The Bank of England plans to slash the “reporting burden” on UK banks and allow insurers to make riskier investments without initial approval, as it comes under government pressure to ease regulations introduced after the financial crisis.
Sam Woods, a deputy governor at the Bank who leads its regulatory arm, the Prudential Regulation Authority (PRA), said the central bank had rowed back on rules that appeared to be “overcooked”, as he suggested it might have gone too far and harmed the financial sector.
However, Woods, who was speaking to members of the House of Lords financial services regulation committee on Wednesday, insisted he did not want to see a regulatory “race to the bottom”.
Both the PRA and fellow City regulator the Financial Conduct Authority have come under renewed pressure to support UK growth by easing rules on the financial services sector. In November, the chancellor, Rachel Reeves, ordered the watchdogs to encourage more risk-taking across the industry.
The former Tory government introduced rules to force the City watchdog to consider whether its regulations were promoting growth and competitiveness among companies, rather than simply protecting consumers.
The drive has included removing the cap on banker bonuses and softening capital requirements as part of new Basel 3.1 rules. But Woods said further changes were afoot, including for banks, which have long complained about the level of compliance they face in the UK.
“We’ve already cut reporting on the insurance side by a third,” Woods said. “We do want to look at what scope there is to reduce the reporting burden on the banks. And that’s something, again, we’ll come forward on this year.”
Meanwhile, the insurance sector could be given the green light to invest in riskier assets without formal prior approval.
The Bank is planning a new mechanism, “a matching adjustment accelerator”, to ease processes for insurance companies, which need to make rapid investment decisions but often need authorisation before putting money into certain assets. “So the idea is like a sandbox. They should be able to go ahead, come to us later for approval,” Woods said.
However, some critics are concerned that the UK is watering down rules that would ultimately help avoid another financial crisis.
Lax regulation was blamed for creating the conditions that led to a string of costly state interventions, including the bailout of Royal Bank of Scotland, now NatWest Group, in 2008. EU and UK governments later tightened regulations in order to rein in risk-taking and keep a closer watch on the industry.
Tory ministers began dismantling some of those protections in an effort to boost growth after Brexit, as they no longer had to abide by EU-wide rules. But Labour has pledged to keep tinkering with the post-crisis rules, which Reeves said had “resulted in a system which sought to eliminate risk-taking”.
“That has gone too far and, in places, it has had unintended consequences, which we must now address,” Reeves told City bankers at the Mansion House dinner in November.
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Labour has backed plans to change the rules on banker bonus deferrals, a move that could lead to bankers receiving payouts three years earlier, and replace the certification regime that ensures City managers are fit and proper for the job.
The Treasury also plans to ease rules for smaller banks, including ringfencing, which protects consumer deposits by separating lenders’ retail and investment banking operations.
However, Woods insisted the PRA was not trying to usher in an era of light-touch regulation. “I do think that we should avoid a race to the bottom, [but] I don’t think that that is what parliament has asked us to do,” he said.
Woods said it was an opportunity to review regulation that came into force after the financial crisis.
“We’ve built up all of this machinery over the last 10 or 15 years. Are there some places where it’s a bit overcooked? Are there some places where it’s a bit overlapping, some places where it’s a bit complex, where, if we were making that [decision] again with our new objective, we’d do it differently?
“And in many cases, the answer to that question will be ‘yes’. And that’s what we’re focused on.”
Source: theguardian.com
