12th January 2021

PRA issues "CP2/21-International banks:The PRA’s approach to branch and subsidiary supervision"

This Consultation Paper (CP) sets out the Prudential Regulation Authority’s(PRA) proposals regarding its approach to supervising the UK activities of PRA-authorised banks and designated investment firms that are headquartered outside of the UK or are part of a group based outside of the UK. In this CP, such firms are referred to as ‘international banks’. It therefore includes those firms operating in the UK through a branch. It also proposes expectations for receiving information concerning the risks in the wider group, and for co-operation from regulated entities and their supervisors, in order that it can be satisfied that firms are meeting threshold conditions.

The proposals in this CP would result in a new Supervisory Statement (SS) ‘International banks: The PRA’s approach to branch and subsidiary supervision’ (Appendix), which will supersede SS1/18 ‘International banks: the Prudential Regulation Authority’s approach to branch authorisation and supervision’.

This CP is relevant to existing or prospective PRA-authorised banks and designated investment firms that are headquartered outside of the UK or are part of a group based outside of the UK.

The purpose of these proposals is to provide clarity to international banks on the implications for them of the different ways they may choose to structure their operations. The proposals also aim to explain how the PRA would assess such firms against its threshold conditions, particularly the condition relating to the effective supervision of firms, when a firm belongs to a group based outside the UK.

Overall, the PRA’s approach to the supervision of international banks remains stable and consistent following the UK’s withdrawal from the EU. Those firms which have operated in the UK for some time as either branches or subsidiaries should find the proposals to be in line with their experience of the PRA’s supervision. The proposed expectations on subsidiaries and systemic wholesale branches in the proposed SS are consistent with the PRA’s existing supervisory approach, and are intended to provide clarity to firms on what they need to do to meet the PRA threshold conditions. This clarification is particularly timely given the changes in the population of firms that the PRA supervises and the associated changes in firms’ operating structures.

The PRA proposes that the implementation date for the final policy would be in the second quarter of 2021.

Readers of the CP may also wish to refer to the Financial Conduct Authority’s(FCA) recent consultation on its approach to international firms. The FCA is currently considering its final policy and implementation.

This consultation closes on Sunday 11th April 2021. The PRA invites feedback on the proposals set out in this consultation.

The proposals set out in this CP have been designed in the context of the UK having left the European Union and the transition period having come to an end. Unless otherwise stated, any references to EU or EU derived legislation refer to the version of that legislation which forms part of retained EU law. The PRA will keep the policy under review to assess whether any changes would be required due to changes in the UK regulatory framework.

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