On 23 June 2020, HM Treasury published a policy statement providing detail on its legislative approach for prudential standards in the Financial Services Bill. The policy statement also provides detail on how the government will tailor the prudential regimes to the specifics of the UK market.

At the 11 March Budget, the government published its intention to update the prudential regime for banks to enable the implementation of Basel 3.1 and a UK version of the second Capital Requirements Regulation (CRR II). The government also announced that it will legislate to enable the UK to introduce a UK version of the new EU prudential regime for investment firms set out in the Investment Firm Regulation and the Investment Firm Directive (IRF/IFD).

In the policy statement HM Treasury states that:

  • The vast majority of the updated banking regime will be implemented in PRA rules, and the vast majority of the onshored IFR/IFD will be implemented in FCA rules.
  • It will legislate to create additional requirements for the UK regulators to consider specifically when using their rule-making powers to introduce and maintain these regimes. These additional requirements are intended to be specified at the level of regulatory principles or equivalent. The PRA’s primary and secondary objectives, and the FCA’s strategic and operational objectives, will therefore keep the same status as they currently have. The accountability framework will include additional requirements to ensure that the wider objectives of the government and Parliament are taken into account. This will include the impact of regulatory requirements on UK competitiveness, international developments in prudential regulation (including international standards, where applicable), and the UK’s relationships with other jurisdictions, such as financial services equivalence. For the implementation of updated prudential rules for banks (Basel implementation), the PRA will also need to ensure that the impact on sustainable lending to the UK economy is sufficiently considered.
  • To enable the UK regulators to make rules on these prudential standards, the Financial Services Bill will: (i) delete articles of the retained CRR where appropriate to do so; and (ii) provide HM Treasury with a power to delete further elements of CRR using secondary legislation where additional flexibility may be required.
  • In relation to the onshoring of the IFR/IFD HM Treasury will make amendments to the statute book, including: (i) amending the retained CRR to disapply it for FCA-regulated investment firms; and (ii) amending the retained MiFIR to update the equivalence provisions for third country investment firms.
  • The UK will endeavour to introduce the onshored version of the IFR/IFD and the updated prudential standards for credit institutions (those contained in CRR2 for the EU) by the summer of 2021.
  • Earlier this year the Basel Committee on Banking Supervision announced a one-year delay to the implementation of the Basel 3.1 standards. HM Treasury remains committed to the full, timely and consistent implementation of the Basel 3.1 standards and it will work towards a UK implementation timetable that is consistent with the one year delay.