PRA and FCA consult on SMR for overseas banks: Following Treasury's announcement that the SMR will apply to UK branches of overseas banks, FCA and PRA are consulting on how to implement the regime for these institutions. PRA notes its powers apply in relation to branches of non-EEA banks only, and also that the criminal offence introduced in the Banking Reform Act of causing a financial institution to fail applies only to senior managers of UK banks. FCA, however, proposes in some cases also to extend its rules to EEA branches, subject always to compliance with relevant EU law.
PRA and FCA propose that:
- the most senior individual within a branch must be approved in a bespoke function of "Head of Overseas Branch". More than one individual can hold this approval if appropriate;
- where a branch has a person dedicated to any of the functions of Chief Financial Officer, Chief Risk Officer or Head of Internal Audit, these persons must also be approved as senior managers for the branch;
- any person who takes direct decisions relating to the management of a branch or the conduct of its UK activities may need approval as Group Entity Senior Manager, even if based in another group entity;
- the FCA SMFs of MLRO, Compliance Oversight and Overseas Branch (or EEA branch) Senior Manager will apply (the last function will apply to individuals who have local responsibility for the activities, business areas and management functions of the branch - very small branches may not have such a person);
- NEDs will not be within scope;
- there will be a set of PRA Prescribed Responsibilities applying to a branch's UK activities, with which senior managers must comply, alongside the FSMA accountability regime that requires submission of a Statement of Responsibilities, compliance with the Conduct Rules, the Presumption of Responsibility and related regulatory sanctions;
- PRA plans to align the scope of the Certification Regime to the remuneration rules, for which FCA plans a wider scope, to mirror for both EEA and non-EEA branches the regime for UK firms, restricting functions to those taking place in the branch as appropriate. This will sometimes mean overseas individuals fall within the regime;
- PRA will apply all the Conduct Rules to senior managers in non-EEA branches, and apply a narrower set of individual Conduct Rules to branch employees who are within the Certification Regime. FCA will apply the rules to non-EEA branches in the same way as it will to UK firms. In principle it will apply them to EEA branches so far as compliant with EU legislation, and, for any relevant staff who are not senior managers, the Conduct Rules will apply only to individuals based in the UK; and
- a grandfathering regime will apply in a similar way to that proposed for UK firms.
Consultation closes on 25 May. Meanwhile, PRA will publish its policy statement and final rules on other elements of the regime soon, and intends to apply its Supervisory Statement on the application of the Presumption of Responsibility published with its consultation on NEDs also to senior managers in incoming branches. (Source: PRA and FCA consult on SMR for overseas banks)
PRA updates on Solvency 2: PRA's latest updates on Solvency 2 focus on its letters to directors, and its plans for internal model validation and regulatory reporting. (Source: PRA Updates on Solvency 2)