On 15 April 2021, the PRA published Policy Statement 8/21 ‘The Prudential Regulation Authority’s approach to new and growing banks’ (PS8/21). PS8/21 follows Consultation Paper 9/20 ‘Non-systemic UK banks: the PRA’s approach to new and growing banks’ (CP9/20) that the PRA published last summer setting out the regulator’s proposed approach to supervising new and growing non-systemic UK banks (collectively referred to as banks).
PS8/21 is relevant to the following types of banks:
- Banks in their first few years of being authorised by the PRA as a deposit taker (typically less than five years post-authorisation).
- Prospective banks interested in and currently applying for authorisation as a deposit taker (UK applicant banks).
In addition to PS8/21 the PRA has published:
- A final Supervisory Statement (SS) 3/21 ‘Non-systemic UK banks: The PRA’s approach to new and growing banks’ (Appendix 1).
- An updated SS31/15 ‘The Internal Capital Adequacy Assessment Process and the Supervisory Review and Evaluation Process’, containing a reference to SS3/21 in paragraph 5.25 (Appendix 2).
- An updated Statement of Policy (SoP) ‘The PRA’s methodologies for setting Pillar 2 capital’, containing a reference to SS3/21 in paragraph 9.45 (Appendix 3).
The structure of SS3/21 is as follows:
- Chapter 2 provides background on progress to date with new bank authorisations; common issues of new and growing banks; and an overview of how the PRA’s supervisory approach evolves as banks grow and develop.
- Chapter 3 provides further detail on supervisory expectations of new and growing banks with a focus on common issues including business model, governance, risk management and controls.
- Chapter 4 sets out the PRA’s expectations for capital management in new and growing banks, and includes a revision and simplification of the PRA methodology for calibrating the PRA buffer for these banks.
- Chapter 5 sets out the PRA’s and the Bank of England’s coordinated approach to ensuring new and growing banks can exit the market in an orderly manner.
- Chapter 6 is relevant to non-systemic UK banks that are ‘established’ (typically beyond five years post – authorisation and in the ‘without restrictions’ stage of their lifecycle). It sets out the PRA’s supervisory approach to these banks.
The expectations in SS3/21 take effect on 15 April 2021.
Following the consultation set out in CP9/20 the PRA has made numerous amendments to SS3/21. These are summarised in paragraph 1.11 of PS8/21 and further discussed in chapters 2 to 7. PRA driven changes are covered in chapter 8 and include PRA buffer transition arrangements. The PRA expects banks to begin the transition to the PRA buffer in line with established banks once a bank has been operating for five years (since exit from mobilisation, or since authorisation if a bank does not follow the mobilisation route), or at the point a bank achieves a profit over a full year of trading, whichever is sooner. The PRA may, on an exceptions-only basis, diverge from this stated approach where it identifies heightened risks to its objectives which justify an earlier transition to the PRA buffer in line with established banks. Paragraphs 4.12 and 4.16 of the SS have been amended to reflect this.