The PRA has published Consultation Paper 29/17: International banks: the PRA’s approach to branch authorisation and supervision (CP29/17). In CP29/17 and the accompanying draft Supervisory Statement, the PRA sets out proposals for a new approach to branch authorisation and supervision of international banks. The proposals contain a general approach, applicable to all branches. The proposals also cover the PRA’s additional expectations for significant retail and systemic wholesale branches. For the latter, the key additional expectations concern the PRA’s requirement for a greater degree of supervisability. This focuses on ensuring the PRA has an appropriate degree of influence and visibility over the supervisory outcomes for the firm as a whole and the wider group, so far as relevant to the safety and soundness of the firm and necessary to achieve the PRA’s objectives.

The PRA is proposing that the new approach takes effect after the completion of the consultation period and following publication of the final Supervisory Statement. In particular, for those EEA firms that are currently branching into the UK under the passporting regime, and which are intending to apply for PRA authorisation in order to continue operating in the UK after the UK’s withdrawal from the EU, the PRA would apply the new approach set out in the final Supervisory Statement in assessing the firm’s application. Authorisation under the new regime would come into effect after the UK withdraws from the EU.

The deadline for comments on CP29/17 is 27 February 2018.

The PRA does not expect the new approach to affect the current operations of any of the non-EEA international banks and insurers currently operating in the UK as branches. This is because the PRA already has an appropriate level of third country supervisory cooperation with their home state supervisors in light of the systemic importance of the relevant firms.

The PRA has also published a Dear CEO letter from Sam Woods (CEO, PRA) concerning firms’ preparations for the UK’s withdrawal from the EU and their planning assumptions. The letter is relevant to those banks and investment firms that undertake cross-border activities between the UK and the rest of the EU.

Among other things the Dear CEO letter:

  • notes that in the absence of continued passporting rights post-Brexit, firms currently exercising those rights to establish a branch or provide services into the UK (inbound firms) will need to seek PRA authorisation to carry on PRA-regulated activities in the UK;
  • states that firms may submit applications for authorisation from January 2018, and the PRA will then review timelines and assumptions as the political process moves forward;
  • warns that the scale of the authorisation challenge is significant;
  • refers to the PRA’s consultation updating its approach to supervising international banks noting that it is based in part on an assessment of the degree of equivalence of the home state regime in meeting international standards and delivering appropriate outcomes consistent with the PRA’s objectives, and of the level of cooperation with the home state supervisor;
  • notes that the outcome of the negotiations between the UK and EU is relevant to how existing EEA branches are supervised post Brexit and that it is therefore premature for it to reach a final view. However, given the progress to date in the Brexit negotiations, for the present firms may plan on the assumption that the updated requirements will be met, and therefore that they may apply for authorisation as branches unless they are conducting material retail business. This assumption may be revisited as Brexit negotiations proceed; and
  • welcomes the UK Government’s announcement regarding its intention to provide the means for the UK authorities, should they consider it necessary, to create a temporary permissions regime for their firms. The PRA encourages firms to begin preparing for authorisation in line with the new approach that the PRA is consulting on, and will consider use of the temporary permissions regime only as a fall-back;

The Bank of England (BoE) has also published a Dear CEO letter that has been sent by Sir John Cunliffe (Deputy Governor, Financial Stability). The Dear CEO letter notes that:

  • when the UK leaves the EU, recognition of non-UK CCPs so that they can continue to operate in the UK will become the responsibility of the UK, rather than EU, authorities. Linked to this the UK Government has announced that it intends to give the BoE new powers under UK law to recognise non-UK CCPs;
  • the BoE expects a non-UK CCP to apply for UK recognition if it intends to do any of the following after the UK’s withdrawal from the EU: (i) provide clearing services to clearing members or trading venues established in the UK; (ii) be used by market participants to satisfy any mandatory clearing obligations that apply under UK domestic law; or (iii) be deemed a ‘Qualifying CCP’ under UK domestic law for certain capital requirements purposes;
  • it is anticipated that the UK Government will propose that, immediately following the UK’s withdrawal from the EU, UK domestic law requirements for recognition of non-UK CCPs will in essence be the same as the current requirements under Article 25 EMIR;
  • non-UK CCPs should begin engaging with the BoE for pre-application discussions by replying to the Dear CEO letter stating whether they intend to seek recognised CCP status in the UK following the UK’s withdrawal from the EU.

View The Bank of England’s approach to the authorisation and supervision of international banks, insurers and central counterparties, 20 December 2017

View Firms’ preparations for the UK’s withdrawal from the EU: planning assumptions, 20 December 2017

View International banks: the PRA’s approach to branch authorisation and supervision, 20 December 2017

View International central counterparties; the Bank of England’s planned approach to recognition following the UK’s withdrawal from the EU, 20 December 2017