PRA speaks on financial crisis response: Andrew Bailey, CEO of PRA, has spoken on the role of financial markets and non-bank institutions in the recent financial crisis and the important role that they can play in the global economy if properly regulated. He identified three key developments following the crisis:

  • the rapid growth in bond markets while trading volumes in many markets have fallen, which has led to growth in markets but less capacity to maintain liquidity;
  • the high degree of monetary policy easing by central banks, which has led to a fall in market volatility; and
  • the impact of the growth of automated trading and how this poses a challenge when attempting to maintain continuous market liquidity.

He then went on to identify and detail six areas where action is already under way by regulators to reduce impediments to the development of diverse and sustainable market-based finance:

  • identifying risks that can appear in financial markets and the non-bank financial systems and how these can affect the critical functions performed by banks: Band of England (BoE) and PRA will stress test how fast banks could unwind or hedge their trading positions in the stress scenario;
  • BoE, alongside FCA and Treasury, has set up the Fair and Effective Markets Review to restore confidence in the fixed income, currency and commodity markets;
  • the setting up of initiatives to improve the functioning of markets to support activity in the real economy: for example, the Commission's Capital Markets Union;
  • the introduction of "haircuts" to securities and financing transactions that are not centrally cleared to prevent excessive leverage becoming available to shadow banks in a boom, thereby reducing the procyclicality of that leverage;
  • various actions to address the risk of asset managers offering short-term redemptions to investors against potentially illiquid securities; and
  • central banks can back-stop market liquidity by acting as market makers of the last resort.

He concluded by saying that in order to understand potential risks regulators should first focus on the activities from which these risks arise before moving on to the entities housing those activities. (Source:Financial Markets: Identifying Risks and Appropriate Responses)

PRA amends account protection statements: Following consultation, PRA has published amendments to both its Policy Statement and its Supervisory Statement on depositor and dormant accounts protection. The changes include:

  • a new definition of "public authority";
  • extending deposit protection to deposits held by local authorities with an annual budget of up to €500,000;
  • amendments to the template exclusions list to add clarity to the requirement that firms should ensure that depositors are informed about the deposits or categories of deposits or other instruments no longer covered by a deposit guarantee scheme from 3 July;
  • guidance on continuity of access system requirements that now cover accounts which are in overdraft; and
  • a requirement on deposit-takers to provide information to the Financial Services Compensation Scheme in respect of dormant account funds transferred to a dormant account fund operator.

PRA also asks firms to note that, in response to queries to the Depositor Protection rules published in April, it will consult further later in the year on clarifications and administrative amendments. (Source:Depositor and Dormant Account Protection  ̶  Further Amendments