Under the Financial Services and Markets Act 2000, as amended by the Financial Services (Banking Reform) Act 2013, the PRA is required to make policy to implement the ring-fencing of core UK financial services and activities.
The PRA has now published Consultation Paper 19/14: The implementation of ring-fencing: consultation on legal structure, governance and the continuity of services and facilities (CP19/14). In CP19/14 the PRA sets out its proposed ring-fencing policy in three areas:
- legal structures of groups containing a ring-fenced body (RFB). Chapter 2 of CP19/14 proposes that RFBs should not own entities which conduct excluded or prohibited activities as this would expose the RFB to risks unrelated to the provision of core services. It also proposes that RFBs are not owned by such firms to ensure the RFB is able to make decisions independently;
- the governance of groups containing a RFB. Chapter 3 of CP19/14 proposes rules in the areas of governance, risk management, internal audit, remuneration and human resources policy; and
- continuity of services and facilities. Chapter 4 of CP19/14 proposes rules governing how RFBs can receive services and facilities from other intragroup entities or third parties outside their group. These are intended to mitigate risks to the ability of the RFB to perform its core services arising from the acts, omissions or the failure of other group entities. These proposals for RFBs complement a broader set of proposals set out in Discussion Paper 1/14: Ensuring operational continuity in resolution.
The PRA intends to undertake a further consultation on other aspects of ring-fencing in due course. Chapter 5 of CP19/14 sets out feedback on the PRA’s initial thinking on financial separation and transparency and disclosure ahead of future consultation. Chapter 5 therefore does not include specific policy proposals as these areas are still being developed.
The deadline for comments on CP19/14 is 6 January 2015.