PRA warns of Brexit regulation ‘extra burden’
Sam Woods, CEO of the Prudential Regulation Authority (PRA), has reiterated calls for UK financial services companies to have a transitional implementation period post-Brexit to adjust to the new relationship with the EU, and has indicated that work preparing for the changes ahead is putting a ‘a material extra burden’ on the regulator
9 Aug 2017
Woods made the comments in a letter responding to a request from Nicky Morgan, chair of the Treasury committee, for an update on progress with the PRA’s recent survey of regulated firms that undertake cross-border activities between the UK and the rest of the EU.
He reported that 401 responses from UK and EEA firms that operate in both the UK and the rest of the EU had been received, of which 147 were from banks and designated investment firms and 254 from insurance companies.
Woods confirmed that all those contacted, apart from a handful of very small insurers, had responded to the request for details of their contingency plans for Brexit. The PRA is currently analysing the responses in detail, both at the individual level to ensure each firm undertakes sufficient preparation, and also collectively to identify any broader financial stability risks.
So far the firms’ responses have provided further evidence of potential problems relating to the continued servicing and performance of existing contracts and restrictions on data transfers.
Woods said: ‘It is clear that these are significant issues for many firms, and that planning assumptions (in particular, whether these issues are expected to be resolved by the authorities or by individual firms) vary considerably.
‘In this context, for insurance firms there is a possibility of a significant increase in the volume of Part VII transfers to move contracts between entities. We are engaging further with firms and trade bodies to examine the possible mitigants to these risks and determine which are likely to be most effective.’
Woods points out that restructuring by firms, particularly those that sell services to clients in the EU, is likely to create complex structures which may be more challenging to supervise.
He concludes the letter by saying that the authorisation and then the ongoing supervision of a significant number of additional firms is ‘likely to place a material extra burden on the PRA’s resources’. However, it is identified as a top priority and as a result, Woods warns the PRA may face ‘some difficult prioritisation decisions in order to accommodate it’.
Commenting on the correspondence, Morgan said: ‘I am grateful to Mr Woods for his initial thoughts on the responses that the PRA has received from banks and insurers. I welcome his commitment to provide further information when the PRA has completed its detailed analysis, which the committee will undoubtedly want to consider.
‘The UK leaving the EU is a complex task. The potential extra burden on the PRA’s resources, and the risk that may pose to its objectives, is an issue that I’m sure the committee will want to monitor.’