Prudential Regulation Authority Rulebook

1.1

This Supervisory Statement (SS) expands on the Prudential Regulation Authority’s (PRA’s) approach to banking supervision.¹ It applies to all PRA-authorised banks and designated investment firms that are headquartered outside of the UK or are part of a group based outside of the UK.^[2] In this SS, such firms are referred to as ‘international banks’. It therefore covers those firms operating in the UK as a subsidiary or through a branch. Accordingly, this SS replaces SS1/18 ‘International banks: the Prudential Regulation Authority’s approach to branch authorisation and supervision’.^[3]

 

1.2

Although this SS largely consolidates the PRA’s existing approach to international banks, the PRA recognises that firms (including firms operating with deemed authorisations under the temporary permissions regime (TPR)) may need additional time to adjust.^[4] Accordingly, the PRA will adopt a proportionate approach to implementation. Firms operating under the TPR will not need to meet the expectations in this SS immediately, but will need to do so as soon as practicable (taking into account their individual business model and systemic impact), and in any event by the time they are authorised by the PRA and exit the TPR. As part of pre-authorisation discussions, the PRA will expect such firms to demonstrate how they intend to meet these expectations. The PRA expects all other authorised firms within the scope of this SS to meet the expectations set out within a reasonable time, taking into account the firm’s current position and the scale of change that might be required. These firms should provide their supervisors with a clear explanation of any gaps they need to address and their proposed timeframe for doing so.

1.3

Many of the expectations in this SS apply both to subsidiaries and to firms operating through a UK branch. To the extent possible, this SS seeks to draw a distinction between the PRA’s expectations which are specific to UK branches or to UK subsidiaries (rather than those that apply to both). While this SS draws out and elaborates on matters discussed in other SSs that are particularly relevant for international banks, it is to be read with, and does not replace, international banks’ obligations under applicable legislation, the PRA’s rules, and the expectations set out in its policy publications.^[5]

1.4

This SS sets out the PRA’s expectations for receiving information concerning the risks in the wider group and co-operation from other supervisory authorities concerned with the firm or its wider group.^[6] This is necessary for the PRA to be satisfied that the international bank is meeting threshold conditions, particularly the threshold condition concerning the effective supervision of the firm. This SS also sets out expectations of international banks in meeting the threshold condition on the prudent conduct of business, including their systems and controls and risk management.

1.5

This SS is structured as follows:

• Chapter 2 summarises the PRA’s overall approach and the relationship between (i) a firm’s size and systemic importance; (ii) the information, co-operation, and controls likely to be required to be effectively supervised; and (iii) the degree of independence between UK and overseas business.
• Chapter 3 then elaborates on the first of those points – the relationship between a firm’s size and systemic importance – as well as setting out some general expectations.
• Chapter 4 expands on the information, co-operation, and controls likely to be required to be effectively supervised.
• Chapter 5 explains how the degree of independence between UK and overseas business in the firm or group needs to be commensurate with the two factors above and, in particular, how the PRA may use its supervisory tools, if necessary, to ensure that this is achieved.
• Chapter 6 explains additional expectations the PRA has for firms operating in the UK through a branch, whether or not they are part of a wider group. In particular, it sets out in more detail the specific factors considered when deciding whether to authorise firms to undertake activities in the UK as a branch or a subsidiary instead.