The Bank of England will reduce the 'reporting burden' on UK banks and allow insurers to make risky investments without initial approval, following government pressure to ease regulations introduced after the financial crisis. It's a plan.
Sam Woods, deputy governor of the Prudential Regulation Authority (PRA), said the central bank had withdrawn rules it believed had gone “too far” and suggested it may have gone too far. Damaged the financial sector.
But Mr Woods, speaking to members of the House of Lords Financial Services Regulation Committee on Wednesday, insisted he did not want to see a “race to the bottom” in regulation.
Both the PRA and fellow city regulator the Financial Conduct Authority are under fresh pressure to support UK growth by deregulating the financial services sector. In November, Chancellor Rachel Reeves ordered watchdogs to encourage more risk-taking across the industry.
The previous Conservative government introduced rules forcing city watchdogs to consider whether their regulations were promoting growth and competitiveness among businesses, rather than just protecting consumers.
This includes removing caps on banker bonuses and relaxing capital requirements as part of the new Basel 3.1 rules. But Woods said more changes were on the way, including for banks, which have long complained about the level of compliance they face in the UK.
“We've already reduced insurance reporting by a third,” Woods said. “We want to look at the extent to which we can reduce the reporting burden on banks, and we will continue to bring that to the forefront this year.”
Meanwhile, the insurance sector could be given the green light to invest in riskier assets without prior formal approval.
The bank is launching a new project called the “Matching Adjustment Accelerator” to ease the process for insurance companies that need to make quick investment decisions but often require approval before putting money into certain assets. Mechanisms are planned. “So this idea is like a sandbox. They can move forward and come to us later for approval,” Woods said.
But some critics fear Britain is watering down rules that could ultimately help avoid a repeat of the financial crisis.
The lax regulations were blamed for creating the conditions that led to a series of costly state interventions, including the 2008 bailout of Royal Bank of Scotland (now NatWest Group). Subsequently, the EU and UK governments tightened regulations to curb risk-taking and risks. Keep a close eye on the industry.
Conservative ministers have begun dismantling some of these protections in a bid to boost post-Brexit growth, as they no longer need to follow EU-wide rules. But Labor has promised to continue tinkering with the post-crisis rules, which Reeves said has “resulted in a system that seeks to exclude risk-taking”.
“It's gone too far and has unintended consequences in places,” Reeves told Citi banking officials at a Mansion House dinner in November. “We have to address this now. ” he said.
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Labor is backing plans to change the rules around bank workers' bonus deferrals, which could mean they get paid three years earlier, and city managers are more qualified for the job. This could potentially replace a certification system that guarantees that
The Treasury also plans to ease rules for small banks, including ring-fencing, which protects consumer deposits by separating a financial institution's retail and investment banking operations.
But Woods insisted the PRA is not ushering in an era of light regulation. “I think we should avoid a race to the bottom, but [but] “I don't think that's what Congress wants us to do.”
Woods said this is an opportunity to review regulations put in place after the financial crisis.
“We've spent the last 10 or 15 years building all these machines. Are there any areas where we're a little overcooked? Are there any areas where there's a little bit of overlap, a little bit of complexity? [decision] If you were to achieve a new goal again, would you do it differently?
“And in many cases, the answer to that question is yes. And that's what we focus on. ”
