Hello everyone and welcome to this week’s Norton Rose financial services updater.
The two updater highlights this week are UK centric, focussing on the Government’s plans for UK regulatory reform.
The first highlight is that the FSA and Bank of England have co-published two Approach documents for the proposed Prudential Regulation Authority (the PRA). The first Approach document covers the PRA’s proposed approach to banks and large investment firms and the second Approach document covers the proposed approach to insurance firms.
Both PRA Approach documents begin to flesh out the core framework of the PRA regime. The key messages are to hammer home the theme that we will be dealing with forward looking, intensive and challenging regulation for prudentially significant firms by a senior and experienced supervisors.
In addition to this there is a repeat of the key message that firms should not be focussing on just technical compliance but must abide by the spirit of the rules and that the new PRA rulebook will be clearer and simpler.
Abiding by the spirit of the rules is a real challenge for the industry in a world where regulatory arbitrage can unlock significant value and for regulators where enforcement is much harder where a firm can legitimately argue that their interpretation of the rules is plausible. A simpler rulebook is a high ideal but given the growth of EU regulation one may question how realistic this is. Overall, the real test will be whether these ideals can stand the test of the reality of the industry and regulation as they are now and not pre crisis.
The Approach documents also state that the PRA will rely significantly on judgement. The PRA’s supervisory judgements will be based on evidence and analysis and will also be forward looking in that it will assess firms not just against current risks, but also against those that plausibly arise in the future.
It is interesting to note that the majority of the supervisors will be senior associates so it is arguable that this follows through on the idea of the so called "senatorial style" of supervision by experienced people. Again it is hard to argue with the sentiment but the proof will be whether the PRA can recruit and retain such valuable people given the competition from the banks.
Further information on the cutover from the FSA to the PRA and FCA can be found on our online technical resource, Phoenix which can be found on the Norton Rose website.
The second highlight this week is that the Treasury has published a Consultation Document entitled Sound banking: delivering reform.
The Consultation Document provides an overview of the responses to the Government’s earlier consultation on implementing the Vickers’s recommendations on banking reform and sets out for the first time the draft Financial Services (Banking Reform) Bill and explanatory notes.
It’s interesting to note that the draft Bill is primarily an enabling Bill which provides the Treasury with the requisite powers to implement the policy underlying the Bill through secondary legislation. For example, the draft Bill provides for the Treasury to set out in secondary legislation the scope of ring-fencing policy - those activities which are to be undertaken within ring-fenced banks, and those activities which are to be prohibited.
Like the Financial Services Bill, which is currently being debated in the House of Lords, the draft Bill will first undergo pre-legislative scrutiny which will culminate in a report by the Parliamentary Commission on Banking Standards by 18 December this year. Following this the draft Bill will be introduced into Parliament early next year.
That’s this week’s updater highlights. But before going it’s also worth mentioning that our next 40 minute briefing is taking place on 7 November and will look at the Alternative Investment Fund Managers Directive.
I hope you find this week’s updater helpful.