05 September 2014
The Bank of England (BoE) has finalised its policy of supervision of international banks.
The policy sets out how the Prudential Regulation Authority (PRA) will supervise UK branches of banks based out the European Economic Area (EEA) as well as setting out the PRA’s approach to subsidiaries and EEA branches.
Internationally headquartered banks can operate in the UK either as subsidiaries or as branches. The approach published today sets out a framework which takes into account the different legal requirements for branches and subsidiaries.
For branches from outside the EEA, this framework focuses on three main factors: whether the home state supervision of the firm is equivalent to that of the PRA; the branch’s UK activities such as whether they will undertake wholesale or retail banking activities; and whether the PRA has assurance from the home supervisor over the firm’s resolution plan in a way that reduces the impact on financial stability in the UK.
Where the PRA is satisfied of these factors, it will also need to have a clear and agreed split of prudential supervisory responsibilities with the home state supervisor.
Where the PRA is not content, it will consider the most appropriate course of action, which could include refusing authorisation of a new branch or cancelling an authorisation of an existing branch.To implement this approach, the PRA has introduced a new rule, effective as of now, which requires internationally headquartered banks to take all steps within their control to ensure that their resolution plan provides adequately for the resolution of the UK branch.