PRA finalises branch supervision arrangements: PRA has published its supervisory statement setting out its approach to supervising the UK branches of banks based outside the European Economic Area. PRA wants to understand the critical economic functions a branch may carry out and to be sure that:

  • the head office of the bank is supervised at an equivalent level to UK regulation;
  • it understands whether the branch will engage in only wholesale or also retail activities. In principle, PRA expects the branches to carry out only wholesale activities and will be reluctant to accept any significant degree of retail activity. Where it does accept retail activity it will look for a particularly strong resolution plan; 
  • it has assurance from the home state supervisor that the bank has in place a resolution plan which would have the effect of reducing the impact on financial stability in the UK; and
  • if it is satisfied on all these points, it has in place an agreement with the home state supervisor as to the split of prudential regulation responsibilities.

PRA has made a new rule, which took immediate effect, that requires these UK operations to take all steps reasonably within their control to ensure their resolution plan provides adequately for resolution of the UK branch. PRA has included a flowchart to help firms to understand what it will consider critical in making its determinations and in deciding the level of supervision it will apply. (Source: PRA Finalises Branch Supervision Arrangements)