Fri, Sep 12, 2014
The Prudential Regulatory Authority (PRA) has released a policy statement and a supervisory statement which summarizes and clarify the PRA’s approach to supervising branches of international banks. The supervisory statement is relevant to all PRA-supervised firms who operate out of the UK but are not headquartered in the UK, and to any firm looking to operate in the UK in the future.
The PRA’s response to the feedback received on the proposed rules of consultation paper CP4/14 is addressed in policy statement PS8/14, and the PRA’s responses to feedback on the consultation on the supervisory statement are addressed in the finalized version of supervisory statement SS10/14.
Background
Internationally headquartered banks can operate as subsidiaries or branches:
From a supervisor perspective, the following applies:
For non-EEA branches the PRA’s authorization applies to the whole firm.
For EEA branches, the home state supervisory state of the headquartered bank is responsible for prudential supervision with the exception of liquidity which temporarily will remain the responsibility of the PRA until it is migrated sometime in 2015.
Feedback
The PRA received a number of responses to the original consultation paper (CP4/14) and overall these responses were supportive of the PRA’s approach. The PRA considered the responses and minor changes were made to the final supervisory statement. Feedback centered around the following areas:
This new rule was effective from September 5, 2014.
Kinetic Partners’ perspective:
In Kinetic Partners’ experience, it is important for banks to not only consider the FCA as the supervisor of force when it comes to conduct. As evidenced in the policy statement above, the PRA will also have a regard to the officers of the bank and to the evaluation of the bank’s SYSC arrangements. It also appears that individual accountability continues to be on the rise.
While there is nothing unexpected in this policy statement, it does set the tone for what may be to come in terms of PRA supervision in this area. Particularly in relation to branches of non-EEA banks, we would advise banks to pay attention to the structure and content of their documentation relating to all SYSC requirements, and to ensure that such materials reflect the true controls in place. This will enable the banks to demonstrate their ability to articulate its governance arrangements clearly to the PRA, should the question be asked.
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