On 15 April, the PRA published Policy Statement PS8/21 "Non-systemic UK banks: The Prudential Regulation Authority’s approach to new and growing banks", which sets out the UK regulator's supervisory approach to new and growing non-systemic UK banks (in this update, "banks") following Consultation Paper CP9/20.
The PRA encourages firms to use this as a key source of information when developing their business propositions and regulatory documents. The PRA also notes that some banks will have the sufficient experience and resources "to be able to move quickly to the standard expected of most established banks" and will "consider each case on its merits and apply supervisory judgement to ensure that the policy is applied appropriately".
The Policy Statement also contains:
- Supervisory Statement SS3/21 "Non-systemic UK banks: The PRA’s approach to new and growing banks";
- an updated SS31/15 "The Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review and Evaluation Process"; and
- an updated Statement of Policy "The PRA’s methodologies for setting Pillar 2 capital".
The Policy Statement will be particularly relevant to:
- banks in their first few years of being authorised by the PRA as a deposit taker (typically less than five years post-authorisation); and
- prospective banks interested in and currently applying for authorisation as a deposit taker ("UK applicant banks").
Relevant considerations outlined within the Policy Statement include:
- clarification around the scope of firms covered by the policy;
- clarification around existing resolvability expectations that banks need to demonstrate on an ongoing basis;
- expectations that banks should invest significantly in risk management and controls, and have a mature control environment typically by five years after authorisation;
- expectations that banks should have "greater clarity over the path to profitability, including how they will meet all relevant loss absorbing capital requirements";
- expectations around board independence and what is good practice; and
- expectations around banks exiting the market in an orderly way.
The PRA's expectations outlined within SS3/21 came into effect on 15 April 2021.
It is worth noting that the PRA has launched a "New Bank Start-up Unit" ("NBSU") webpage as part of its joint initiative with the Financial Conduct Authority to give firms which are interested in, and/or currently applying for authorisation as a deposit-taker, the information and support they need to set up a bank in the UK.
Firms should also be aware that the PRA is in the process of developing a "strong and simple" regime for regulating small banks and building societies. More detail on these proposals can be found in Sam Woods’ "Strong and simple" speech and a discussion paper is due to be published shortly.
If you have any queries about becoming a new bank, please contact NewBankStartupUnit@bankofengland.co.uk or call 020 3461 8100 (lines available from 10am to 12noon).