revisions aim to expand employment opportunities in the banking industry.
Amendments to regulations for industrial banks
The FDIC has proposed amendments to regulations governing parent companies of industrial banks. These amendments aim to clarify and enhance the supervisory framework, mitigate risks to the Deposit Insurance Fund, and provide market transparency. The proposed changes include:
- Assessing risks posed by parent organisations and evaluating the bank’s ability to operate independently.
- Including conversions and other transactions under the FDIC’s purview.
- Applying regulatory authority to situations where an industrial bank becomes a subsidiary of a non-federally supervised company.
Revisions to brokered deposit regulations
Responding to recent bank failures, the FDIC has proposed revisions to its brokered deposit regulations. These changes aim to strengthen prudential protections and reduce risks associated with brokered deposits. Key proposals include:
- Simplifying the definition of “deposit broker”.
- Eliminating the “exclusive deposit placement arrangement” exception.
- Revising the primary purpose exception to consider third-party intent.
- Restricting notices and applications for primary purpose exceptions to IDIs.
- Adjusting the “25 percent test” for broker-dealers and investment advisers.
- Removing the enabling transactions exception.
- Clarifying the regaining of agent institution status for reciprocal deposits.
These proposals seek to enhance the safety and soundness of the banking system and ensure consistent reporting.
For all the above proposals, the agency encourages feedback from stakeholders within 60 days of publication in the Federal Register.
EBA consults on resolution planning reporting framework
The European Banking Authority (EBA) has launched a consultation on revisions to the draft implementing Technical Standards (ITS) on the provision of information for the purpose of resolution plans.
Some context
In accordance with the Bank Recovery and Resolution Directive (BRRD), resolution authorities are mandated to develop resolution plans outlining required actions if an institution meets the conditions for resolution.
The ITS on the provision of information for the purpose of resolution plans aims to ensure that resolution authorities have the data they need, thus improving the usability of this reporting framework and enhancing consistent monitoring of resolution planning.
The EBA developed the original ITS in 2014-2015 and updated it in 2018.
With this consultation, the EBA aims to further promote harmonisation and proportionality in resolution planning reporting, improving the usability of the data collected and reflecting the latest developments in resolution planning.
Key takeaways
The main proposals of this consultation paper include:
- Bringing forward the submission deadline for reporting from 30 April to 31 March.
- An extension of the scope of entities for which data is collected.
- An expansion of the information requested on some topics, in particular organisational structure, granular liability data, critical functions, financial markets infrastructures data, critical services and critical information systems.
These changes align with the information already collected by resolution authorities, particularly that collected by the Single Resolution Board.
The EBA has considered proportionality when designing the framework to minimise the burden on institutions by:
- Eliminating parallel data collections from different authorities
- Considering the size and complexity of institutions in streamlining data points
- Removing duplications and overlapping data points with MREL/TLAC, CoRep, and FinRep where the reporting entity has already submitted this data.
The draft ITS provide for the new framework to be operational in 2026, with first reporting reference date of 31 December 2025
Next steps
The deadline for feedback is 30 October 2024.
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ASIC consults on cash equity CS services rules
The Australian Securities and Investments Commission (ASIC) has issued consultation paper (CP) 379 on new rules to promote competition in cash equity clearing and settlement (CS) services offered by the Australian Securities Exchange (ASX) Group.
Some context
ASIC has the authority to establish rules for CS services that impose requirements on CS facility licensees and related entities with respect to specified CS services. A ministerial instrument granting ASIC these powers concerning cash equity CS services came into force in May 2024.
Key takeaways
The proposed rules are intended to support the long-term interests of the Australian market by:
- Ensuring the ASX remains responsive to users’ evolving needs, including in relation to its governance framework.
- Providing access to its cash equity CS services on a transparent and non-discriminatory basis with terms and conditions, including pricing, that are fair and reasonable.
In the CP, ASIC is specifically seeking input on proposals to:
- Implement the 2017 Council of Financial Regulators Regulatory Expectations for Conduct in Operating Cash Equity Clearing and Settlement Services in Australia (Regulatory Expectations) as enforceable obligations.
- Impose additional requirements in several key areas, including technical interoperability, management of intragroup conflicts of interest, and external assurances on pricing and barriers to competition.
Next steps
The deadline for feedback is 10 September 2024.
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ASIC publishes report on credit card lending in Australia
The Australian Securities and Investments Commission (ASIC) has released a report (REP 788) on its review of credit card lending in Australia. The report highlights how Australians use credit cards, the potential negative impact of problematic design, distribution or use of credit cards, and five key areas of best practice lenders should prioritise.
Key findings of the report include:
- Many consumers, especially younger individuals, those with multiple credit cards, and those taking cash advances, are struggling with problematic credit card debt.
- Although a significant number of consumers use balance transfers with reduced interest rates during promotional periods, the percentage of consumers who fully repay their debt by the end of the promotional period varies widely across lenders.
- Numerous consumers continue to carry a balance and accrue interest on high-interest rate cards, potentially missing out on substantial savings that could be achieved with lower interest rate cards.
- Some credit card providers are failing to leverage their data to identify consumers at risk of financial hardship and provide relevant assistance.
In response to these findings, ASIC has outlined five key areas of best practices for lenders to prioritise in order to better support their customers:
- Incorporating data-driven triggers, consumer education, targeted reminders, and waiving debts for vulnerable consumers, where appropriate, to help consumers manage problematic debt.
- Implementing automatic or periodic repayments, transaction limits, regular reminders, and promoting features such as instalment plans to help consumers effectively use credit card features.
- Promoting targeted credit card selector tools and conducting ongoing assessments to help consumers choose credit cards that align with their usage patterns, particularly for high-interest rate or high-fee cards.
- Using data analysis to identify consumers at risk of financial hardship and communicating about available assistance to help consumers experiencing financial stress.
- Meeting design and distribution obligations by considering consumer outcomes and establishing specific and measurable review triggers.
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