PRA-Treasury tensions emerge over reform scope
The PRA today set out a series of post-Brexit regulatory moves that expose emerging tensions with the Government over the scope of reform and the use of delegated powers. In parallel, Bank of England governor Andrew Bailey has formally responded to new Treasury recommendations on the Prudential Regulation Authority’s remit.
Remit challenge from the Government
Andrew Bailey, in his capacity as Chair of the Prudential Regulation Committee, wrote to the Chancellor on 1 September 2021 addressing recommendations from the Government on the remit of the PRA.
Treasury scrutiny of sub‑delegated powers
HM Treasury on Tuesday 21 September laid a report in Parliament on the Bank of England’s and the PRA’s use of sub‑delegated powers under the EU (Withdrawal) Act 2018. The report covers the financial year ending Sunday 28 February, providing a retrospective account of how those powers were exercised.
Under the current framework, the Bank of England and the PRA must submit this report to Parliament annually if they exercise the relevant sub‑delegated powers, creating a recurring point of scrutiny for their post‑Brexit rule‑making.
PRA sets out its own agenda
Against this backdrop, Sam Woods used a speech titled “Prudentist” on 22 September to outline the PRA’s future work programme. In that speech, Woods stated that the capital and liquidity of banks and insurers are strong despite the impact of Covid, providing the prudential backdrop for the next phase of reforms.
The “Prudentist” remarks link the PRA’s planned agenda to its assessment of current resilience, indicating that any recalibration of rules will start from a position of balance sheet strength across both banking and insurance sectors.
New consultation on domestic liquidity groups
The PRA moved quickly to put parts of this agenda into practice, publishing Consultation Paper CP19/21 on 28 September. CP19/21 sets out proposed rules on how prudential liquidity requirements should apply to Domestic Liquidity Sub‑Groups, or DoLSubs.
The consultation opens a technical front in the wider debate over how much flexibility the PRA should have in tailoring post‑EU liquidity standards within UK banking groups.
Context
The cluster of documents and statements in September 2021 – Bailey’s remit letter, the Treasury’s sub‑delegation report, Woods’ “Prudentist” speech and CP19/21 – shows both sides of the evolving settlement between the Government and the PRA over post‑Brexit prudential regulation. The period captures the Government’s push for accountability on delegated powers and the PRA’s effort to define its own priorities on capital and liquidity for banks and insurers.
--- Sources: https://www.bankofengland.co.uk/prudential-regulation https://www.bankofengland.co.uk/prudential-regulation/regulatory-digest/2021/september
